Monday, August 28, 2017
Saving for a Child’s Education
I have heard it is estimated that it costs over $200,000 to raise a child to adulthood in today’s society. Things like food, clothing, activities and of course education cost an arm and a leg. I know from firsthand experience that kids can be a huge financial burden. My brother and I basically made my parents poor and it was only after we left home that they were able to live a normal life. When it comes to making sure your children are set up to have a successful life there are many factors to consider. This week we will be going over many of them in order to give you the proper information that will help you on your parenting journey. In today’s post, I will be going the most expensive single cost in raising a child, education. In today’s world, post-secondary education is a must as you don’t even get your foot in the door without it. Many parents have the dream to help their child with their educational costs, but then fall short due to improper planning. Today’s post will show you the importance of educational savings plans and how they give your child a leg up.
1) Tuition Costs are Insanely Big
I remember when I was in university and every September tuition cost a little bit more than the year before. On average tuition rises 3% per year in Canada. In the province of Ontario, the average tuition for an undergraduate student was $7,539 in 2014. That is getting disturbingly high. You are now approaching the 30K mark for a 4-year degree in tuition alone. Add to that housing costs, food, books, and the occasional pair of jeans and you could be running 50K or more to get that amazing piece of paper. I personally think it is morally wrong to saddle a 23-year-old with that kind of debt but the question remains: What can we do about it? Taking small steps now make a huge difference in the long run. That is where education savings plans come into play.
2) You would be stupid not to take free money
I have always said the best kind of money is free money. What a beautiful country we live in where the government will reward you for planning ahead. The Registered Education Savings Plan (RESP) is an amazing vehicle to save for your children’s educational needs. Here are some RESP basics:
Lifetime Contribution Limit: $50,000
Lifetime Grant Limit (Free Money): $7,200
Maximum Grant Money Per Year: 20% of contribution up to $500 per year ($500 grant = $2,500 contribution)
Tax Implications: Growth is tax sheltered and withdrawals are taxed at the recipient’s tax rate, which is usually low due to the person being in university, receiving tax credits and having a low income.
All these benefits make the RESP hard to beat when it comes to saving for your child’s education. I was sold on the free money, but the sheltered growth and a low withdrawal tax rate are very nice as well. This account becomes essential tax-free so it is really a no-brainer in my opinion.
Five ways to save for your child’s education – other than RESPs – The Globe and Mail
3) Help with Educational Costs sets your child up for success
I know from firsthand experience that university can be a struggle if you don’t have your finances in order. Every August was a battle to get student loan money and then to afford books in September was almost impossible. I also worked full time while studying full time just to be able to afford rent and food. It was exhausting and not very good on my mental state. Because of this stress my grades suffered. I wish I went to school knowing coming up with a meal or keeping a roof over my head wouldn’t be an issue and I envied those who were able to fully concentrate on their studies. I know several people who had educational costs covered and they all seemed to graduate on time with great marks and then transitioned into working life very smoothly. If at all possible you should try your best to provide this for your children. It is a huge gift that they are sure to not forget in their lifetime. Beginning your adult life debt free as opposed to burdened with massive student loans is absolutely priceless.
Download your FREE Monthly Finances Worksheet and get your monthly budget on track! – Budget Boss
4) If you are on your own, take these steps
I have mentioned why parents should save for their child’s schooling. What do you do if you are in school already and don’t have financial support from someone else? You have to be diligent, persistent and strong. If you must take out a student loan then you have to try your best to save some money as well. Summers should be spent working to save money for the school year as opposed to beach parties every day. During the year pick up a part-time job if you can. That little extra money can cover food costs and even rent if possible. Make sure your student loan is strictly for essentials like housing, utilities, and books. Blowing OSAP money on clothes is foolish and yet many people do it every September and January. Apply and try to get any free money you can in the form of bursaries, grants, and scholarships. It all adds up so take some time and apply. You also have to do your best to limit any other debts during your time in school. Things like Lines of Credits and Credit Cards can crush your cash flow when you are out of school and even make it hard to exist during school. You have to be ruthless with not acquiring extra debts.
My 7 Worst Money Mistakes – Budget Boss
Education is the key to many people’s success with financial freedom moving forward. The problem is education costs are growing at an alarming rate. It is a terrible feeling to be a young adult who owes thousands of dollars in the form of student loans. For some, it may take years to pay them back. I know people in their thirties who still have student loans and it is definitely not a good feeling. Taking the small steps early on in a child’s life can set them up for a prosperous life after post-secondary education. I personally think opening up an RESP is a slam dunk and everyone with a child should have one. Even those with low income get extra money from the government if they cannot contribute much every year. They say education can set you free, sadly student debts can make you feel like you are in jail.
“Education is the passport to the future, for tomorrow belongs to those who prepare for it today.” – Malcolm X
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