Back To School - Finance 101 - Money Saving Tips and Q&A
By Jeff ChanSeptember 13, 2012
Update: 09/13 - 3:09PM ET - #RFDChat trended in Canada! Thanks so much for all the questions. You'll find a summary of all the questions TD answered. They're great tips for anyone regardless of age or financial situation.
Today's topics include:
- Teaching your kids about money
- Teaching teens about responsible money management
- College - How to financially prepare for it
- Answering 10 selected questions from the truckload that you all submitted!
Q&A - User Submitted & Answered By @TD_Canada
Q1: RESP contributions â€” is there an age restriction for making contributions in a child's name? Are there limitations to government grants?
Q2: At what age should a child have his/her own bank account?
Q3: What are some good tips to sticking to your budget?
Q4: Should I let my child apply for a credit card as soon as they turn 19? I heard it was good to establish credit.
Q5: What are some of the loans or line of credit that can benefit post graduate students and what's the usual requirements.
Q6: Should I get a student line of credit to pay my school expenses with? What's the interest and how does the payments work?
Q7: Is it wise to borrow at low interest rates to invest in RRSPs or TFSAs?
Q8: My Bank just told me I could up the limit on my card but I use nowhere close to the limit, should I do it?
Q9: How do I save for my childâ€™s higher education living on bare minimum wage?
Q10: Is it better to pay for purchases with cash or credit cards?
Q1: RESP contributions â€” is there an age restriction for making contributions in a child's name? Are there limitations to government grants? (Submitted by @matschkean)
There is no age restriction when making a RESP contribution, however you do need your childâ€™s SIN to open the account. Here are a couple of factors that you should be mindful of:
- A Registered Education Savings Plan allows each beneficiary (child) to receive a lifetime contribution of $50,000.
- A RESP can be opened for 35 years; but contributions can only be made until after year 31.
- The year the child turns 17 is the last time they can receive government CESG grant/bonds; however unassisted contributions (no grant) can continue to be made until the lifetime maximum is achieved.
- The federal government will match contributions up to 20% or $500 per year for every child in the plan. This is called the Canada Education Savings Grant (CESG). Some families may also qualify for the Canada Learning Bond (CLB) which is an additional top up of 10-20% on the first $500 of contributions in a year for every child. By the time your child goes to school, they could receive up to $7,200 of â€˜freeâ€™ government money, in addition to your contributions and the income earned within the account.
- Investments held within a RESP for your child grows tax-free which means your returns are increased.
To learn more about RESPs you can visit the CRA Website.
Here are some other sites you may find helpful: the first is an RESP calculator which can project how much you need to save today, in order to have enough money available once your child is ready for school. The other site will give you a breakdown of how much grant money you will receive based on your annual contributions into the RESP plan.Back To Questions
Q2: At what age should a child have his/her own bank account? (Submitted by @greenurlifenow)
Itâ€™s never too early for a child to have their own bank account. In fact, a parent or guardian can even open an account while the child is still an infant. There are some key advantages to opening an early account for your child. Parents can deposit and save their childâ€™s birthday or monetary gifts for when they're older. As the child continues to grow, the parent can then demonstrate the concept of saving money by either incorporating an allowance or simply showing them how to put coins into a piggy bank. When they are older, your financial institution can give the child their own debit card and access to view their accounts online.
By promoting financial literacy and educating your child about the proper techniques of saving and money management, you will help them form good financial habits that theyâ€™ll be able to use in the future. Most financial institutions offer a youth account (available for minors) that has minimal or no monthly fees and offers unlimited deposit/withdraw transactions. Once the child becomes age of majority (based on their province), then they can convert this youth account into a student account that would transition them into their years of post secondary education.Back To Questions
Q3: What are some good tips to sticking to your budget? (Submitted by @tkwan23)
As a rule, most students have limited funds so itâ€™s important to make the most of what you do have. Even if you have received a bursary or have a part-time job, the monthly costs do add up.
