From cottages to school time, the summer sure does go quickly. Back to school is both an exciting time and a daunting time. No matter if you’re a veteran of the September rush, it’s your first time, or you’re sending your children off to post-secondary, there’s a lot of big feelings, and big expenses.
I’ve always found that summer time is a bit of a breaktime from thinking about financial matters, as we take a vacation from the cold weather, we try and take a vacation from our other worries. Which often leads to the back to school rush. The very sudden realization that school starts next week and you need to be ready yesterday often leads to a bit of a panic. Panic isn’t fun, but a little bit of prep can make things smooth sailing.
The big worry that a lot of parents face, is college and university expenses. The costs are going up, and it’s intimidating how much it costs. There are some ways you can make it a little less biting.
It’s never too late to get started
It can be easy to feel like if you didn’t start saving for your child’s education from the day they cut the cord, then you’re too late. That’s simply not true, while there are a lot of benefits to saving early, that doesn’t mean you shouldn’t get started.
- The most common, and beneficial way to save for your kid’s education is through an RESP, a Registered Education Savings Plan, there’s a few reasons for this: investment growth happens tax free, you don’t pay any taxes while the funds stay within the account, when it’s time to take it out, so long as its for a child’s education it’s taxed in the child’s hands, which often saves you a lot
- When you contribute you’ll receive the Canada Education Savings Grant (CESG) this is an additional percentage added on top of what you put in. This starts at 20% on the first $2,500 you contribute per year, but there’s additional amounts for lower income households.
- If you’re a lower income household, you can benefit from the Canada Learning Bond, this is money that is contributed by the government without any contributions. You can read through the eligibility of this program here to see if you’d qualify. For those that are eligible this makes it worthwhile to open an account, even if you can’t really afford to contribute.
The CESG can be earned up until the calendar year in which a child turns 17, and there’s some special rules if you’re opening an RESP later and your child is 15 or 16. It’s still worth looking into it so talk to a professional if you’re in that position.
You can also set up a family RESP, this is the norm now, but it’s good to know that should you end up with too much money for one child it can be used by your other children, if that’s applicable.
Not every RESP is the same
A word of caution on setting up an RESP, there are programs called scholarship plans out there, these plans are often sold very soon after a child’s birth. They use the RESP structure, but often come with very limiting rules around contributions. They can also be very expensive, with high upfront fees that can lead to you not making any real contributions for the first years in the plan, when you’re looking into an RESP, one that gives you more flexibility and control is better, and fee transparency is incredibly important. Know what you’re paying for, when, and how.
Taxes, not always a bad word
Even if you’ve waited past some of those timelines, you can always help your children out directly. It doesn’t come with as much support, but there are other levers you can pull. If your child is currently paying for an education, so long as it’s from a recognized institution, you can apply their leftover education tax credits to your own return. The credits need to be applied to the child’s return first, but any remaining credits can go to your return. Tax credits only reduce your taxes owing at 15% (so $150 per $1,000 of credit) but every little bit helps.
Saving for your children’s education can feel like a lot, there’s a lot of what ifs, and it’s hard to know if your three year old will be a doctor or a plumber, and those programs come with very different costs. Reaching out to a financial planner can help you navigate those decisions, a tool like FP Canada’s Find a Planner can help you find a certified professional.
For everyone getting ready for school, I wish you all a safe and successful year ahead!
Until next month, be savvy!
Laura Whiteland is a CERTIFIED FINANCIAL PLANNER® and Chartered Investment Manager® Professional, she is the owner of Inclusive Financial Planning, a fee-only financial planner. Laura also hosts Stress Free Finance, a podcast dedicated to taking the stress out of personal finance.
This article is intended as general financial information and should not be construed as personalized financial advice.