Parents not taking advantage of RESPs

(September 9, 2005) Canadian parents almost universally acknowledge the value of a post-secondary education and say they will go to extremes to ensure their children receive it, according to a survey. But less than half have opened Registered Education Savings Plans (RESPs).

A survey conducted by Ipsos-Reid for RBC Financial Group found 97% of parents want their children to graduate from college or university, citing the higher earning potential, compared to high school graduates.

While 51% of respondents said they were willing to mortgage their home to pay for higher education, only 49% had opened RESPs. The survey did not specify whether respondents were unaware of RESPs or if they simply failed to open one.

“It’s important for parents not to get overwhelmed by potential education costs or the responsibility of saving enough money for post secondary education,” said Kathryn Whalley, RBC Financial Group’s national manager, consumer markets. “Like retirement planning, the key is to start saving early so that parents can take advantage of a number of alternatives, including government grants available through RESPs.”

Under the Canada Education Savings Grant (CESG) program, the federal government will provide a 20% matching grant for the first $2,000 contributed to an RESP each year, up to a maximum grant payment of $7,200 over the life of the plan.

Whalley says a monthly RESP contributions of just $50 could be worth about $18,000 in 15 years, based on an assumed 7% compound annual return on contributions plus $100 in government grant money per year. A contribution of $167 per month would maximize the government grants available, and could grow to more than $62,000 in 15 years, based on the same investment assumptions.

The poll found, on average, parents expect their child’s first year of college or university, including tuition, accommodation, and books will cost around $17,500. According to Statistics Canada, median spending for full-time university students is about $11,200 all-in, while college students spend a median of $9,330. Quebec students enrolled in Collège d’enseignement général et professionnel (CEGEP) spend $4,550. Bachelor graduates who assume student debt, on average, owed $20,000 in 2000 and college graduates almost $13,000.

Parents said they expected the student to help foot at least part of the bill, with the average respondent saying 30% of the cost should be borne by their child. Parents were optimistic that their child would receive some form of academic award or bursary, with 67% counting on scholarships to lighten the load.

Earlier this week, StatsCan reported that university students can expect to pay about 4% more on average in tuition fees this fall, the smallest increase in three years. However, that average includes four provinces that have capped tuition fees: Manitoba, Newfoundland and Labrador, Quebec, and Ontario.

Undergraduate students will pay an average of $4,172 in tuition fees for the 2004-05 academic year, StatsCan says, up from $4,018 the year before. “This is almost triple the average of $1,464 in 1990-91, the result of significant increases during the 1990s,” the agency notes.

In addition, tuition fees have consistently outpaced inflation since 1990, averaging an annual rise of 8%, compared to inflation of 2%.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com