Helping Your Teen Navigate Student Loans

Helping Your Teen Navigate Student Loans

by EducationFinancial

Choosing the appropriate student loan structure can be a complex and difficult decision. Yet not as difficult as fully understanding what the loan entails or the full responsibilities associated with paying the loan back. With the costs of your child’s secondary education being one of the biggest investments you’ll potentially make in a lifetime, it’s important for them to comprehend this significance and guide them on how to pay it back promptly. Read on to find ways to help your teen navigate student loans to ensure they don’t end up in a load of debt that impacts their financial stability in the future.

How much should your teen borrow?

The minimum. Your teen should be utilizing as many bursaries, grants, and scholarships that they can since majority of these options do not have to be paid back and can help curtail the overall cost of tuition. New rules set for 2017 will further help students and their families. Depending on their financial situation, borrowers can get approved for grants that include reduced monthly payments and in some cases no tuition costs. Ottawa has also increased the amount available for grants – an increase of as much as 50% for some. There are options worth investigating to greatly reduce overall tuition costs.

What type of loan is best?

Government loans are the usually the best option. Provincial loans for instance, offer a delay before the interest starts to accumulate and includes a longer repayment period. After graduation if a student is having difficulty making the payments, they can apply to the Repayment Assistance Program for help. Also, graduates won’t have to start repaying loans until they make at least $25,000 a year, and for families of more than five people that number increases to $67,825 under the new legislation.

You could also opt to engage in bank loans or lines of credits. Even though these are harder to obtain after the economic downfall in 2008, you may still be eligible for a student line of credit. These are based on the prime lending rate, and currently the rate is attractive, but if the rate rises in the future, so will the interest rates.

How to plan a repayment strategy?

Work with your teen to start saving while in school. Many graduates believe they will get a high paid job when they finish school, but this is rarely the case. It may even take months or years to obtain a decent workable salary.

So before or while the loan interest is accumulating, they should have some money put away to start combating those monthly payments. Also, work with your teen to plan out a budget before they enter school. Knowing how much they can reasonably spend each month will ensure they won’t overspend while impacting their future goals and financial security.

How to get money back?

At the end of each year you should also employ the Canadian Revenue Agency tax credits. The CRA allows students to claim a tuition tax credit for the interest payable on the student loan. Unfortunately, they are phasing out the federal textbook and education tax credit. The CRA, however, does ensure that the scholarship exemption remains unaffected by the elimination of the tax credit.

Navigating student loans can be a complicated endeavor for students. Give your child a good head start by guiding them through the process. Teach them how to budget and prioritize in order to pay that debt off as quickly as possible so they can start their future off on the right foot. Your financial advisor at The Beacon Group of Assante Financial Management Ltd. can advise on other education planning strategies to meet your child’s education goals.

resp withdrawal strategy

What is Your RESP Withdrawal Strategy?

by EducationFinancial Planning

As an entrepreneur, you are accustomed to saving money for various expenses, including your children’s post-secondary education. After years of wise investing through your children’s Registered Education Savings Plan (RESP), the time has come to contemplate a withdrawal. This may come as a bitter-sweet moment as you are proud to watch your children grow and realize their potential, but in the same breath; where has the time gone?

Beyond the sentiment of approaching university, there are logistical matters to attend to. Withdrawing money from an RESP involves more strategic thought that maybe initially perceived. Here are some key points to remember when preparing to withdraw from an RESP.

Always Think About Taxes

As with most things in life, there are tax consequences to using an RESP, but there are ways to manage the tax implications. Each RESP is made up of two pools of money. One pool is made up of your original contributions, while the other contains any government grants or RESP additional earnings referred to as Education Assistance Payments (EAP). The original contributions belong to the contributor and can be withdrawn tax-free, whereas any EAPs are taxable upon withdrawal and become the tax responsibility of the RESP beneficiary.

Deciding Which Pool to Take From

It is beneficial to take from the EAP portion of your RESP when you are a low-income earning student because even with the money from the EAP the student is likely going to be under the taxable threshold and no taxes will be charged. This is why many people choose to empty the EAP portion of their RESP prior to the original contributions. It is also useful to use this money first because any unused EAPs need to be returned to the government upon completion of or the leaving of school.

There are of course situations where it would be more beneficial to take from the original contributions portion of the RESP. This would be when the child has a particularly high-income year due to working throughout the school year or a high-paying summer job. Adding any EAP funds will only heighten the annual income of the student and lead to further tax owings. In this case, it’s best to take from the original contributions as they are tax-free and will not count towards the income of the student.

