Saving for school
You graduate high school - and head for university or college. Suddenly,
learning isn't so free anymore. What's a potential scholar to do? Street
Cents talks to some financial experts to find out how to go about saving
for school. Is there more to it than stashing cash in your sock drawer?
Heading for the hallowed halls
If you want to go to university or college, it's going to cost you. No matter
how many awards, scholarships and bursaries you get - chances are you will
need a stash of cash.
You can start out by talking to your parents to find out if they have already started investing some money in your name. You may be able to add your own contributions to those funds.
If they haven't put money away for your education, don't panic. Ask them if they plan to help you out with school. That way you'll know your financial situation up front - and there won't be any surprises later.
The key to saving for anything is to set a goal (in this case, saving for school,) start early, and make a plan.
Experts Street Cents talked to say most often, future students leave money sitting in their bank account earning small amounts of interest.
But they say most banks interest rates aren't particularly high. They say you can make this money grow faster by investing it.
Option # 1 GICs
GICs, or Guaranteed Investment Certificates, are guaranteed in the sense that they guarantee to pay you an income. And you can't lose the money you started with.
There are different kinds of GICs. Some offer varying interest rates, others are fixed. Some require you to leave money in them for a certain amount of time. Others allow you to cash them in anytime. You can invest for a period of a few weeks or for years.
Option # 2 Canada Savings Bonds
Canada Savings Bonds are considered to be "safe" investments as well. The government of Canada guarantees them. They're cashable at any time, but you have to wait three months before you can make any income from them. As of January 1, 2003, the rates are 2.00 per cent for a year for a regular Canada Savings Bond.
Option # 3 Canada Premium Bonds
Canada Premium Bonds are similar to Savings Bonds, but you're locked in for a year once you invest. After a year, you have 30 days to cash the bond. Otherwise, it's reinvested for you for another year. The rates for the premium bonds are higher than the rates for the regular bonds. And the rates go up for every year you leave your money in them. You can buy these bonds only at certain times of the year.
Option # 4 RESP (Registered Education Savings Plan)
You and/or your parents can put money into and RESP and earn money from the interest until you go to school and cash it out. You don't pay tax on the interest until you cash the RESP. Money can really add up in these plans.
And one of the perks of the RESP is the government of Canada offers a grant you can put into them. The government will add 20 per cent to the first $2000 you put towards the RESP.
There are usually some fees associated with these plans and there are many different types of RESPs available.
So choose carefully, here is a link that can help with your decision.
Option # 5 Mutual funds
A mutual fund is a large pool of money that investors create which is used to buy many different financial products. A portfolio manager manages a mutual fund; this expert's job is to control all of the investors' money and invest it into a group of stocks, bonds or other financial assets. You buy shares of a mutual fund just like you'd buy stocks. Prices of mutual fund units shift up and down with market factors.
If one of the stocks your mutual fund owns does badly, it is balanced out by some of the other stocks in your fund. Your best bet is to check banks and trust companies for funds. Sometimes there are fees associated with mutual funds too.
What's best for me?
Five options is a lot to choose from. And within those options, there are
still more options and variables. How's a person supposed to decide which
is the best route to secured school funding?
Experts Street Cents talked to say the best type of investment for you will depend on things like why you're investing, how much you're planning to invest and who's going to be making contributions.
They recommend exploring the different options. Talk to financial planners or scope out different banks, trust companies, investment dealers and financial companies. This will give you the chance to compare before you decide what the best investment option is for you.
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original air date: March 3rd, 2002
Page 1: Heading for the hallowed halls
Back: to Episode 16
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