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Managing Your Money
The Universal Child Care Benefit – a hidden educational opportunity for parents
August 2006
You have probably heard about the new Universal Child Care Benefit (UCCB) and may assume that this new benefit must be used to offset a small part of the cost of daycare. It's easy to make that assumption but, if you don't need it for immediate child care expenses, the UCCB can be invested on behalf of your child and could ultimately pay for a big chunk of your child's post-secondary education expenses.
New financial assistance for parents
The UCCB is a new form of direct financial assistance from the federal government that is paid to parents in monthly instalments of $100 per month for each child under the age of six. If you are already receiving the Canada Child Tax Benefit, you do not need to apply for the UCCB. If you are not currently receiving the Canada Child Tax Benefit, you can enrol by submitting a completed Canada Child Tax Benefit application.
And here's the important part: You can use this money any way you wish , as long as it is in support of your child. That means, instead of using the money to pay for daycare, you can invest it on your child's behalf to pay future educational costs – say, through a Registered Education Savings Plan (RESP) – and the financial rewards can be remarkable.
It can pay to invest your child's UCCB in an RESP
If you are the parent of a newborn baby, it could work like this: Contribute all of the $100 per month UCCB payments to an RESP, and you will also receive a monthly Canada Education Savings Grant*(CESG) of $20 which would increase your total RESP investment to $120 per month.
Assuming a 7% investment return**, after six years (when the UCCB payments end), the value of the investments in the RESP would be $10,683. Even if no further RESP contributions are made, when your child reaches age 18, there would be $24,060 in the RESP, accumulated from these sources:
- RESP contributions from UCCB $7,200
- CESG contributions $1,440
- RESP investment growth $15,420
If your finances won't allow you to invest the entire $100 UCCB amount each month, it can still pay to invest what you can. For example, if you were able to invest only the after-tax UCCB proceeds in an RESP and assuming that the $100 per month UCCB payments are taxed at a rate of 25%, this would result in an after-tax amount of $75 available for investment each month. If you invest this after-tax payment in the RESP, it would produce a CESG of $15 per month – for a total of $90 in monthly RESP contributions. Assuming a 7% average return**, after six years, the value of the investments in the RESP would be $8,012. Even if no further RESP payments were made, at age 18 the RESP investments would be worth $18,045.
A professional financial advisor can help you make the most of the educational opportunities in the new UCCB as well as other economical strategies for helping you cover the escalating costs of a post secondary education for your children.
*Canadian Education Savings Grant is provided by Human Resources and Skills Development Canada
** The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect actual future values or returns on investment.
This column, written and published by Investors Group Financial Services Inc.(in Quebec, a Financial Services Firm), 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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