Last summer, while sitting in a restaurant having a quick bite, Darren and I ran into our neighbor’s daughter. She was preparing to head off to university in just a few weeks.
Darren and I both absolutely loved our experiences at University, so naturally we took the opportunity to give her tips and to ask a few questions (seriously, if either of us could go back to those University days, we would! We are totally those lame parents who constantly tell their kids about the good old days back in “Uni”).
The conversation was great until she told us how much money this first year was costing her.
Between tuition, books, lodging and a meal plan, she was coming up on $20,000.
My mouth dropped. I couldn’t believe it. It is more than double what I spent when I went to University. (Which I am starting to realize is not as recent as I like to think.)
Don’t get me wrong. We’ve been planning for the kids’ post-secondary education. We have RESP’s for them and were aware that post-secondary education is going to be expensive. Still, that number was like a punch in the face.
Next year my stepdaughter will be in her last year of high school and applying to post-secondary. My stepson is a couple short years behind her. This means that not only do we have four kids to put through post-secondary, but two of them will be there at the same time.
Needless to say, this chat with our neighbor sparked a lot of conversations about finances, saving and budgeting. Not just between us, but with my stepdaughter as well.
SIDEBAR: There is always a lot of confusion about how parents who are divorced, handle the costs of post-secondary education. Here is an article from Advocate Daily that helps clarify. From what I understand, in Ontario, it is considered an “extra-ordinary expense”, unless parents come up with an alternate agreement (e.g. the kids need to contribute X amount, or each parent will contribute X amount). However, if there is no agreement in place, it is defaulted to an extra-ordinary expense ratio.
So, when my sister gave birth to twins earlier this year, it didn’t take me long to start thinking about post-secondary education for her crew! Including her one-and a-half year old…she was a mama of three under two.
Since I knew she would be flooded with lots of gifts and onesies for the babies, we decided to do something different. Instead of your traditional baby gift, we gave them a contribution for the twins’ RESP.
She and my brother in-law were so thrilled, that now it’s my “go-to” baby gift.
Not only does this gift motivate parents to open up that investment account right away, in 18-years-time that money will be worth way more than the amount we gave. I think it’s a way more practical than a jumper that the kids will grow out of in just three-months-time.
It’s literally an investment in the babies’ future!
WHAT IS AN RESP (Registered Education Savings Plan)
So, if you’re not familiar with an RESP, here’s the low down from RBC:
A RESP is a tax-sheltered plan that helps you save for a child’s post-secondary education faster.
You don’t pay tax on earnings within a RESP (similar to an RSP – Retirement Saving Plan).
When you take out the money for education, the withdrawals are taxed in the name of the student –RESP earnings are taxed in the hands of the student when funds are withdrawn for education purposes, and since students are generally in a lower tax bracket, it often means little to no tax on the earnings.
If your kid doesn’t go to post-secondary education, you’re able to choose a new beneficiary for the policy.
The best part is, the government matches 20% of the first $2,500 contributed annually, up to a maximum of $500 per year (and $7200 per life time). That’s up to $7200 you wouldn’t have otherwise.
So many people say, “I can’t even think about RESP’s right now. We have so many bills to pay,” and I hear you. BUT, the sooner you start saving the more your money can grow, so it’s smart so start early, even if it’s just a small contribution. Forgo that dinner out or that drive-thru lunch for the kids and get your money working for you!
To give you an idea of the potential growth, I’ve included this chart from RBC’s website! (why try and re-invent the wheel right?).
With a regular, pre-authorized contribution plan you save without even thinking about it!
Anyway, moral of the story is, post secondary school is expensive. The earlier you start saving, the more you can reap the benefits of long term growth and government grants. When it comes to investments, time is something you can't make up. The earlier you start, the more growth you'll get.
Oh… and RESP contributions are the new cool baby gift. Just ask my sister and her husband…
DISCLOSURE: This post was sponsored and created in partnerships with RBC. While I received compensation for this post, all thoughts and opinions are my own.