I have a defined benefit pension with a big public pension fund. I never really worried about it before until a friend of mine told me that I should. She said that the global financial crisis could put my pension at risk. I am now beside myself. I don’t have any other retirement savings and haven’t put money away for my super smart daughter’s education.

Answer:

Do not add the global financial crisis to your worry list. You have a daughter who will be a teenager one-day—surely there is already way too much on your worry list as it is. Besides, the people who manage your pension are well compensated to worry on your behalf. I’m sure your friend had the best of intentions, but here’s why your worrying is going to waste;

Fund performance is out of your control

There is nothing you can do to affect the performance of your pension fund. The fund managers are analyzing the data and making investment decisions based on what they think is best. That is their job, not yours. You can worry all you want, but it is a waste of your time and energy. You could drop by with doughnuts to thank them for their efforts, but that is about all you can do.

Public pensions are relatively safe

There have been a lot of headlines about pension implosions in the private sector. But that is because the companies themselves went bankrupt. Public pensions are much safer by comparison. Poor investment performance and pension underfunding are risks, certainly, but there is a very low probability that either will make your pension evaporate.

So what should go on your worry list? Worry about the things you can do something about, and then do something about them. Here are my two biggest questions for you;

Will your pension be sufficient? You mentioned that your pension is all you have for retirement. I would go online and find a retirement calculator, or get yourself to a financial adviser to see if that pension is going to be sufficient based on what you want your retirement to look like. You didn’t say how long you had been with your employer—if it hasn’t been that long your payout might not be enough. Now is the time to find out so you can contribute some money into your Registered Retirement Savings Plan.

How will your daughter pay for her education? If you have a child, let alone a super-smart child, you should have a Registered Education Savings Plan. Putting money into an RESP will trigger a grant from the government of up to $500 per year. Your contributions, plus the grant, can add up to big bucks over time.

Bottom line: Rather than worrying about what you can’t control, worry about what you can. That is, your retirement savings and your daughter’s education fund. Getting into action in those two areas will make a way bigger difference than the sleepless nights you’ve been spending worrying that Greece will be kicked out of the Eurozone.

Sticking to your New Year’s resolutions can be difficult, but here are some tips on how to follow through. If you haven’t already, make sure you’ve done an annual financial checkup and write down your financial goals and a plan for the year. Make sure to check back during the year and remind yourself about why these goals are important to you. Here are mine.

Pay off student loan

This is my top priority for the year. As of this month, I’ve paid off about 70% and I plan to be done with it by the end of February. After four years, my loan was $18,000 in total. Looking at the interest rates now, my loan could have been less by using an education line of credit instead of the the national student loan program, but this way I didn’t have to deal with the stress of repaying my loan until I was done studying. Also, I didn’t run the risk of being given more money than I needed.

“Students these days are able to get big loans and what do they do? They spend the money,” says Sheila Walkington, CFO of Money Coaches Canada. “It’s lovely while you’re spending it, but it’s really, really difficult to pay it back.

“I work with clients who are now in their 30’s and 40’s and still have a $30,000 line of credit and they’re really, really struggling and … wishing they hadn’t spent all that money.”

When comparing the two options, you also need to consider the tax implications that come with the government loan program, Walkington says. Students receive a non-refundable tax credit on the interest they pay when borrowing from the government. In Ontario, you’d get approximately 20% of the interest counted towards your taxes. This credit amount has a five-year carry forward period.

Open a TFSA

With the contribution room now being $20,000, it’s a good place to stash your savings for bigger purchases down the road. Unfortunately, I know I’ll likely tap into this account within the next few years so safety and high liquidity are two key priorities. But Jamie Golombek, CIBC’s managing director of tax and estate planning, says anyone using it as a savings account isn’t taking full advantage of its features since you’re not earning much on it anyway. “You’re getting a bit of a benefit by having it in a TFSA, you might as well have it in there as opposed to not having it in there,” he says.

While Walkington adds that for a young people the TFSA is mainly about building good saving habits.

My goal is to at least have $5,000 saved up in this account by the end of this year. Once the student loan is paid off and I have an emergency fund established, the next step is to squirrel some money away.

Save money for more education

It’s easy to be seduced by all the material goods you can spend money on, but one of the best personal investments for anyone is education. (I know, it doesn’t sound as sexy as that new smartphone or tablet, but it’s well worth it.) Even after you’ve landed a job it’s important to keep on learning and developing your skills when you have time to spare. It pays off in any pay raises you get in your current position or when you move up in your career. I’m hoping to have $2,000 to $3,000 put aside for this purpose every year.

