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Why RESPs are so important to Canada's future

As governments began cutting back their funding of higher education, and colleges and universities felt the pinch of greater costs, student tuitions began to increase.

At the same time, the economy has become increasingly dependent on a more highly educated workforce, to the point that a career in any field is equated with having a degree.

New Canadians recognize the value a higher education will have for their children's futures and often will save for their children's post-secondary education before buying a car or a house. They know the future lies with their children's successful careers.

While adults have increasingly saved with tax saving registered retirement savings plans, one key solution for students has come in the form of registered educational savings plans or RESPs. They enable parents to put a little money away every month for their children's post-secondary education. Over 18 or 20 years, the money that is saved plus the interest that is earned are expected to go a long way toward paying for that much-valued education.

Hundreds of thousands of children have been enrolled in RESPs over the past few decades. Many more have not been enrolled, and found they had to take out student loans. Unfortunately, many of them who graduated, and found good jobs, are still paying back their loans 10 and even 20 years later.

It used to be that students could earn their tuition over the summer months as camp counsellors, by slinging hamburgers or even delivering newspapers but those days are long gone. The money they could earn that way would hardly pay for their books today.

Several years ago, at the encouragement of RESP distributors, the Federal government made RESPs more flexible, permitting the RRSP roll-over. The Federal government also introduced the Canada Education Savings Grant (CESG) to all children with RESPs. It matches every dollar their parents put into their RESPs with 20 cents, up to $400 a year and $7,200 over the life of the RESP. Enhancements to the CESG in 2004 have allowed an increase in government contributions on the first $500 deposited. The Federal government also introduced the Canada Learning Bond in 2004, a program to encourage lower income families to save for post-secondary education. Students benefit from the interest earned on CESG and CLB.

Surveys have shown that students with RESPs have greater incentive to do better in school. and they do. A far greater percentage of children with RESPs go on to college or university than children without RESPs, perhaps because of pressure to do well by their parents but also because they know they will have the money there when they need it.

Provincial governments are considering methods, in addition to the CESG, which include tax credits for families that have RESPs. Alberta, for example, has introduced the ACES plan. Provincial legislators also know how important it is for their own citizens to acquire the best education to enable them to meet the career challenges they face.

For more information, please contact:

Marketing & Communications
Tel.: (416) 741-7377
E-mail: media@globalfinancial.ca
Fax: (416) 741-8987

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