Looking out on a future past Grade 12

Sunday, August 28th, 2005

EDUCATIONAL PLANNING: With university costs skyrocketing, it’s time to start saving

Wendy Mclellan

CREDIT: Arlen Redekop, the Province Vancity financial planner Leon Lau wants to set up RESPs for his own two children.

It’s almost time for the kids to get back to school and, even if September still means buying new crayons and shiny princess lunchboxes, paying for post-secondary education looms in the not-too-distant future.

Most parents want their children to have some education after Grade 12, but putting aside the money can be difficult. At the same time, the cost of attending college or university in Canada continues to outpace inflation, rising by an average of 2.7 per cent this year, according to a recent survey by an Ontario-based education savings plan provider.

The study, published by USC Education Savings Plans Inc., estimates university students living at home will need $7,826 for this year’s tuition, fees, books and other costs such as transportation, clothing and entertainment. If they live on campus, the cost increases to an average of $14,500.

A four-year undergraduate program beginning this fall will cost an average of $33,354 ($61,554 if they live on campus). But, for babies born today, the cost could be more than $70,000 ($124,000 if they don’t live at home), according to the report.

“Post-secondary education costs have risen almost four per cent each year for the last 18 years,” said Michael Geraghty, president and CEO of USCI. “A summer job and part-time work during the school year is no longer sufficient to support a student’s education and living expenses. Families need to find ways to start saving earlier.”

Geraghty admits that it’s tough for parents to find the extra money to save for the kids’ education, but the federal government does reward people who manage it with a grant that pays a 20-per-cent annual rate of return on deposits to registered education savings plans (RESPs).

“Despite the grants, people aren’t taking advantage of RESPs,” he said. “They might be thinking about making the mortgage payments or paying for living expenses, but it’s also important to save for education.”

The government offers a 20-per-cent Canada Education Savings Grant on the first $2,000 of annual contributions to registered plans. That’s $400 a year, on top of interest earned on the money.

“It never gets easy to save,” Geraghty said. “But the choice is to save now, or take on debt down the road. The government is not helping you pay off the house, but it has recognized the importance of an education.”

He said research shows 70 per cent of jobs require some form of post-secondary education. Another study, by an analyst with the Association of Universities and Colleges of Canada in Ottawa, calculates the value of a college of university degree is $1 million over the course of a career.

Leon Lau, a financial planner with Vancity, said even small deposits — $50 a month — to an RESP will build over time so parents can help pay for their children’s education.

“As a parent, you want to teach your kids to be self-sufficient, and having an education is one of the main ways to do that,” said Lau, who has two young daughters.

“People have lots of priorities — paying off debt, saving for retirement — but if you have a little money to even start an RESP, it would be better than delaying.”

Lau wants to set up an RESP for his own children, ages 3 and 1, but money is tight and he may have wait and try to catch up later.

“My wife is just back to work after a year on maternity leave and there is no money,” said Lau, who lives in a townhouse in Coquitlam that his family is quickly outgrowing.

“Daycare is expensive and it’s not cheap to live in the Lower Mainland. It’s overwhelming.”

When the kids are in school and daycare costs drop, he hopes he will have extra money to save for their future education. Putting aside birthday money or gifts from grandparents will also help, he said.

“I want to have an RESP, but it’s not something I’m stressing about,” Lau said. “If you can’t do it, you’re forfeiting $400 a year and that’s not the end of the world.”

In fact, he said, paying off other debt, or contributing extra to a retirement savings plan may be better options for some families.

Some of his clients believe children should pay for some of their post-secondary education themselves. They may provide free room and board, and some of the tuition costs, but their children have to pay for the rest with part-time work and student loans.

He said parents should research the terms and conditions of the various RESPs available, as well as their fee structures, before signing a contract. Some plans have restrictions on withdrawals and what kind of education programs qualify.

“If parents want to help, they find a way,” he said. “If they have to remortgage, they will do it. But the grant is a terrific incentive to set up an RESP.

“I would like to pay for the whole cost for my kids, and I will find a way.”


An RESP allows parents — or anyone — to save money for post-secondary education. The plan is registered by the federal government and contributions are made in the name of one or more beneficiaries.

Contributions are not tax-deductible, and income earned on the money is added to the student’s tax return.

Deposits can be made until the child reaches age 21 and must be withdrawn when the student reaches age 26.

If the child doesn’t pursue a post-secondary education, the RESP can be rolled into an RRSP (as long as there is room) without penalty.

The government pays a grant of 20 per cent on RESP deposits to a maximum of $400 a year until the child reaches age 18, for a total maximum grant of $7,200 per child. The grant amount was increased this year for families with lower incomes.

RESPs can be topped up — and the grants received — if the plan is set up when the child is older, but there are limits. The maximum annual RESP contribution for each beneficiary is $4,000 and the lifetime limit is $42,000.

For more information on RESPs, the Revenue Canada website is www.cra-arc.gc.ca
or talk with your financial institution or an advisor.

© The Vancouver Province 2005

Comments are closed.