What will your children be when they grow up? Everyone's answer is different, but one wish is nearly universal among Canadian households. A 2002 Statistics Canada survey showed that more than 93 per cent of parents in Canada wanted their children to have a post-secondary education.
College and university aren't cheap, and costs are rising. It's one thing to want your child to pursue higher education; it's another to pay for it. Here are some things to consider when starting to save.
The sooner, the better
Acumen Research reports that 60 per cent of university applicants don't discuss educational finances with their parents until after Grade 10. "It happens way too late," says Sean Junor, manager of knowledge mobilization for the Educational Policy Institute.
Not only should your saving start early, so should your research. Junor recommends beginning by asking your child something as simple as "what are some of your interests?" Identifying your child's interests allows you to learn more about relevant programs including:
• Are they offered at the college or university level?
• Are they available nearby or will your child need to live away from home?
• How many years of education are required?
Answering the above questions gives you a better idea of how much to save while focusing your child's academic goals. "It really is the engagement of a conversation about planning and preparation," Junor says. "It's about what it will mean to go to school in the big picture."
Determining how much you can save
What's important when starting to save for school, says Junor, is making a plan that works for you and your family. "You've got to start somewhere," he says. "The key is to sit down and determine how much you have at your disposal to start saving right now." (Savings calculators are available at many sites including TD Canada Trust and Heritage Education Funds.)
Page 1 of 3 -- Discover more great tips on saving for your post-secondary education on page 2.
You know you should save, you're ready to save -- now, where do you put your money? The many options available can be most easily broken down into registered or nonregistered savings plans.
Registered Education Savings Plans, or RESPs, already account for a substantial percentage of educational savings in Canada, and that share is growing all the time. The following benefits offered by RESPs make them hard to turn down:
• Free money. The federal government matches contributions you make through the Canada Educations Savings Grant and helps modest-income families get started saving with the Canada Learning Bond. Albertans are eligible for even more money from the Alberta Centennial Education Savings Plan.
• Less taxes. RESP contributions grow tax-free. Because money paid out of an RESP is taxed in the hands of the student and many students have little or no income, withdrawals are often tax-free, too.
• Flexibility. Even if your child doesn't immediately attend university or college, you still have several options for accumulated RESP contributions. You can wait and see if he changes his mind; you can use the money to send a brother or sister to school; you can transfer the money to an RRSP to maintain its tax-protected status; or, if all else fails, you can withdraw your money (although government contributions will likely have to be returned).
You'll find detailed answers to your RESP questions and a list of RESP providers on the Government of Canada's website.
Page 2 of 3
Despite the growing popularity of RESPs, there are sometimes good reasons to consider nonregistered savings options. The choices are nearly limitless and include savings accounts, GICs, bonds, equities and more. For the reasons listed below, the most popular is an "informal" or "in trust" account.
• The sky's the limit. Unlike RESPs, there is no restriction on the contributions you can make to an in-trust account. Extended family and friends can pitch in, contributing as much as they like, and you'll never run out of space.
• Restriction-free. Just because the funds were originally intended for post-secondary education, there's nothing stopping your child from using them for another purpose such as starting a business or buying a home.
• Tax benefits. While contributions don't grow tax-free, in-trust accounts do provide some tax relief through income-splitting with the beneficiary -- your child. You'll have to pay some tax, but not as much as with a regular investment account.
For tax and legal purposes it's important that an in-trust account be set up properly. Get help from your legal or financial adviser if you decide to follow this route.
The Canadian Bankers Association offers further details on post-secondary savings options.
Other ways to help
Best intentions aside, sometimes it's simply impossible to find the dollars to put aside for educational savings. That's where what Junor calls "soft support" comes in. "Parents help students when they're in school with stuff that students aren't ever expected to repay," Junor says. He lists allowing a child to live at home rent-free, paying for their groceries and letting them use the family car as contributions that can add up to thousands of dollars' worth of savings.
There's no such thing as "too little, too late"
Yes, saving early is great. And, yes, it would be great to be able to pay for your child's entire education. But even if you can't pay for everything, you can open up options for your child. "Be involved, get engaged," says Junor. "Every savings step you take makes it easier.