Parents Should do Homework Before Investing in Children’s Education

Q. A recent column dealt with the topic of saving for children’s education. While several education savings strategies were discussed, group scholarship trust plans were not included. What are the different options available for investing in RESPs for my 3 year-old daughter? – Michael S.

You’re clearly on the right page Michael! With kids out for the summer, now is an excellent time to consider saving for a child’s future education. One way of investing in your child’s education is through pooled group plans such as scholarship trusts, the other option is a self-directed Registered Education Savings Plan (RESP) administered through banks and other financial institutions.

Here are some of the differences between the two:

• Group pooled education savings plans:
These help parents save for their children’s post-secondary education by providing and administering RESPs and managing the RESP investments. Group plans offer professional money management, stable returns and guaranteed principal due to its fixed income investment strategy. The group plans for individuals and families invest using a fixed income investment strategy and they provide flexibility similar to RESPs available from other providers.

However, there are enrollment fees, depository charges, administration fees, annual trustee fees and investment counsel fees in additions to other associated conditions that you should consider before investing. Also, students enrolled in the group plan who do not pursue post-secondary education retain only their principal and forfeit the income on that principal to other qualified students. It is worthwhile for prospective clients to read the prospectus to understand how their plans work.

• Self-directed RESPs:
Self directed RESPs are designed to give the owner of the account (typically a parent or grandparent) full control over the type of investments that are held inside the RESP account. This allows the owner of the RESP to choose to invest in stocks, bonds, mutual funds and even money market instruments. The owner can decide when and how often contributions are made – and how or when withdrawals are made. An annual administration fee is typically charged and fees may also be levied on certain types of investments. Overall, flexibility is the key to these types of plans.

Another program to be aware of is available through KidsFutures. Parents enroll free of charge in the program and can earn money that may be added to their children’s RESPs by purchasing products or services from affiliated retail partners. Similar to other loyalty programs, points or rewards can be accumulated, this one is for the benefit of kid’s education! To find out more, go to www.kidsfutures.ca or call 1-877-656-6046.

I encourage anyone considering saving for a child’s education to review the information available about RESPs at the Ontario Securities Commission’s – Investor Education Fund website at: www.investored.ca

Saving for a children’s education is a concern and a priority for many of today’s parents. At the same time education costs are rising, it is paramount that our children be employable in the workplace and have competitive skills in an increasingly inter-connected global economy.

Bev Moir is a financial planner with The Moir Team at ScotiaMcLeod in Toronto.

This article is for information purposes only. It is recommended that individuals consult with their own financial or tax advisor before acting on any information contained in this article. The opinions stated are not necessarily those of Scotia Capital or The Bank of Nova Scotia.