Here are some tips I find helpful:
- Stay organized: You have to be able to keep track of all the money coming in (part-time jobs, bursaries, student loans, income assistance, etc.) and all the money going out (tuition, books, rent, food, etc.). The idea is not to spend more than you bring in.
- Create a budget and stick to it. I recommend that you start with a look at your last three months of bank statements and bills for a realistic view of your spending habits and expenses. Now itâ€™s time to work on a budget. A great tool can be found on TD's cash flow calculator, you can even print out a report and analyze your spending. If your main concern is sticking to your budget, allow yourself to spend a certain amount on things like entertainment and clothes per month. Once you meet that budgeted amount, youâ€™re going to have to cut yourself off from spending more.
- Donâ€™t forget to create an emergency fund. Make sure your budget lets you put away some money to take care of unexpected costs. You may have to fix your car or pay for some extra tutoring. Unfortunately these instances pop up more often than most people think and itâ€™s always better to be prepared for them.
Q4: Should I let my child apply for a credit card as soon as they turn 19? I heard it was good to establish credit (Submitted by @donnaelle)
Anyone can apply at age of majority but the advice of a parent really counts. Credit cards are convenient and can be a real help especially for students living away from home who need to make an important purchase. Itâ€™s also a good way to help younger adults build up a credit history to help them borrow in the future.
To get a card, your 19 year old will have to apply and meet certain conditions to be approved including showing the ability to pay. If he or she is approved then you should talk about how to use credit responsibly -- try to pay in full each month, always pay on time and keep the spending under control. Getting behind on card payments or getting into too much debt can impact their credit rating which they'll need in order to borrow in future, or even rent an apartment and in some cases, get a job.
If you don't think your teenager is ready for this then you may want to consider getting them a supplementary card on your account so they have the benefits of a card and you can see how they handle it.
Q5: What are some of the loans or line of credit that can benefit post graduate students and what's the usual requirements (Submitted by @djemzine)
A number of lenders offer Student Lines of Credits specifically aimed at post graduate students (obtaining your Masters of Ph.D.) and professional students (programs of Chiropractic, Dental, MBA, Medical or Optometry, Pharmacy or Veterinary). The requirements can vary from bank to bank. However, some usual requirements are:
- Providing proof of enrollment/registration of an approved accredited school however, some exceptions may apply.
- Being able to service the debt you will be taking on. This may mean applying with a co-signer; however, some exceptions may apply.
- Some lenders, depending on your program, may have you complete a Student Budget Worksheet in the applications process.
For more information regarding post graduate Student Lines of Credits at TD, click here.Back To Questions
Q6: Should I get a student line of credit to pay my school expenses with? What's the interest and how does the payments work? (Submitted by @chi_amy)
A Student Line of Credit (SLOC) can help pay for your tuition, books, laptop computer and supplies if you donâ€™t have the funds to pay for it yourself. Student Lines of Credit tend to feature a competitive interest rate, which can vary depending if you are an undergraduate or a post graduate student. In terms of how the payments work, while you are in school and for up to 12 months after graduation, you will be paying interest only on the balance you use. To see more Frequently Asked Questions related to TDâ€™s Student Line of Credit, click here.
Other options you may want to consider to pay for your school expenses can be:Back To Questions
Q7: Is it wise to borrow at low interest rates to invest in RRSPs or TFSAs? (Submitted by @mrdisco3)
Given todayâ€™s low interest environment, it can be very tempting to borrow money, but what you use that money to purchase will determine whether itâ€™s â€˜goodâ€™ or â€˜badâ€™ debt. Fortunately, RRSP loans fall into the good debt column â€“ debt that allows you to invest in your future and helps you get ahead in the long run (vs bad debt which tends to result from consumer spending that doesnâ€™t pay off in the future).
A RSP loan can be a great way to invest into your future because:
- The money that you put in will grow tax-deferred, which means your investments will grow quicker than if it was held outside of your RSP.
