4 great reasons to do something boring with your tax refund

Mother hugging daughter on graduation day

I love the springtime. Waking in the morning to the excited sounds of birds chirping. Watching the trees which, for months, have appeared lifeless, suddenly spring back to life. I am always amazed at the certainty of the seasons; no matter how long the winter is (and some years feel longer than others!) we always know that spring will come. And while April signals the much-anticipated arrival of spring, it’s also synonymous with another certainty in Canadian life:  tax season.

If you are among the many thousands of Canadians who are getting some of your tax money back this spring, you are probably already beginning to think about what to do with it. It feels great to receive a cheque from the government, but it’s important to be strategic about how you use those funds. Believe me:  I understand the appeal of a new big-screen TV or a vacation. But long after the TV has been recycled and the vacation forgotten, as a parent you will face another reality:  the cost of your child’s post-secondary education. 

So here’s a thought: why don’t you use your tax refund to get an extra 20% from the government of Canada (even more for some families) and at the same time, take a step forward to help set your kids up for long term success?  I’m talking about putting that money into your child’s Registered Education Savings Plan (RESP).  It may not be exciting, but it will have a much greater impact. Here’s why:

1. Post-secondary education truly matters. We have heard about the economic benefit of post-secondary education (that is, someone with higher education is less likely to be unemployed and will, on average, earn more over their lifetime than someone with less education). But an interesting study released by the Higher Education Quality Council of Ontario points out there are some non-economic benefits to higher education.[1] For example, individuals with higher education report a higher level of life satisfaction and better (albeit self-rated) levels of physical and mental health. One of the best ways to set up your children for a successful life is to make sure they are able to get a post-secondary education.

2. Post-secondary education is expensive, and it’s getting pricier every year. Based on Statistics Canada and university websites information, the average tuition cost for a 4-year university program for a child living away from home could reach over $150,000 in the year 2032.[2] Scholarships and loans may not be enough; your best bet is to plan ahead and start saving early. For many families, an RESP is the best way to save because it allows you to grow your contributions tax-sheltered until your child withdraws the funds to attend post secondary school.

3. When you open an RESP, you get access to government grants. These are federal and provincial incentives provided by the Canadian and some provincial governments to encourage people to save for post-secondary education. Everyone is eligible for the basic Canada Education Savings Grant (CESG), which matches 20 per cent of the first $2,500 you contribute to your child’s RESP each year up to a lifetime maximum of $7,200. There are also several other provincial grants that you might be eligible for. To learn how you can take advantage of these incentives, you can view more information here.

4. Investing in an RESP early on can give you peace of mind knowing that money is there to help fund your child’s education. The earlier you start, the more your savings can benefit from the power of compounding. If you start investing $210 every month for your newborn, their RESP could be worth as much as $30,743 more than if you start when your child is five.[3] Starting to save early on also helps you avoid the burden of trying to come up with the funds all at once when your child is ready to enroll in post-secondary education.

So, when you get this year’s tax return and you’re faced with the choice of doing something exciting – like splurging on a new television - or something boring like investing in your child’s future, I hope you’ll choose boring.  You don’t get the thrill today – but you will get the lifelong satisfaction of knowing you helped set your kids up for success.

Don’t have an RESP of your own? Not sure where to start? CST Consultants can help. You can visit our website at http://www.cst.org to learn more about our plans and the benefits of opening an RESP in general.

Happy saving!

[1] Social Returns: Assessing the benefits of higher education. Higher Education Quality Council of Ontario, @ Issue Paper No. 18, April 15, 2014

[2] Projected tuition costs of a 4 year university program are based on the annual average cost of tuition across Canada for the previous school year and an assumed average annual increase of 4.1%. Room and board are based on typical costs for residence with an average annual increase of 3%. Projection includes the cost of entertainment, transportation and books adjusted using an annual inflation rate of 2%. Source: Statistics Canada 2012 and university websites.

[3] This example illustrates the effect of compound interest only. It assumes a compound annual return of 5% until age 18. CESG calculated at 20% of contributions. Example excludes fees. Not intended to show future values. Investment returns and actual future values cannot be predicted or guaranteed.

4 great reasons to do something boring with your tax refund | CST Blog | C.S.T. Consultants Inc.


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