Are You Missing Out On Free Money For Your Kid's Education?

Getting the kids ready to go back to school can put a real strain on the piggy bank. New shoes, new books, new this and new that -- it's easy to forget about the long-term financial costs of your children's education, particularly if you hope to send them to university. However, it's worth taking a time-out and looking into what you can do to save for your kid's future -- especially since you could be eligible for free money from the government.

According to a report in the Globe and Mail, many parents aren't aware they qualify for financial support if they open a Registered Education Savings Plan to help pay for their child's university, college, trade school education or apprenticeship. The article is based on findings by SEDI (Social and Enterprise Development Innovations) that low-income families, in general, have a lower level of financial literacy and therefore don't realize what's available to them. The findings are supported by statistics that show that higher-income families are more likely to invest in an RESP to save for their kids' education.

So what is an RESP? And who's eligible for government help?

An RESP is a government-registered tax-free savings account used to save money for your child's higher education. Parents, guardians or friends can open an RESP with most banks, credit unions or certified financial planners. The plans can vary depending on the institution, so it's a good idea to shop around. (More information on how to open an account is available at canlearn.ca.)

The accounts are helpful for all parents -- however, many lower-income families are not aware that they qualify for extra help from the government. Specifically, there are two facilities designed to help low-income families save: the Canada Learning Bond and the Canada Education Savings Grant.

The Canada Education Savings Grant is designed to reward parents for saving for their kids' education before they turn 15. On the first $500 you save each year, the government will deposit in the account:

• up to $200, if your net family income is $40,970 or less
• up to $150, if your net family income is between $40,970 and $81,941, or
• up to $100, if your net family income is more than $81,941

The grant amount tops out at $7,200 -- more than a year's tuition in most Canadian universities. However, not everyone has a spare $500 to put aside every year, which is where the Canada Learning Bond steps in. Generally, families that qualify for a family allowance will also qualify for the Canada Learning Bond, which will give parents who open an RESP $500, plus $100 a year, without the need to deposit any funds in the account.

Even so, the Globe and Mail article points out that the bond is being under-utilized by low-income families, noting that the participation rate for the program in 2008 was only 16 per cent.