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Grandparent… or family financier?

Grandparent… or family financier?

For grandparents, there can be more than one way to give offspring a helping hand. One of these might even far outlast the grandparents themselves.

If you are one of Canada’s 7.1 million grandparents, you may want to really be there for your grandchildren during the new school year. If so, you won’t be alone!

A real helping hand


With an average of 4.2 grandchildren per grandparent in Canada, it looks like it could be hard for the current generation of grandparents to see to the needs of all their offspring – even if they have lots of free time and are financially comfortable.

A multigenerational responsibility

In fact, with the increase in life expectancy, it is no longer unusual to see four generations gathered around the table on special occasions. Baby boomers, who are now between 55 and 70 years old, may thus find themselves in a unique position, caught between their aging parents, their young-adult children and their grandchildren.

Many of them are realizing that they need to revise their retirement plans in light of this new situation, especially considering the assistance they may have to provide for their own aging parents if these have no long-term care insurance.

But where are the grandchildren in all of this?

The gift of knowledge

There is a creative, and sometimes misunderstood, way of “spoiling” the grandchildren: contribute to a registered education savings plan (RESP) for them. This won’t necessarily earn big smiles around the Christmas tree, but if you look at the child’s long-term future, few gifts can compete with an RESP.

The principle is simple: each year, you contribute a relatively modest amount and, with the leverage of grants and tax-sheltered compound returns, if the markets are favourable, this money can grow into an interesting asset that will be used by the child for his or her post-secondary education.

It is sometimes believed that the parents are the ones who have to set up this kind of plan. Actually, almost anyone in the family can be an RESP subscriber and get involved: parents, grandparents, even aunts and uncles.

Lasting leverage effect

Here’s a reminder of the basic rules for an RESP:

  • you contribute the amount of your choice to the child’s RESP every year, up to a plan lifetime limit of $50,000;
  • this contribution does not give you an income tax deduction; on the other hand, it qualifies the RESP for government grants, principally the Canada Education Savings Grant (CESG), which represents 20% of the contribution (up to $500 a year with a lifetime limit of $7,200); some provinces also provide RESP grants: this is the case in Quebec, for example, where the Quebec Education Savings Incentive (QESI) can be as much as $250 a year with a lifetime limit of $3,600);
  • all of this money is sheltered from tax while it remains in the RESP;
  • once enrolled in a qualifying post-secondary educational program, the child can start to withdraw money each year to cover his or her expenses, in accordance with the prescribed rules.

While flexible, RESPs are subject to a number of rules, which can be found in detail on the Government of Canada website. They are also suitable for a variety of savings and investment approaches. This is why a chat with your financial security advisor or mutual fund representative is generally recommended in order to set up a solid RESP strategy.

 

The following sources were used in preparing this article:
Actualis, “An education without debt?,” October 2014.
Actualis, “Back to school special: Savings 101,” September 2015.
Les Affaires, “1001 façons de donner de l’argent en cadeau,” December 3, 2014; “Mettez un REEE dans les bas de Noël!,” November 23, 2014; “Le REEE et le spectre de l’impôt spécial,” June 3, 2014.
Desjardins Wealth Management, “Registered Education Savings Plan,” 2016.
Le Devoir, “La « génération sandwich » se sent coincée entre les besoins des enfants et des parents,” August 13, 2014.
Finance et investissement, “Prêt REEE : emprunter pour profiter des subventions,” October 13, 2016; “REEE : le risque de la cotisation des grands-parents,” June 14, 2012.
The Globe and Mail, “Calling all grandparents: RESPs are for you, too,” February 16, 2017.
Government of Canada,Registered Education Savings Plan.”
Vanier Institute of the Family, “A Snapshot of Grandparents in Canada,” September 2016.
La Presse, “Grands-parents à la rescousse,’ December 2, 2015.
The Wall Street Journal, “Grandparents and Gift-Giving: How to Set Boundaries With Children,” February 3, 2017.

*       Mutual funds are offered by mutual fund representatives at SFL Investments, Financial Services Firm.