The federal government has been having a wee bit of trouble paying its employees lately. Let's hope they have better luck paying Canadian families under the new Canada Child Benefit.
The Canada Child Benefit, or CCB, is a new program aimed at helping families with the cost of raising children today and into the future. This is the week when the cheques (or direct deposits) are set to arrive. I'm optimistic that the money will prompt at least some families to open up a Registered Education Savings Plan for their kids.
A new Ipsos poll, commissioned by a leading RESP provider Knowledge First Financial, found parents plan to spend 37 per cent of the benefit on day-to-day expenses and 22 per cent on savings for post-secondary education. Hooray.
I am a big believer in the RESP, for three reasons. First, education is getting more expensive every year and kids will likely need help to avoid hefty loans. When my six-year-old is ready to choose what she wants to study it will probably cost at least $20,000 a year, just for tuition and books. Second, the federal government gives you a juicy grant -- 20 per cent of your contribution, or up to $500 per child per year. (Now that Bernie Madoff is in prison, where else can you get a guaranteed 20 per cent return on anything?) And third, the RESP encourages you to start saving now, now, now so you get the biggest benefit from the magic of compound interest.
The maximum Canada Child Benefit will go to families with incomes of under $30,000 per year. For them, it is already very tough just to make ends meet. But the launch of this program is a great reminder for all of us parents to open up an RESP and then get creative with our budget and think of ways to increase income or cut expenses to make the contribution and give our kids a leg up later in life.
You can check out the government's calculator (here) to figure out how much CCB your family is entitled to. If you are in one of the higher income brackets, don't be surprised if you find that you will get less under the new system. It takes income into account, so the benefit declines the more money you make -- which is as it should be, in my opinion. This new program is also simpler for tax filers -- the money is tax free, and you don't have to keep track of receipts for arts and fitness activities. Plus, families are able to spend the money where they see fit instead of having to register a kid in swim lessons to receive the tax credit.
Post-secondary education is becoming increasingly important. The Ipsos/Knowledge First Financial poll found that nearly three in 10 (29 per cent) parents said that the most important reason post-secondary education is worth the investment is because it is a basic requirement in today's job market. Others believe the most important reason is because it helps to develop practical/job skills (23 per cent).
Remember, too, that the money saved in an RESP can be used at lots of different institutions -- not just colleges and universities. Ballet school, culinary programs and even the Career School of Hair and Nails are on the approved list.
In the event that your child doesn't attend a post-secondary program, your money is not lost. The rules and penalties differ depending on how your RESP is set up, but even if you decide to close the RESP, the contributions you made are yours and you can get them back, minus the government grants. That would likely be a last resort anyway, as you may be able to replace the beneficiary or even transfer the money to your RRSP.
The new Canada Child Benefit isn't a magical cure. But I hope that it is a catalyst for all parents -- regardless of income -- to talk about what they can do to help set their kids up for success.
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