The best way to spoil your grandchildren
As the costs of post-secondary education rise, grandparents are gifting education grants.
Just how much do grandparents love to spoil their grandchildren? In 2009, grandparents in the U.S. spent $52 billion on goods and services for their grandchildren. They are able to spend so much because they often have paid off their mortgages and have relatively healthy savings. Elderly Canadian families have an average net worth of about $500,000. Grandparents are often, quite simply, in a better position than parents to spend on the youngest generation.
The reason I bring this up is because, as boomers age, a greater and greater portion of the population will become grandparents. This is happening as the cost of post-secondary education is rising.
Let's go through some of the numbers.
The most recent data is from the U.S., but given the comparable demographics, spending patterns in Canada are quite similar. The absolute figures are obviously smaller.
By 2015 there will be an expected 77.1 million grandparents in the U.S. That's slightly more than three in every 10 adults! Four members of the Rolling Stones are grandparents. That might make you feel old. But it shouldn't. Half of these grandparents are boomers. In fact the average age when someone becomes a grandparent in the U.S. is 45 years old.
One half of all grandparents contribute to a grandchild's education, spending a total of $6 billion, according to "The Grandparent Economy," a recent study from Grandparents.com. In fact, education makes up the biggest proportion of money spent on grandchildren. It far outweighs what they spend on clothes ($4.1 billion), travel ($4 billion), entertainment ($3.1 billion) and toys ($1.5 billion).
I have to admit, I'm not surprised that one of the ways grandparents express their love for their grandchildren is through education. They want the best for them, and higher education is one of the most surefire ways to give them the best. According to Statistics Canada, the median income of someone with a high school diploma is a little over $35,000 per year. A bachelor's degree boosts that number to about $55,000 a year. A post-bachelor's degree is worth another $10,000 per year.
The trouble is, education is not cheap. TD Economics projected in 2009 that the total cost of pursuing a four-year undergraduate degree in 18 years would be a whopping $92,369 for students living away from home and $68,373 for students living at home.
But education doesn't stop when one graduates from college or university.
Canada's economy is shifting toward producing higher value-added goods and services. The educational requirements of new jobs will rise. In fact, the education and skills Canadians need are being altered at such a fast pace that lifelong learning is necessary to adapt to the evolving nature of work. The alternative is to drift toward less sophisticated jobs at lower pay, or in the extreme case, out of the workforce.
So how can grandparents help fund this essential, but expensive, component of their grandchildren's lives? Registered Education Savings Plans are one of the best ways to help pay for post-secondary education. Contributions aren't tax deductible (like RRSP contributions) but the investment income that is produced in the plan is tax-sheltered until the money is withdrawn to fund the child's education.
The lifetime maximum RESP contribution is $50,000 per child, and there is no annual contribution limit. And don't forget about the Canada Education Savings Grant or CESG. The basic CESG, for which most individuals are eligible, is equal to 20 per cent of RESP contributions made, to a maximum of $500 annually per beneficiary. The maximum lifetime CESG is $7,200. The grant is deposited directly into the RESP.
We're getting closer to the holiday season and I know kids and grandkids will start asking for the hot toys of the season. But as you consider gifts for your grandchildren, consider how long they will likely enjoy the latest video game or doll. Now consider how long they'll enjoy the fruits of a good education. That will be money well spent!
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