How to save for your child’s post-secondary education

With her oldest son, Jaeden, about to turn 12, Rebecca Flynn is feeling the pressure to start squirreling away money. “I don’t know what it is about this age, but it’s hitting me that he’s creeping closer and closer to adulthood, and that we need to start setting money aside to help him for college/university,” says the Omemee, Ont. resident. The problem is, she and her husband aren’t sure how. Living on one income for years has proven difficult, especially with Rebecca currently in university and raising four children.

Their situation isn’t unusual. Whether it’s because of financial strains or simply getting a late start at saving, 55 percent of Canadian parents say they will require government support to help with their child’s post-secondary education, while just 46 percent were currently in savings mode, according to a 2011 Ipsos Reid poll.

Thankfully, the news isn’t all bad. Experts agree it’s never too late to start investing and cite numerous options for setting funds aside. “Ideally the time to start saving is as soon as your child is born, but putting away money for their education can be done at any point,” says Bryan Sommer, financial planner at Interconnect Financial Services in Surrey, B.C. The first step to getting the investment ball rolling is to understand the options available.

Start with a Registered Education Savings Plan (RESP). Contributions  grow tax sheltered, but best of all, the federal government pays you for saving for your child’s education, a maximum of $7,200 per child. Through the Canada Education Savings Grant (CESG), you get a 20 percent grant per contribution. While the free money is limited, RESPs don’t have an annual contribution limit. Other people can contribute to them, too (makes a great gift!).

That said, restrictions apply based on the age of the child. For example, if your child turns 15 this year and has never had an RESP, you must invest at least $2,000 before December 31, 2015 to qualify for the CESG. For teens older than 15, Bryan suggests putting money into another tax-sheltered vehicle like Tax Free Savings Account (TFSA) since it can grow and compound tax free.

You can open a self-directed RESP at your financial institution or with a financial planner. Group funds are another option. Also known as a scholarship plan, investors pool money together, and how much each child qualifies for depends on a) the plan’s account total and b) the number of students of the same age in school that year. Another benefit of this type of plan? It allows for greater choices and flexibility in terms of fund withdrawal and the type of post-secondary studies pursued.

Bryan says having your child contribute to their investment is another way to increase its value while encouraging fiscal responsibility (see below). “It gives them a sense of ownership over their future,” he says. “It’s like anything you work for; once you put in the time, effort and thought toward paying for something, you’re much more likely to take care of and value it.”

Don’t have enough money to get started?

If you receive the National Child Benefit Supplement for low income families, your child may be eligible to receive a Canada Learning Bond (CLB) for as much as $2,000. This money gets deposited directly into your child’s RESP. The CLB will provide an initial $500 for children born after January 1, 2004. Employment and Social Development Canada also kicks in $25 to cover set up fees with the first $500 bond. Then the CLB pays $100 a year for up to 15 years, or as long as you are entitled to the NCBS.

Children who are in care of a public primary caregiver who receive a special allowance under the Children’s Special Allowance Act, are also entitled to the CLB. (If the child ends up not doing any post-secondary education, the CLB is returned to the government.)

Teachable moments

Teaching your teen to save can be an exercise in determination, but it’s worth it. Try these tips.

• Get your teen involved in your household budget. Show them how you track incoming funds and where these funds are allocated each month. “Involving them in the process and teaching them how to track finances won’t necessarily be the most exciting thing they’ve ever done, but helping them understand the value of saving early on will only benefit their future,” Bryan says.
• Instead of just forking out money the next time your teen asks for it, have her work for it. Doing special jobs around the house to earn commission/allowance is a great way to teach monetary cause and effect. (see Touchy Subjects on opposite page).
• Offer to match or at least contribute to their saving efforts according to what you can afford. Teens crave parental praise and support, and showing your willingness to invest in their success is a great way to encourage responsible habits.

Originally published in ParentsCanada magazine, April 2015.