Save money to travel

Being frugal is tough work, so make sure you treat yourself to a trip once in a while. I could have paid off my student loan faster, but last year I splurged on a nice DSLR camera and a very, warm winter jacket. Both were wants rather than needs, but good personal investments nonetheless. I’m already planning a trip to New York to celebrate paying off my debt, but I hope the next plane ride I take will be to Japan, South Korea or Hong Kong. Stashing $1,000 away in this category is the lowest category on the priority ladder, but one I hope to get to.

• Many Canadians seem less optimistic for 2012. Here are 15 rags to riches stories for some inspiration.

• Swap services to save yourself some money this year. Read how a financial planner bartered to save.

If there are skills you need to learn to gain a better position, do it, even if it means going into debt. Those costs will cover themselves later down the road when you have a higher pay.

• Learning about handling money is an important life skill. Here are some gift ideas you can give your child to get them started.

• It’s important for you to be able to trust your financial planner. Here’s how to conduct a background check and warning signs that something may be amiss.

You’re going to have to pay tuition and residence costs long before the kids head back to the halls of higher learning. So it’s time for you to learn something new too.

Here are five things to keep in mind as you tap your RESPs:

1. I was surprised when I first learned that only $5,000 of non-contribution money can be withdrawn in the first 13 weeks your kid is in school. “Non-contribution” money is the income earned and the CESG payments you received from the government. There is no withdrawal limit on contributed money. You’ll need to provide proof of enrollment at a qualified school to get money out the first time. After that, you can take whatever you want to pay for books, rent, tuition, and the like.

2. Only the original contributions to the RESP can be withdrawn tax-free. Income earned and grant money is taxed in your child’s name.

3. Since you can direct your financial institution to withdraw contributions or earnings, withdraw as much of the earnings and grant money as you can — as soon as you can — leaving the contributions in the plan the longest in case your kid drops out!

4. If your first child does drop out or doesn’t use all the money saved, transfer the rest to a sibling. Since the life of an RESP is 36 years, younger siblings have plenty of time to use the money. No sib? Then you’ll have to collapse the account. There will be a penalty on the non-contribution money if you don’t transfer that money to an RRSP.

5. No beneficiary is allowed to receive more than $7,200 in grant money so watch those family accounts carefully. Miscalculate and the government will take the extra grants back.

]]> http://www.moneysense.ca/2011/07/07/5-resp-rules-you-should-know/feed/ 3 http://www.moneysense.ca/2011/03/24/bringing-sims-to-student-life/ http://www.moneysense.ca/2011/03/24/bringing-sims-to-student-life/#comments Thu, 24 Mar 2011 20:59:05 +0000 MoneySense staff http://www.moneysense.ca/?p=12492 Sydney, N.S.- based company MediaSpark Inc. has teamed up with IBM to bring business literacy and fun to Ontario schools.

After winning an Ontario Ministry of Education grant, MediaSpark and IBM will supply 900 schools with software that provides students with realistic simulations in business related fields of entrepreneurship, accounting, financial literacy and personal finance skills.

Following recent trends of social media exploration, alternative learning methods have been on the rise. The classroom has become a hybrid of traditional learning styles where abstract ideas of personal finance are transformed into tangible concepts.

The game, described as flight simulation for business and financial literacy is targeted for students in grades seven to 12.

Going beyond the traditional academic method of learning, which MediaSpark CEO describes as ineffective, the game puts learning literally into the hands of students.

Most people’s first response to, “Why aren’t you saving?” is, “I don’t have any money to save.” Did you know that the Canada Learning Bond provides $500 for low-income families to establish a RESP account and allows for an annual contribution of $100? And yet the program only has about an 8% participation rate.

If you haven’t been contributing to an RESP for your kids, it’s not too late to catch up on the whopping grant money gift. As of 1998, the CESG accumulates every year for a child until December of the year she turns 17.

There is no maximum for what you can put into an RESP each year, but there is a lifetime limit of $50,000. But since the maximum CESG a child can receive in a calendar year is $1,000 provided grant room is available, don’t be tempted to catch up too much at once. Each year you can catch up for roughly one year of missed contributions if you want to make the most of the CESG.

There are three types of RESPs available in the marketplace: individual plans, family plans and group plans. I’m not of fan of Group RESPs – typically called Scholarship Trusts. A study prepared for the federal government found that group plans have a number of drawbacks including enrolment fees and preset contributions, forfeiture of enrolment fees and the inability to transfer plans, no entitlement to investment income if the plan is cancelled, and high fees.

If you haven’t opened up an RESP for your wee one yet, today’s the day. It doesn’t have to be a ton of money. Can you manage $100 a month? $50? $25? Just get started. And the next time The Grandparents want to know what to get your Mini-Me for his birthday, a toy and a small contribution to his RESP will keep him happy on his special day and give him options in the future.