Amidst the activity of getting my two school aged children ready for back to school, two news stories really caught my attention this past week. The first was a recent CIBC poll that discovered 60% of Canadian parents with children under the age of 25 have saved less for their retirement in lieu of paying for their children’s education. The second was the uproar over an additional 2% surcharge being passed on to the many students at Memorial University who had to pay their tuition via credit card this year.
If you are a parent of a young child, you need an education savings plan. Period.
Yet with all the other demands on our cash flow, many struggle to free up the recommended $2,500 per year that experts say we should save for each one of our children. As a generation sandwiched between paying off our own student loans and saving for our child’s education, it’s tough. I get it.
However, the reality is if you and your spouse are working when it’s time for your child to go to college, university or trade school, chances are you are going to have to pay for it anyway so you might as well start setting something aside now. I firmly believe the mere habit of saving is more powerful than the actual amount you save. Even if all you can afford is $25 per month, do it. Here are a few other strategies that I’ve seen work over the years:
• Increase your RESP contribution by at least 5% each year to stay ahead of inflation.
• Ask grandparents or other family members to pitch in.
• Develop an annual “top up” ritual, perhaps using your child’s birthday money.
• If you don’t pay for childcare, direct the $100/month Universal Child Care Benefit you receive until age 6 to your child’s RESP.
• If you do pay for childcare, as soon as your child starts attending primary school full time and your daycare bill decreases, decide how much of that savings you are going to direct to his/her RESP and make it happen.
• When your child starts to earn an allowance or income, have them contribute to their RESP and explain how it works. A child who helps pay for his/her education will likely take it more seriously.
Make it a priority as a family and I assure you the dollars will take care of themselves.
I’ve helped hundreds of families save for education and assisted hundreds more with accessing their RESP funds. No one has ever said they felt they contributed too much money to their RESP. Even for those families whose children didn’t continue to post-secondary, they were glad to be able to withdraw the funds (including interest) to help them get established, or pass the plan on to another child or roll the proceeds into their own RRSP. In any scenario, having an RESP gave them choices and, with that, freedom.
I’ll never forget sitting with a young family early in my career. I was enthusiastically giving my spiel about how RESPs work, the grants, the tax incentives and so forth, oblivious to the fact that they had started to glaze over and had stopped listening. Mercifully, the father finally interrupted my rookie rambling. “The way I look at it, missus, we’ve got two choices. We can save whatever we can now and have the government throw in a few dollars to help us out. Or we can do nothing and end up borrowing the money in 18 years and paying back more than we actually needed.”
I couldn’t have said it better myself.