Tips to Help You Save for your Child’s Education
Postsecondary education costs have increased a lot in the last decade or so. According to a Statistics Canada report released in 2016, Canadian full-time students in undergraduate programs paid an average of $6,373 in tuition fees for the 2016/2017 school year. This is up 2.8% from the 2015/2016 school year and about 40% more than tuition cost ten years ago.
The rising costs of tuition mean that more and more parents are needing to provide more and more help with paying for school. This added expense can be tough. Here are several tips to help you save for your child’s education.
As mentioned, education is expensive. So, it makes sense to start saving for it as early as possible. After all, it’s usually more financially feasible to save $2000 a year for 16 years than it is to find $32,000 all at once.
Plus, if you start investing in your child’s education early, your investment has more time to grow. This means you’ll actually need to put away less to receive the same amount when it’s time to start school.
A Registered Education Savings Plan (RESP) is an investment option that is specifically designed to save for education. This means that you can put in money annually, monthly, or however you’d like and invest the money in mutual funds, GICs, treasury bills, stocks, bonds, etc. This is a good option for saving for your child’s education.
Contributions are not tax-deductible, but they do grow tax-free in the RESP until your child goes to school. Once the money is taken out, it becomes your child’s money, which mean that it’s taxed at their tax rate, not yours. Since a child going to school will likely have a low income, they won’t pay much in tax.
Perhaps the most useful part of an RESP is that the government adds 20% to your contribution, up to $500 a year, to a lifetime maximum of $7200. This means that if you contribute $2500 to an RESP, you will automatically receive $500 extra. This makes contributing to an RESP a very good deal.
Set a Goal
Use online tools to figure out how much you will have to save. It’s always important to have a goal when saving.
So, how much money will you need to save for education? There are several online calculators available where you can find out the average tuition fees in provinces across the country. These will help you figure out how much you’ll need to put aside to attend specific schools and programs. Remember, there will be costs other than tuition, such as buying books, housing and transportation costs, and more.
Talk to your bank about automating your investment. Some banks allow you to put aside a certain amount of money each month (or even each week) and automatically direct this money into an account for education savings. When it’s automated, you won’t be able to forget about contributing. Plus, if the money is taken directly out of your bank account, you won’t even notice that it’s gone.
Discuss it With Your Kids
Obviously, you can’t reasonably expect to have a real discussion about saving for school costs with a toddler. However, once your children get a little bit older you can start having conversations with them.
Even children as young as six or seven years of age can learn about the costs of education. Let them know that going to school costs money and encourage them to put aside monetary gifts (money they’re given from grandparents, etc.) into their education fund. Let them know that this money is going towards their future.
Once children reach high school age, you may want to talk to them about where they see themselves going for university or college. Do they want to live at home or are they hoping to live in residence? Let them know that there are different costs with each option and that attending a far away school will come with some additional financial commitments and sacrifices.
Encourage your child to get a part-time job to help pay for school. They can work evenings and weekends, or during summer break, to earn some money for their education. This will teach them important lessons about budgeting, working towards their financial goals, and how to balance priorities.
You’ll also want to sit down and discuss various funding options, such as grants, scholarships, and student loans. If your child will be taking out a loan to help pay for school, it’s important that they understand what this means and how these debts could affect their life after they finish school.