You might have noticed that on my investment net worth statements I NEVER mention our RESP account we have setup for our kids. The simple fact is I treat that money as theirs and that I’m only the caretaker of it. So I tend to ignore it for most of the time. Yet as number of my friends have been having kids lately I keep telling a similar story that might be useful for some other parents out there on how to save rather painlessly for your kid’s education.
I’m a firm believer in taking free money when every I can get my hands on it so for a number of years we filed our taxes and got our government grants for our kids. The two programs we typically got money from were the Universal Child Care Benefit and Child Tax Benefit. The Universal is by far the most straight forward, you get $100/month for each kid under the age of six while the Child Tax amount depends on your income but again is paid monthly.
Rather than actually spending any of that money on my kids I treat the entire amounts as free money and I setup a family RESP plan and put the money in that account where we get a 20% grant on what we put in up to $2500 per kid per year. So in total I started our RESP account for the kids with all government money, where they added in more government money after we put in. Then as the kids got older I kept the contributions the same and slowly starting paying ourselves after the kids’ Universal Child Care stopped (right now the contribution is $167/kid/month). The advantage of this method is your income by this point has typically gone up a bit so it is a bit easier to cover it yourself.
Our investment of choice is actually boring as hell, it is just a dividend mutual fund which has returned about 6% since we picked it in 2005. Yet overall all these actions has resulted their RESP account having a balance of $45,800. Not too bad when in fact I haven’t put in that much of my own money. Also this means I’ll likely surpass my target of saving $40,000 per kid, as my oldest is now 9. So assuming things continue the same pace the kids should have ~$100,000 between both of them when I’m ready to quit full time work around age 42.
Obviously there are several different ways to approach saving for your kid’s education, but I found our method fairly easy to use. If you have kids, how much are you trying to save? Are you on track to meet it? Any other ideas on how to save for their education?