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Managing Your Money
How to cover the rising cost of knowledge for your children
The math is simple and simply staggering: The cost of sending your children or grandchildren off to college or university can add up to well over one hundred thousand dollars. That's in today's dollars - tomorrow it will cost even more.
You want your children to succeed in life - and it is undeniable that a post-secondary education will help them get there; according to Statistics Canada*, the average university graduate earns almost twice as much as someone who has a high school education. But, the cost of a post-secondary education continues to rise dramatically. On average, tuition fees doubled between 1990-91 and 2003-04, with the most recent tuition increase of 7.4 percent the biggest in four years.** Small wonder experts are predicting that the total cost of a four-year degree - including tuition, books and living expenses - could easily exceed six figures by the time your toddler is ready for college or university.
All this means that you need every advantage you can get when saving to help your children pay for a post-secondary education -- without burdening them with huge student loans or the extra stress of a part-time job during the school year. And you need to get started as soon as possible.
One of the most effective ways to create an education fund that grows to offset the future cost of education is through a Registered Education Savings Plan (RESP). Here's why an RESP is such a powerful cash-accumulation vehicle:
Tax-deferred growth. You can contribute up to $4,000 per child, per year, to a lifetime total of $42,000 per beneficiary. Earnings accumulate tax-deferred as long as they are in the plan and, when the child withdraws the money, the earnings are taxed at the child's lower tax rate, usually resulting in significant tax savings as compared with having the money invested in your hands.
Government grants. The Canada Education Savings Grant (CESG)*** tops up RESP contributions - adding 20 percent to the first $2,000 contributed each year, which could add as much as $7,200 in extra investment capital over time. Unused grant room can be carried forward until the year a child turns 17, so you can usually make up for any missed contributions along the way.
Flexibility. If the beneficiary chooses not to pursue a post-secondary education, you have the options of selecting a different beneficiary or transferring the earnings on a tax-deferred basis into a Registered Retirement Savings Plan (RRSP), subject to certain restrictions.
Anyone can contribute to an RESP - parents, grandparents, aunts, uncles and even good friends - but the total contributions can't exceed the RESP limits for each beneficiary.
Mutual funds are often a good choice as an investment to have in an RESP. But be sure your education investments are in accord with your overall financial goals and time horizon and follow an effective 'asset allocation' strategy that meets your diversification and risk/return requirements.
Be sure to select investments that allow you to switch as your financial goals change. And be sure to begin investing right away - the longer you save, the more you'll likely have for your children's education. Talk to a professional financial planner about the best RESP investments for you.
*Statistics Canada, Catalogue No 13-217-XPB, January 1997
**Statistics Canada, Catalogue No 11-001-XIE, August 2003
*** Canada Education Savings Grant is sponsored by Human Resources and Skills Development Canada. The changes to the Canada Education Savings Grant, and the new Canada Learning Bond (as announced in the March 23, 2004 Federal Budget) are not contained in this article as these changes have yet to be passed into law at the time of writing this article.
This column, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant.
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Always home - keeping a roof over your head, no matter what
An empty house can seem sad and lonely. But a home - that's different. It's your place, an architectural shell you've filled with the beauty of life, the emotion of living. And, whether it's your first home or your dream home, the most important fact is it's your home.
At least, it is your home for as long as you continue to pay the mortgage. That's why you budget carefully and make those mortgage payments each month. But, what if you couldn't? What if sickness, injury or death made it impossible to keep up with the mortgage payments? Would your family be able to stay in their home?
Fortunately there are ways to ensure your family will always have a roof over their head, regardless of what happens to you. But, what's best for your situation? Let's take a look.
Traditional mortgage insurance will pay off the total outstanding amount of your mortgage when you die. Most lending institutions offer mortgage insurance as part of their mortgage options and they'll usually integrate the premiums into your total mortgage payments. But, this type of insurance often does more to protect the lender than you.
For starters, your lender owns the policy and if you find a better mortgage rate at another lending institution, your mortgage insurance usually can't be moved to the new institution, and you may have to re-qualify medically for the new protection. Lender provided mortgage insurance is set at the amount of your mortgage and generally decreases as you pay off your mortgage - so you end up paying more for less. If anything happens to you, the death benefit is payable to the lender, not your family. And renewal rates aren't guaranteed.
Personal life insurance policy insures you, not your mortgage. You determine the amount of coverage you want - it's not tied to the value of your mortgage. You own the policy so you have the freedom to name your beneficiaries and they can choose how to use the proceeds. You can switch to another lending institution without jeopardizing your coverage and your coverage doesn't decrease as your mortgage is paid down, which means that for every dollar of mortgage principal repaid, there will be additional proceeds available to your family at a time when they may need them the most. Also, your policy can be customized with the options and features you choose, which may include having your premiums waived if you become disabled.
Disability insurance protects your ability to continue to make mortgage payments by providing money if you can't work. You may have a group plan at work that includes disability insurance. But, group coverage ceases when you leave your job and if you're self-employed you may not have a plan. A group plan may also have limits on payouts, may narrowly define the term 'disability' which could require you to relinquish payments or return to work prematurely. A personal disability plan can supplement other disability benefits in ways that make sense for you.
Critical illness insurance generally pays you a one-time lump sum benefit amount if you are diagnosed with a critical illness or condition as defined in your policy. Critical illness insurance is not tied to a mortgage or any other personal or business loan. You usually can use the benefit to help pay off your outstanding mortgage loan, make payments while you recover, or for any other personal or business needs.
If you want your home to be a secure haven no matter what happens to you, having enough insurance to cover your mortgage debt is essential. And if you want to be able to maintain your family's lifestyle come what may, disability and critical illness insurance are equally important. A professional financial advisor can show you how insurance can play an important role in bringing your financial security plan home to stay.
This column, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant. Insurance products and services distributed through I.G. Insurance Services Inc. Insurance license sponsored by The Great West Life Assurance Company.
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