As the New Year begins, now might be a good time to think about or revisit your plans to save for your children’s education, be it college or a university degree.
It’s a well-known fact that post-secondary education is a costly endeavour in this country. According to Statistics Canada, a post-secondary education can cost between $50,000 and $100,000 for a four-year degree program. That cost is expected to rise to more than $140,000 by the time a child born now is old enough to enrol.
Yet in spite of the costs, only half of Canadian parents are using a Registered Education Savings Plan (RESP) to save for their children’s education and only a third are taking full advantage of available government grants.
“Parents need to make saving for their children’s education a priority by budgeting for it as well as taking advantage of the RESP, Ontario Student Aid Program (OSAP), scholarships, bursaries and other programs and opportunities,” says Peter Skoretz, a financial adviser with Edward Jones in Burlington, Ont.
A total of up to $50,000 can be contributed into an RESP for each child named who is enrolled in qualified educational programs. There is no annual contribution limit and the government will add a grant of up to a maximum of $7,200.
Income and capital gains can be generated and grow within an RESP through investments such as stocks, bonds, mutual funds, and guaranteed investment certificates until the children are ready to pay for their post-secondary education. They only pay income tax on the gains earned by the plan and the grants as funds are withdrawn, which usually is low because the income of most post-secondary students is very limited.
“This is a fantastic program because you can get a grant and also grow the money,” says Skoretz. “If the child is younger you can be more aggressive with the investments than if the child is older, say a teenager, because you have a longer time horizon for the money. In either case we recommend parents take advantage of this plan.”
OSAP is a provincial funding program for students attending college and university education. The primary component of the program consists of loans but it does also contain bursaries, scholarships and/or grants which do not have to be paid back.
There are other ways to help mitigate the high cost of a post-secondary education.
“Individual schools and programs often will offer bursaries and scholarships,” Skoretz says. “You often have to apply for these in advance but it’s a good idea to check and see what’s available and what your child might qualify for.”
Of course, students can help out by putting money from summer jobs towards their education and even take on part-time jobs during the school year to help out.
Many technical and trade schools offer co-op programs where students work to complement their studies.
And then there are basic budgeting and money management measures such as preparing a budget for your child and avoiding the use of credit cards. If your student child does have a credit, ensure that it has a small limit and the balance is paid off each month to avoid building up debt.
“Many students are living on their own for the first time and may have a tendency to let loose a bit and have a fast time,” says Skoretz. “Parents need to coach their kids on how to prepare a budget, stick to it and manage their money wisely.”
Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.