It's Never Too Early To Think About Education Funding

There may not be much inflation in the broader economy at the moment, however post-secondary education is an exception.

According to Statistics Canada, Canadian full-time students in  undergraduate programs paid 3.2% more on average in tuition fees for the 2015/16 academic year this fall than they did the previous year.

The increase in tuition costs in 2014/15 was 3.3% higher than tuition costs for 2013/14.

On average, undergraduate students paid $6,191 in tuition fees in 2015/16 vs. $5,998 a year earlier.

Undergraduate students in Ontario paid the most: $7,868.

(click on the table to enlarge it)

And that is just tuition.

There will be food and shelter, books, computers, activities and possibly travel costs to add on.

So parents (and grandparents) who might want to think about this in advance, if your "youngin'" is going to want a post-secondary education (and hopefully we all wish for this to be the case), then it is going to get significantly more expensive in the future.

The RESP is an excellent vehicle for building education saving for the long-term, but do not fall into the trap of getting caught in an expensive managed plan (and there are lots of salespeople out there who will be trying to take advantage of you, even your local bank branch). Anything managed is going to have a cost to it, so be extremely careful to check the fees, commissions and other costs associated with setting it up.

New parents, the best time to start is right away. You will need a social insurance number for your newborn to open an RESP account.

Best part of it, the Canadian government (and in some cases, your provincial government) will top-up your contribution.

The Canadian Education Savings Grant will give you an additional 20% to a maximum of $500 of what you put in.

So to maximize the grant, put in $2,500 each year (per child) and it will turn into $3,000. You cannot beat this "risk-free" return.

If you miss a year of contribution, you can make it up.

If your child is 5 and you are just staring now, you can "catch-up" 1 missed year, each year: so for the next 4 years you can "double up": $5000 each year and the grant will give you $1,000.

When the government is going to give you money, you should take it. It also beats inflation handily.

There are plenty of strategies for growing this money and the tax on the growth will be deferred until it is withdrawn. When it comes time to utilize it, it is taxed in the hands of the beneficiary (your child). In most cases they will have little if any taxable income, so they will likely not be paying any (or significantly less than you would) tax on the withdrawals.

There are also lots of strategies for withdrawing the money as well, but I would have to defer to my star wealth forecaster and CFP (Bianca) for those!!

bianca@highrockcapital.ca

www.highrockcapital.ca