September 15, 2016 / Published 9:00 AM EST / Tamara George
4 ways to save smart for your kids' education
According to a recent survey, only 20% of parents know how much university costs today; 80% weren’t able to accurately estimate tuition fees, 37% didn’t know how much to budget for other expenses like books, housing and food, and although 76% had set up Registered Education Savings Plans for their kids, many weren’t aware of how RESPs work.
A little knowledge can make a big difference in planning your child’s future. Tuition fees have gone up dramatically in recent years, and expensive specialty programs are gaining popularity. Many parents want to help as much as they can so kids aren’t saddled with big debts as they start their careers.
So how do you save enough to get your kids through school?
1. Do your homework. Whether your child is still in diapers or is heading off to high school, it pays to do some research into how much post-secondary education will cost. Here’s a rundown of costs by school in Canada and the United States. And remember, tuition is just a fraction of the total cost. You’ll also need to factor in books, food, transportation (if they’ll be living at home) and living expenses (if they go away). Also, if your child is thinking about studying in another country, tuition for international students is usually significantly higher than it is for locals.
2. Make a plan. Decide how much of your child’s education you plan to cover – and how much they will pay for themselves. Do you expect them to have a part-time job during school? (Pro: it’s a great way to teach responsibility and money management. Con: it can take vital time away from schoolwork.) Will they borrow money? Do you have additional savings beyond your RESP? Answering those questions will help you determine how much you’ll need to save.
3. Start saving now. Many parents regret not starting an RESP, 529 or another tax-sheltered savings vehicle sooner. A lot of people start saving as soon as their child is born. The Canadian government offers the Canadian Education Savings Grant to encourage parents to save. It matches your contribution up to 20% a year to a maximum of $500, until your child turns 17. (Here’s how it works.) The sooner you start, the more year’s you’ll be able to get the grant, and the more tax-sheltered compound interest you’ll earn. The 529 plan in the US also has grants available – they vary by state.
4. Get the whole family involved. “Grandparents often establish RESPs for their grandkids,” says Bob Chick, Investment Advisor and Associate Portfolio Manager, Manulife Securities Incorporated. “My clients feel better contributing to an investment in their grandchildrens’ futures than buying them more stuff they don’t need. They know an investment in education carries one of the highest returns imaginable.”
Need more options to help you save? Read The key to funding your child’s education, in which Bill Bell, Financial Advisor at Manulife Securities Inc., weighs in with a few additional savings ideas.