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Financial planning tips

August 30, 2018

How to crowdfund your child’s education

Are your family and friends invested in your little one’s future? Here’s how they can help by contributing to your child’s registered education savings plan (RESP).

It’s no secret that post-secondary education isn’t cheap. According to Statistics Canada, full-time undergrad tuition averaged a whopping $6,571 for the 2017-2018 school year – and you can expect that number to rise for the coming year. This, of course, doesn’t include expenses like books, clothing, housing, food and transportation. And those expenses don’t always stop when your son or daughter earns that degree or diploma, if there’s a graduate degree or professional program like law, medicine or teaching in the cards.

With all this in mind, you may wonder if you’ll have enough money to help pay your kids’ way through post-secondary school. Yes, student loans are an option, but they could become a financial burden your kids will have to carry for years. So where else can you turn? If you have a solid personal network of close friends and relatives who are invested in your child’s future, here’s how they can help. 

Tell your family and friends about RESPs

Your friends and relatives may be in the habit of giving your kids money on their birthdays. Or perhaps your parents intend to leave their grandkids some cash in their will. “These are excellent opportunities to talk to your personal network about your child’s education and how they can help,” says Blake Griffith, BAFS, CFP, a Sun Life Financial advisor based in Calgary. “It’s especially an opportune moment to educate them about your RESP.”

Wait, what’s an RESP? A registered education savings plan (RESP) lets you save for a child’s post-secondary education. Parents, grandparents, relatives and friends can contribute money any time into an RESP – up to a lifetime total of $50,000 per child – and any investments within the plan grow tax-free until they are withdrawn. When the money is withdrawn, it’s taxable in the hands of your low-income/no-income child, not you. And the government will kick in a Canada Education Savings Grant (CESG) of 20% of whatever you put in, up to $500 per year, to a lifetime max of $7,200 per child.

“When discussing RESPs with your family and friends, let them know how these grants work and how their money can help,” Griffith advises. “Talk about what kind of colleges or career choices could be available to your kids in the future. This way your loved ones will feel more connected to your goal.”

Whether you already have an RESP set up or are planning to get one up and running, you should let your circle of close family and friends know about it right away. Why? Because they can contribute to it whenever they want. But they can’t do that if they don’t even know it exists.

Crowdfunding for RESPs

Once you have everyone on board, Griffith recommends these two options to start collecting crowdfunding contributions:

  1. Collect money directly and put it in a family RESP. “The crowdfunding concept doesn’t have to be high-tech or require the latest digital tools,” Griffith says. “For special occasions like birthdays and holidays, family and friends give cash, cheques or e-transfers directly to you. You then deposit it into a family RESP. It’s as simple as that.”

The benefit of a family RESP is that you have one plan for multiple children, explains Griffith. So, if one child doesn’t pursue post-secondary education, the other kid(s) could still use the money. Having everything in one, consolidated plan also makes it easier for you to keep track of all the contributions.

Will all your children be eligible for grants under one RESP? “Yes, CESGs are based on how many beneficiaries exist within a plan and not on how many plans there are for a beneficiary,” Griffith clarifies. Note, however, that step-children or step-grandchildren have to have been adopted by their step-parent to be added to a family RESP. In addition, children must be under age 21 to be added to an existing family RESP.

  1. Relatives or friends can set up individual RESPs. Should anyone in your network – grandparents, godparents or close family friends – want to contribute regularly to your kid’s education, they can set up an individual RESP for the child. “This allows them to give directly to the RESP without having to go through you each time,” Griffith says. He urges caution with this approach, however.

“With individual RESPs, everyone contributing should always co-ordinate with the parents about how much you’re contributing,” Griffith says, noting that the lifetime contribution limit of $50,000 per child/beneficiary applies to the total of all plans. “If multiple plans are opened for the same beneficiary, people may end up over-contributing and causing an over-contribution penalty without even realizing it.”

Best times to crowdfund for an RESP

When’s the best time to reach out to your family and friends for RESP contributions? Griffith suggests planning for moments where people are likely to give gifts.

  • Birthday parties. Whether it’s your child’s birthday or your own, add a note to the invitation (or tell people when they call to ask) that if they’d like to give a gift, they can make it a donation to your child’s RESP.
  • Baby showers. Already stocked up on maternity and baby-care essentials? Assuming it’s not a surprise, ask the person hosting your shower to suggest that guests consider contributing to your child’s education instead of giving you baby gear. You can deposit the money received into an RESP after your baby is born. Why wait until then? Because you won’t be able to set up an RESP until your child has a social insurance number (which you can apply for as soon as she or he has a name).
  • Holidays. Ahead of the festive season, send out a friendly note in a family email or newsletter letting your friends and family know that any cash gifts you or your kids get will go into your little one’s tuition fund
  • Graduations.What better way to celebrate the completion of their elementary and middle-school years than with a little monetary lift to their RESP? CESGs are available for kids up to the age of 17. But in order for a child to be eligible for the grant at ages 16 and 17, you must start saving in an RESP before that child turns 15.

Compared to toys that break and clothes that get outgrown, RESP contributions make a far more useful, lasting and clutter-free gift. You might feel a little funny about asking, but your family and friends will love knowing that their money is going towards a good cause.

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