Radio Y 24×7 recently welcomed Jeet Dhillon, Senior Portfolio Manager from TD Wealth, to their Radio Y program to discuss financial planning, with a special focus on the importance of starting early when saving for children’s education. With the school season underway, many parents are thinking about the future, and Dhillon shared valuable insights on how they can prepare financially.
Starting Early with RESP: The Key to Your Child’s Education
Dhillon emphasized the importance of starting financial planning as early as possible, even from the time a child is born. She shared her personal experience:
“When my eldest daughter was born, we were already thinking about her education. We opened a Registered Education Savings Plan (RESP) for her right away. This early start has been a significant factor in securing her future education.”
The RESP is a powerful tool for saving for a child’s education, with the Canadian government offering a 20% grant on contributions, up to a maximum of $500 per year and a lifetime limit of $7,200 per child. Dhillon advised:
“The sooner you start, the better. If you can contribute $2,500 a year, you’re not only saving money but also getting a guaranteed 20% return from the government grant. This money grows tax-free until it’s used for education, making it a highly effective savings strategy.”
Maximizing the Benefits of RESP
Choosing the right investment strategy is crucial to maximizing the benefits of an RESP. Dhillon recommended consulting with a financial advisor to tailor the investment portfolio according to the child’s age and the family’s financial situation:
“If you start investing when your child is a newborn, you have a long time horizon, which allows for more growth through higher-risk investments like quality stocks and bonds. But even if you start later, a financial advisor can help you catch up on missed grants and optimize your contributions.”
Exploring Additional Savings Options: Informal Trust Accounts
Beyond RESPs, some parents may consider setting up informal trust accounts for their children. Dhillon explained:
“An informal trust account can be set up for minor children, allowing you to save money and transfer it to the child when needed. The benefit is flexibility—there’s no restriction that the money must be used for education. However, it’s essential to understand that any income generated while the money is under your control will be taxed as part of your income. A financial advisor can help navigate these nuances.”
The Importance of Financial Literacy for Children
Dhillon also stressed the value of teaching children about financial literacy from an early age:
“It’s great to see schools starting to include financial literacy in their curriculum. Teaching children how to budget and manage money is crucial so they can grow up to be financially responsible adults.”
Get the Right Advice for Your Financial Planning Needs
Dhillon encourages parents to seek professional advice tailored to their specific needs:
“Every family has different circumstances, and what works for one may not work for another. I strongly recommend visiting your local TD branch to speak with a financial advisor who can provide personalized advice based on your unique situation.”
For parents planning their children’s future, starting early and seeking professional advice can make all the difference. With tools like RESP and informed investment choices, you can ensure your child’s educational needs are met and provide them with a secure financial future.
