By Peter Lewis
Here it is, midsummer… and no doubt the last thing on your mind is the thought of paying for your children’s post-secondary education! But the title of this article at least caught your eye, so now that I’ve got your attention, let’s talk about paying for college or university.
No matter how old your school-age children are right now, if you’re like most Canadian parents, you don’t and won’t have enough money to pay the full cost of their post-secondary studies, when the time comes. You may be aware that university tuition fees alone can cost roughly $5,000-$7,000 a year, depending on where you live and the area of study chosen. College fees may be less – but they’re still a lot more than most families are used to paying for education.
Add to the cost of tuition such expenses as residence or rental accommodation, books, meals, transit, travel home, etc., and most families with children heading off to university find themselves having to manage total costs in the neighbourhood of $15,000 a year. And that’s in 2007. If your children are still a long way from post-secondary, then you know that inflation alone is going to move that figure up into the $20,000 a year range within a decade or so. Over the term of a 4-year degree, you could be looking at a total bill of $70,000 – $80,000 for each child by the time they’re ready to graduate.
Clearly, it’s a daunting thought. But it’s also not too early to do something about it, and you have both the power and several options to choose from.
Probably the easiest and most prudent thing to do is to start a Registered Education Savings Plan. There are two main types of plans to choose from:
- self-directed plans that you can open through a bank or other financial institutions, contribute to as you wish, and direct the investment strategy along with an adviser; or
- group plans, where your monthly contributions are “pooled” with other investors’ payments, and invested and managed by a trustee on your behalf.
In an RESP, your money accumulates and grows through investment, and no taxes are paid while the money remains in the plan. When your child begins their post-secondary program, the income earned starts to be paid out to your child (in the form of Education
Assistance Payments). Tax then becomes payable to the government, but at your child’s tax rate, which will presumably be very low at that stage of his or her life.
While education savings plans have been available in Canadian since the 1960s, it’s only in the last decade that governments have recognized what a strong incentive they are for families to save and promote post-secondary education for their children. The federal government provides two incentive programs to encourage families to participate in RESPs:
- The Canada Education Savings Grant (CESG) provides as much as $7,200 in additional savings to all families who invest in an RESP, depending on the amount a family saves; and
- For children who qualify for the National Child Benefit Supplement, a Canada Learning Bond (CLB) can provide up to $2,000 over a 15-year term.
Residents of Alberta and Quebec can also benefit from their provinces’ savings incentive and grant programs – all of them designed to not only encourage the opportunity of a complete education, but also, to make it financially possible.
It’s estimated that nearly 7 out of every 10 jobs in Canada today requires more than just a high school education. Unless your children are very lucky or very entrepreneurial – or both – they’re going to need a post-secondary diploma to achieve the level of success that you, and they, dream about.
So while you’re lying there on a chaise on these hot summer days, with your little ones enjoying the lawn sprinkler, the pool, or the beach… perhaps it would be a good idea to make a mental note to look into an RESP… before those children turn into grandchildren!
Peter Lewis is Chair of the Registered Education Savings Plan Dealers Association of Canada.