As with most investments, an RESP comes with many complexities. Your education planning advisor at The Beacon Group of Assante Financial Management Ltd. can assess your child’s situation and help choose the best withdrawal strategy.

Helping Your Teens Develop Good Money Habits

Helping Your Teens Develop Good Money Habits

by Education

It seems like it happens in the blink of an eye. One minute you’re cradling your newborn, the next you’re dealing with an ornery teenager. Life changes significantly as your children age, and you have to consider more than coping with mood swings. These money tips from your financial advisor at The Beacon Group of Assante Financial Management Ltd. will help you navigate the teenage years and help your kids make the transition to adulthood with solid money habits.

Review Your Education Savings Goal

You’ve been investing in your child’s Registered Education Savings Plan (RESP) for over a decade. Now that your child is nearing graduation from high school, it’s time to reassess your education savings goal. Speak with your financial advisor to discuss whether it makes sense to adjust your asset allocation or re-evaluate your saving philosophy from growth-oriented to conservative.

You also have a clearer picture of your child’s education plans and goals. Are they headed to college or university? Will they be staying in town or living away from home? Is graduate school or medical school on the horizon? Speak with your financial advisor and together you can understand the financial implications.

Entering the Working World

Many people begin to branch out into the working world in their teen years. Some just earn a bit of pocket money babysitting or dog-walking, while others enter the fast food or retail universe with paychecks, taxes, and employment insurance (EI) deductions.

Getting a part-time job has many benefits. Your child becomes more independent, develops new skills, understands the working world, and earns an income. However, it must also be weighed against studies and extra-curricular activities.

Now that your child has an income, as a family you must discuss the financial expectations. Decide as a family whether your teen is expected to pay their cell phone bill, or whether they should contribute some percent of their income to savings or their RESP.

Speak with your financial advisor about options that make financial sense for your teen and the family. For example, your child can file an income tax return to maximize future Registered Retirement Savings Plan (RRSP) contribution room. If your teen files taxes, they may be eligible for a tax refund and qualify for the GST/HST credit.

Teaching Money Smarts

Before your teens vault into adulthood and learn hard lessons about budgeting, credit card use, student debt, and more, it’s time to get them on the path to success before they leave home. Talk to your teen on their level about the balance between saving and spending, and present wants versus future needs. Set a good example and demonstrate that sound financial planning pays off in the end.

Speak with your financial advisor from The Beacon Group of Assante Financial Management Ltd. for more tips about helping your teens develop good money habits.

How to Cope With the Sandwich Generation Squeeze

How to Cope With the Sandwich Generation Squeeze

by AgingEducationFinancial PlanningInheritanceInvestment PlanningTax Planning

 

Picture a sandwich. The top slice of bread is the responsibility of taking care of your elderly parents. The bottom slice is your young adult children who have boomeranged back home or are involved in post-secondary education. You are the meat stuck in the middle, trying to take care of both while working towards your retirement. This, in a nutshell, is the crisis the “sandwich generation” faces today. If you find yourself in this situation, take heart that you aren’t alone and you have people fighting for your best interests. The following are steps you can take to manage being stuck in the middle of caring for two generations:

Eldercare

The health insurance provided by the government leaves many elements of care uncovered or only partially covered, including nursing care at home. If one parent is still independent of you, you may wish to ask this parent to sell their home in order to downsize for extra monthly cash flow. If you are personally assisting your parent with their care, there is community care available in most regions and there is always private caregiving assistance.

Kids’ Education

The cost of post-secondary education is rising every year. Parents with two children that are close in age really feel the squeeze when both kids are enrolled at college or university.

The first step is to plan ahead and start investing early in Registered Education Savings Plan (RESP). You should consider supplementing the RESP with Tax-Free Savings Account (TFSA) investments, family trusts, in-trust accounts, or a combination of these. The Beacon Group of Assante Financial Management Ltd. can help you reach your education savings goals.

Boomerang Kids

25.9%[1] of young adults in Canada between the ages of 25 to 29 live at home with their parents. This boomerang generation can burden their parents with extra cost or prevent them from a planned downsize of their home. The key to handling this situation is communication. Talk openly with your adult children about their plans, responsibilities, and expectations to help maintain a healthy relationship with them.

