Think your little Einstein is destined for a stellar academic career? There's no better time to start saving than today. A reasonable estimate for a four-year undergraduate degree 20 years from now is a cool $101,000. "The earlier you can start saving for a child's education, the better, and save as much as you can afford," says Leigh Vyn, a certified financial planner, coauthor of Tax Tips for Canadians for Dummies and vice-president of taxation with the WaterStreet Group in Burlington, Ont.
According to Vyn, the best saving option for parents is a registered education savings plan (RESP), which you can open to fund for a child's post-secondary education. To reach $101,000 in 20 years, for example, you need to contribute $208.22 a month, earning a seven per cent rate of return. The good news? "Any income earned inside an RESP is tax-deferred, and when the tax does become payable, it is taxed in the hands of the student, which means very little to no taxes in most situations," says Vyn. The lifetime limit for contribution is $50,000 per beneficiary.
Other options: Consider investing in real estate or mutual funds or opening a standard savings or investment account in the child's name, says Vyn. "The drawback here is if it's the parents' money that is being deposited into the account, any interest or dividend income earned on this money will be taxable in the hands of the parent," she says.
Reality check: "With the rising costs of tuition and associated living costs, many parents simply cannot afford to foot the entire bill for their child's education," states Vyn. Encourage your child to get involved and save a portion of his earnings from a summer job, for example. And let his grades pave the way, too; thousands of scholarships and bursaries are available to Canadian students. Visit Canlearn.ca for information on scholarships and other assistance available to students.
Budgeting for a university education is about more than books and tuition
A recent poll by BMO Bank of Montreal revealed that 53 per cent of students received a failing grade when it came to estimating the full cost of going to university – and almost half admitted to running out of funds. Many students are unprepared for the day-to-day expenses associated with university life. The best way for students to hit an A in finances is to develop a realistic budget that includes the following.
• Student fees
• Textbooks, supplies and computers (software and Internet)
• Health care
• General living expenses and groceries
Read more: Investing in your child's higher education.