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rob carrick

Give your kids their inheritance early.

Do it by contributing money to a registered education savings plan, which is the best tool for helping your kids afford the cost of a university or college education. Your money will do more good now than if you wait to pass it along after you die.

RESP contributions don't come easily at a time when families are struggling to cover the costs of everyday life, paying down debts and putting money away for retirement. RESPs require sacrifices. It may well be that less money will go into your registered retirement savings plans or tax-free savings accounts for a while.

If that alarms you, just tell yourself that you'll be able to spend your retirement savings down to the last cent because you'll have already done right by your kids. Remember, you're giving them their inheritance early.

The pro-RESP message is not one the financial industry spends much time on, probably because it's a tougher sell than RRSPs and TFSAs. Both of these savings tools benefit customers directly. RESPs are about one of the toughest aspects of being a parent, which is putting your kids' needs ahead of your own.

A recent report from Bank of Montreal's BMO Wealth Institute offers a welcome boost for RESPs, though. The report acknowledges how hard it is to juggle everyday living costs, retirement and your kids' education, but it claims RESPs are worth it. "By planning ahead and setting aside money for your children's education, you are also setting your children on a path to their future financial success," the report says.

Never has the future financial success of young adults depended more on their parents. As noted in a column last week (read it online at, the 20-to-24 age demographic has been economic roadkill over the past few decades. Most segments of the population have seen the purchasing power of their incomes decline, but young adults have had it worst of all.

This is the reality that should guide your thinking about RESPs. By all means teach your kids about self-sufficiency by having them contribute to their postsecondary educational costs. But leaving them to carry the entire cost themselves invites massive student debts that significantly delay marriage, home buying and having children of their own.

Much of the drop in purchasing power experienced by young adults in the past few decades comes from the fact that many more people are continuing their education after high school instead of working. But attending college or university is increasingly expensive. BMO said tuitions increased by 4.3 per cent last year, compared to 1.3 per cent for inflation.

The bank says recent trends in tuition increases will push up the cost of a four-year undergrad degree at an out-of-town school to $140,000 for a child born this year from $60,000 currently. That sounds both improbably and unsustainably expensive, but you get the point: Tuition costs are rising sharply.

"To compound the problem," BMO's report adds, "many young people choose to return to school to earn a second degree, after facing a challenging job market. Returning to school only worsens the issues associated with funding postsecondary education cost and mounting student debt load."

BMO says that one of the biggest mistakes parents make in saving for their kids' education is to start late and not save consistently. It's encouraging to note that steady, modest contributions work quite well. BMO says putting $2,500 away for 12 years starting at birth gets you $55,992 by age 18, while investing $5,000 annually for six years starting at age 12 turns into $35,391 (a 5-per-cent rate of return is used here).

Parents can save for university or college in a non-registered account or in their TFSAs. But an RESP makes the most sense because of the Canada Education Savings Grant, which matches contributions of up to $2,500 per year with a 20-per-cent payment topping out at $500 per year, with a $7,200 lifetime limit.

If you can't afford RESP contributions, then talk to your kids about it. Explain your financial situation and suggest ways they can save money for tuition and limit the amount of debt they'll need to take on. A gap year or two between high school and college is a good option for low- or no-RESP students, and so is attending class part-time while working.

Here's how the conversation goes if you have an RESP set up for your kids. Tell them you're giving them their inheritance early by paying for all or part of their postsecondary educational costs. After that, it's up to them.