Contingency fund

Nobody can predict the future. You should consider setting money aside during your prime working years to cover the potential costs of supporting your parents or adult children. The Beacon Group of Assante Financial Management Ltd. can develop a plan to help alleviate the pressures of being in the sandwich generation while setting your family up for future care as well.

 

[1] Statistics Canada, Living Arrangements of Young Adults Aged 20 to 29 (2011 Census)

Meeting Your Education Savings Goals

Meeting Your Education Savings Goals

by Education

You may find that your child’s dreams and aspirations change like the wind. One day your bright teenager will tell you they want to be a lawyer instead of an engineer. Your oldest may decide to go to medical school after graduating from university. As a responsible parent, you’d like to be able to make your child’s career aspirations come true, even if it is more expensive than you originally planned. You also have to consider the extra costs involved with studying out of town or abroad, circumstances you may not know until a few months before it happens. We would like to help you cover for situations like these, so please read further to learn more about meeting your education savings goals.

First step: build an RESP

The Registered Education Savings Plan (RESP) should be the backbone of your education savings. The contribution limit is $50,000 per child. This plan benefits from tax-sheltered investment growth, and any withdrawals made for funding tuition costs is taxed under your child’ s name. If that wasn’t attractive enough, each year the government will deposit $500 into your plan for the first $2,500 contributed. This is called the Canada Education Savings Grant (CESG). The limit is $7,200 per child.

Second step: contribute to a TFSA

The next step is to contribute money into your or your spouse’s Tax-Free Savings Account (TFSA). This is another tax-free vehicle that you should take full advantage of. You can withdraw funds for your child whenever you need them, and you can replenish the account the year after your withdrawal.

Third step: open an in-trust account

It is also a good idea to open an in-trust investment account in your child’s name. You are able to contribute as much money as you like and you have full control in what you invest it in. Any capital gains generated from these investments are taxable to your child and not to you. Any interest or dividend income is taxable to you though, until your child turns 18. It is important to remember that putting money into an in-trust account means that the money now belongs to your child. When they reach the age of majority, you will no longer have legal control over the funds.

If you want to know if your education savings will be enough to meet your child’s education goals, you should talk to a financial advisor at The Beacon Group of Assante Financial Management Ltd. today!

education fund

How to Plan for Your Child’s Education

by EducationFinancial PlanningInvestment Planning

Sometimes it feels like no time passes between the day your child nervously steps through the kindergarten doors for the first time and when they confidently walk on stage to claim their high school diploma. If you want to provide your child with funding for a university education in Canada, it takes a proactive approach – not just idly throwing a few dollars into a Registered Education Savings Plan (RESP) and hoping the numbers add up. Here are some key steps to successfully fund your child’s education:

Step 1: Know the Numbers

Each RESP has a lifetime maximum of $50,000 per child. This number may seem sufficient, but consider that according to Statistics Canada the average yearly tuition at Canadian post-secondary institutions is just shy of $6,000. With tuition rates rising by year, an average four-year program can be expected to cost $25,000 before a penny is spent on room and board ($48,000 for four years, according to the University of British Columbia) or books, fees, transportation, and personal expenses.

As evidenced by the numbers, a $50,000 contribution to your RESP is a terrific start, but it’s only a start. Supplement this fund with savings in a Tax-Free Savings Account (TFSA) and in-trust account. Your financial advisor can help you come up with other strategies for flexibility, such as taking advantage of the maximum Canadian Education Savings Grant (CESG) with a $2,500 yearly contribution to an RESP.

Step 2: Allocate Your Asset Mix

Every investor is different, and your asset mix will vary depending on your risk tolerance, time horizon, and investment objective. Your risk tolerance depends entirely on your own investment personality. The time horizon is relatively fixed, if your child plans to attend post-secondary school immediately after high school. Your investment objective should include tuition, books, and fees. Account for living expenses in case they go to a school out of town. Share these factors with your financial advisor, and they’ll help you determine the right mix of fixed income and equities to suit your goals.

Step 3: Track Your Investments

If you have an organized education savings plan in place, it is not necessary to obsessively monitor the progress of your investments. The Beacon Group of Assante Financial Management Ltd.’s advisors will make sure your investment growth is on track to meet your savings goals. If market fluctuations affect your target allocation, your advisor can assist with rebalancing to make sure everything is on track.

With these three steps and assistance from The Beacon Group financial advisors, you can meet your education savings goals. Before you know it, your child will be walking up for convocation to accept a well-earned university degree.