Tuition prices are on the rise, leaving many parents wanting to help put their children through post-secondary schooling. A four-year university degree can cost upwards of $60,000, making hefty student debt a reality for many Canadians. Saving for things like a home and family becomes even more difficult for recent graduates. While the price tag is daunting, post-secondary education is still is an investment in your child’s future. If saving for your kids’ education is a goal of yours, we share some advice on how to make it happen.
1. Start NOW
Saving for your kids’ education is an investment with a relatively short time-frame: approximately 18 years if your child will enter post-secondary education right after high school. Since it’s cheaper to save than to borrow, parents are better off starting early to accumulate funds than worry about how they are going to afford it when the time comes for their child to apply for school. RESPs (Registered Education Savings Plans) are the most common way to save for your kids’ education. The federal government provides a 20% grant on RESP contributions of up to $2,500 a year, with a maximum lifetime grant limit of $7,200. Not everyone takes advantage of this grant; if you can, maximize the annual investments to receive up to $500 on an annual $2,500 contribution. Learn more about the Canada Education Savings Grant.
2. Set up automatic contributions
Set up bi-weekly or monthly automatic transfers from the day your child is born, contributing the maximum amount you can afford; $200 bi-weekly is a good target. If you haven’t already, start now. Contributions don’t have to be large, but setting automatic contributions ensures it won’t be overlooked and your savings will start growing sooner. Other accounts like a tax-free savings account (TFSA) can be used if you’re already maximizing your RESP.
3. Invest wiselyAn RESP is an account that allows you to tax-efficiently grow your savings, but how you choose to grow your savings depends on what investments you hold in your portfolio. Invest wisely by creating a diversified portfolio that reduces risk and maximizes growth. An effective way to do this is to invest in exchange traded funds (ETFs) and mutual funds, which give you broad exposure to different areas of the market at a low cost. Investing involves risk, so only take as much risk as you’re able and willing to take. If you need advice, consult an investment advisor who will help you create an RESP portfolio that will make the most of your savings. Most importantly, be aware of the fees you are paying on your investments, and find a low-cost option that will minimize the impact on your savings over time.
4. Prioritize your other financial needs.
Saving for your child’s education shouldn’t be your only goal. Paying off debt, building your own emergency fund, and most importantly, saving for your retirement, should also be at the top of your financial to-do list. You may choose to prioritize saving for your retirement over your child’s education, so long as you understand that your child may have to take out loans or receive financial assistance in the form of grants.
5. Consider a gap year
Have your child consider taking a gap year before college if you need to build up funds. That will give each of you an added year to earn money. It also gives your child time to reflect on what they really want out of their education to make sure the investment is a good one. During this time, kids can work to build up some real life experience and also do more research to apply for scholarships and grants. You can choose a community college or look into schools that are close by to reduce residence and living expenses.
If you are unable to save for your child’s education, you can help them with motivation and education: encourage them to work throughout high school and earn good grades to apply for scholarships, and teach them about student loans and saving money at a young age.