- The contribution you make into a RSP is tax-deductible. This means that when youâ€™re filing your annual tax return, you can include the contribution as a deductible amount that will reduce your taxable income. This will result in you having to pay lower taxes or you may even receive a tax credit (which can be put towards further savings or debt repayment)
- When youâ€™re ready to purchase your own home one day, or, if youâ€™d like to continue your education, you may be eligible to borrow money from your RSP. To learn more about the Home Buyers Plan, check out this link or the Lifelong Learning Plan.
Back To Questions
Q8: My Bank just told me I could up the limit on my card but I use nowhere close to the limit, should I do it? (Submitted by @jennthanasse)
The credit card limit increase was probably offered to you based on your positive credit rating and determined that you would be a good candidate for more credit. Now, this is a very important time for you to consider how credit can help or hurt you. Some students get in over their head with too much credit at a young age when they donâ€™t know how to handle it. The offer of an increased limit can really help you out but may hurt you if you borrow more than you can afford to pay back.
While a credit card with a higher limit does have its advantages, like the ability to make larger purchases, and the availability of funds in case you need them, it can also have disadvantages. You may be tempted to spend more or carry a balance which means you will pay more in interest. Or you might be late with or miss a payment, which could affect your ability to get credit in the future or even to do things like rent an apartment.Back To Questions
Q9: How do I save for my childâ€™s higher education living on bare minimum wage? (Submitted by @lizzyoday)
Although your finances may be tight, itâ€™s great that you are thinking about saving toward your childâ€™s education down the road. Did you know that even with little or no savings you could qualify for $500 from the Government of Canada to get you started? All you have to do is open a Registered Education Savings Plan (RESP). The RESP is a special savings plan to help you save for your childâ€™s post-secondary education. With the rising costs associated with sending a child to college or university, an RESP can really help because the government provides grants while the savings grow tax-deferred until withdrawn. You can contribute to a RESP directly from your chequing account and you may be eligible for receiving two grants that are exclusive to this plan:
- The Canada Learning Bond (CLB) â€“ You can earn $500 now to help you start saving, an extra $100 each year up to age 15, and an extra $25 to help cover the cost of opening the RSP. The CLB is available to children born after December 31, 2003 and families who receive the National Child Benefit Supplement (NCBS) also known as the â€œfamily allowanceâ€ or â€œbaby bonus.â€
- The Canada Education Savings Grant (CESG) â€“ The CESG is made up of the basic CESG and the additional CESG. The Basic CESG is a payment of 20% on contributions made to an eligible beneficiary up until the child turns 17 (total grant not to exceed $7200 per lifetime or $500 per year).
You can find out if you qualify for the CLB, get more information on the basic CESG and see if you qualify for the additional CESG by visiting the CRA site.
Try to start saving right away because the sooner you start the more you will save. Even a small amount every month or every paycheck slowly increased over time will make a big difference. Visit TDâ€™s simple education savings tool calculator here.Back To Questions
Q10: Is it better to pay for purchases with cash or credit cards? (Submitted by @greenurlifenow)
The principle of money management teaches you that you should only purchase what you can afford to pay. With good reasoning too, because youâ€™ll live within your means, not incur any debt and possibly save along the way. This is a great way to live, however the problem with only paying cash is that you wonâ€™t be establishing a credit history thatâ€™ll one day be important for larger purchases like buying a home or even paying for rent. Your credit history will follow you through school and into the working world so you want to ensure your credit rating is positive because it will be one indicator for lenders to decide on your ability to carry and pay back debt.
If youâ€™re financially responsible and ready to establish credit, then starting with a secured credit card may be one option to consider because the card is secured against the savings balance in your account. Here are some tips that can develop positive spending habits and a positive credit history:
- Always pay the minimum monthly payment on your credit card statement.
- To avoid paying interest, treat your credit card like cash, by only charging purchases youâ€™ll be able to pay for in full.
- Make your payment on time â€” write in or program your monthly due date in your calendar for an instant reminder.
Check out TD's site to learn more tips about student life and paying for school.Back To Questions
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