The Scenario: You are going to save up money for your childs future post-secondary education. Canadians achieve these savings through a Registered Education Savings Plan (RESP). An RESP is simply an envelope that financial investments such as shares, bonds, equities, or mutual funds are placed and can grow on a tax-free basis. Additionally, money contributed to an RESP is eligible to receive the Canada Education Savings Grant (CESG) which deposits 20% of the individuals deposits into the RESP every 6 months (up to a maximum of $1000 per year). The RESP can be contributed to, and CESG earned, up until the time the child turns 18 years old. After 18 years old, the RESP can continue to earn interest, but cannot be contributed to.

In order to complete this scenario, you will need to make these choices and research the following (no marks can be earned if valid research is not provided where required):

Pick an age for your child. The age must be a whole number between 0-4 years old.

Select an amount per month that you will contribute to your childs RESP. This amount can be between $100 to $300. Since this is an RESP, we do not have to take into account the effect of tax since the investment will grow on a tax free basis.

Research an interest rate to use for your RESP.

Research the annual tuition of a 4-year degree program at any Canadian university today.

Research the average annual percent increase in Canadian tuition costs in recent years.

Decisions and Information You Will Be Using In Your Calculations

Age of Child: 4 years old

Amount Contributed Each Month: $200 per month

Interest Rate that the RESP will be earning (provide details and show any work):

RBC Royal Bank: Based on 6.26% average annualized interest rate

Annual Tuition Today of Degree Program at Canadian University (provide details and show any work): Dentistry (DMD)

Domestic students program fee per year:

$24,078.34 Year 1

$23,516.86 Year 2, 3, and 4

Annual Percent Increase in Canadian Tuition costs (provide details and show any work):

According to a recent Statistics Canada report, post-secondary students in Canada are paying, on average, 2.6% more in 2022-2023 than they did in previous academic years. The average tuition for full-time students in the academic year 2022-2023 is $6,834, according to the report from September 7, 2022. The cost of tuition climbed for four years in a row.

Questions:

1. Calculate the total amount in the RESP when the child turns 18. Show your work.

2. Project the annual tuition cost for a 4-year degree program at a Canadian University when the child turns 18. Show your work.

3. Lets assume the child immediately enrolls in a 4-year degree program upon turning 18. Each annual tuition amount is paid in full in advance of the school year. Develop a 4-year plan showing how the RESP could be used to fund the childs post-secondary education. Show all work and explain any assumptions or requirements.

4. In your 4-year plan above, either you had too much money or not enough money to fund the childs education. Either way, using the information only in this scenario, show how you could modify any variables that you control in this scenario in such a way that the RESP is reduced to zero (or as close as possible) upon the childs graduation from university. Show all your work and explain any assumptions or requirements.

5. In your original 4-year plan above, either you had too much money or not enough money to fund the childs education.

If you did not have enough money, explore the possibility of the child delaying their entry into their post-secondary education to a future date. Modify any numbers or variables as needed to perform your calculations. Show and explain your work. Based on your calculations, explain whether delaying the education is a possibility.

OR

If you had too much money, explore the possibility of using the RESP to also fund the cost of residency at your chosen university (you will need to research this, screenshot in Appendix 1D, and provide sources). Show and explain your work. Based on your calculations, explain whether residency would be an option that could be funded by the RESP.