Most parents have barely taken their baby on their first stroller ride when they start to wonder how to pay for a university education. There’s a lot to figure out. Can they afford it? How much will they need to save? And what’s the proper way to invest their money now? With Canadian universities estimating that a single year of post-secondary expenses—including tuition, room and board, food, transportation and books—costs between $18,000 and $25,000, the price tag for four years can easily reach $80,000 or more. Further, recent studies by the Canadian University Survey Consortium show that Canadian post-secondary students leave university with an average debt load of $27,000. But don’t feel discouraged by the steep costs. Having a plan will make things feel far more manageable. “Life is so busy,” says Annie Kvick, a certified money coach in Vancouver. “It pays to put milestones in your calendar . . . when there may be a little extra money to put toward your child’s education savings, like when daycare costs are done, the mortgage is paid off or the stay-at-home spouse goes back to work.”
Here’s a step-by-step—and stage-by-stage—guide to helping your child pay for school.
Kids aged zero to two
This is an expensive time for families. With daycare bills, a mortgage and new baby gear straining the household budget, there’s little cash left to save for a distant post-secondary education. “The best investment you can make at this time is simply paying off your non-deductible debt,” says Al Feth, a registered financial planner in Kitchener, Ont. “Especially credit cards with 18 per cent interest rates—those should be the priority at this stage.”
But even if you have personal debt, it’s still a smart move to open a registered education savings plan (RESP) for your child. It’s simple and convenient. Your money might be tight, but family members and close friends might make contributions as birthday and Christmas gifts. It can add up quickly if you make a point of depositing right into the RESP. “It’s a good cause as opposed to just buying toys and more clothes for the child,” says Kvick. “Grandparents especially love to have this option available to them.”
At this stage, it helps if you understand a bit about how RESPs work and how you can use them to maximize their savings potential. An RESP is an investment account introduced by the federal government in 1972, modified in 1998 to include a grant from the government, designed to help you save for a child’s post-secondary education. Not only does the money grow tax-free, but the government contributes generous grants. Setting up an account is easy. All you need is a social insurance number for each child. “It’s a chaotic time, but as soon as they’re born, get them a SIN and open an RESP for them,” says financial educator and personal finance columnist Bruce Sellery. “That’s what I did for my daughter Abby seven years ago, and she now has $32,000 in that account.”
What are your start-up options?
There are three types of RESPs available: individual plans, family plans and group plans. Group RESPs—typically called scholarship trusts—aren’t a good choice because they typically have high fees, pre-set contributions and no entitlement to investment income if the plan is cancelled. And while individual RESPs, which are plans that pay for the education of just one beneficiary, are available as self-directed accounts at your local bank, the best idea is to set up the RESP account as a family plan there. With a family plan, more than one child can benefit from the savings—which works well when there are multiple kids. Opening a trust is also an option, but that’s not a good choice for most families. “Trusts are really beneficial for people who have $500,000 as a minimum to invest for their child,” says certified financial planner and father of two Jason Heath. “I don’t think they work for accounts with $10,000 or $20,000 in them like most RESPs.”
More on ‘How much you should save’ & ‘Deciding how to invest’ here