Sending the kids back to school this fall, many of us parents begin to contemplate just how quickly the time passes. It seems like just yesterday they were tiny babies in our arms, and one day not too long from now we’ll be sending them off to university or college. This last thought prompts a more serious question – will you be ready financially when that day comes?
In 2014 the average cost for one year of tuition at a Canadian university was $5,772, which translates into upwards of $23,000 for a four-year degree. When you factor in the cost of textbooks and living expenses, that figure can easily double or triple. See below a chart to help you figure out how much savings you’ll require for your child, based on their current age.
Savings required for tuition
(if you’re starting from $0 today)
Year of H.S. Graduation
|2016 (Grade 12)||
|2020 (Grade 8)||
If you are one of the parents that can say that they are 100% financially prepared for that type of financial obligation, you are in the minority. Although the generally accepted knowledge when it comes to saving for kids’ post-secondary education is pretty simple – save early, earn more – research shows that many Canadian parents are still behind the game, waiting too long to start saving, not saving enough and not being aware of all the government programs available to help them save and leverage. Recent research has also shown that 33% of parents have assumed additional debt by paying for their kids’ post-secondary education. I don’t think any of us want to be in that position!
The good news is that there is never a bad time to start saving for your children’s post-secondary education. True, the earlier you start saving the easier it will be to reach your goals and to earn more along the way but it’s never too late to educate yourself on your options and get started.
Here are some considerations.
Registered Education Savings Plan (RESP)
This is the most popular way to save for your children’s post-secondary education, for many reasons. RESP’s can be started for any child at any time in their lives by any of their loved ones. RESP contributions grow tax-free and there is no annual limit to contributions (although there is a lifetime limit of $50,000 for each child, after which you have other options for saving). Another perk of RESP’s is they allow you access to other government grants designed to help you save for, and maximize your investments into your children’s post-secondary education, such as Canada Education Savings Grants (CESG’s) and Canada Learning Bonds (CLB’s).
Canada Education Savings Grant (CESG)
If your child is a Canadian resident and has an RESP in their name, they are also eligible for a Canada Education Savings Grant (CESG), up until the end of the calendar year they turn 17. CESG’s allows you to receive 20% of your annual RESP contribution a year (up to a max of $500, or a contribution of $2,500). The lifetime maximum you can receive is $7,200 per child. Additionally, depending on your household income, you may be eligible to earn another 10% or 20% on the first $500 you invest in your RESP.
Canada Learning Bond (CLB)
The CLB is another government grant, which can range up to $2,000, designed to help Canadian families leverage their RESP’s. (To qualify for this grant, your family must receive the National Child Benefit Supplement.)
Saskatchewan Advantage Grant for Education Savings (SAGES)
The Government of Saskatchewan will provide a grant of 10% on contributions made since January 1, 2013, into a Registered Education Savings Plan (RESP) to a maximum of $250 per child per year. The maximum lifetime SAGES grant is $4,500 per child.
Once you’ve maxed out your contributions through your CESG, there are also other channels you might explore for saving for post-secondary education. Options include tax-free savings accounts, trust funds, and more.
Regardless of your situation, the best route forward is to talk to your financial advisor about which options are best for you and to help you design a plan that will help you achieve your goals.
Here’s a helpful scenario for you to consider, courtesy of the Government of Canada.
Rick and Diane have a three-year old daughter named Hayley. If they put $25 every two weeks into Hayley’s Registered Education Savings Plan (RESP), that adds up to $650 a year. Their investment will also earn a $130 Canada Education Savings Grant (CESG).
Over 15 years, Rick and Diane keep contributing at the same rate. They keep earning CESG money on top of their own savings. If all this money grows at 5% per year, then Hayley will have almost $19,000 to help pay for her education. Of course, the amount will be even higher if Hayley’s grandparents or relatives also contribute, or if her parents increase their contributions.