I knew today would come. I knew it, I thought about it, I planned for it, and yet I find I am still not ready to admit that this day has come. Still, I have to acknowledge that as of today, I have “kids” in University. Realizing that this may come as a shock to many of you who think I look younger than my years (thank you), it is coming as a shock to me too! Many people who know us, know that we have quadruplets. What this means is that all through their lives, we have had the reality of “immediate transitions” meaning that we do not gradually transition through phases of life, we storm through the gates!
Think diapers, potty-training, pre-kindergarten, learning to ride bikes, going through junior high, learning how to drive, and graduating high school. In each of these transitions, we did not have the benefit of easing into it. There were no hand-me-downs. We have always been “all in”. So it is with our transition into higher education. All four of our young adults have decided to pursue university degrees and in the midst of this, I find that I have had my own education.
We spent the past few weeks preparing and packing for each of our kids to move into various schools and residences. This has meant buying some new technology (laptops and printers) and all the stuff required for residence. Now, having dropped each off at the various schools and campuses, we find our home is significantly emptier (as is our wallets and bank accounts). Ah the joys of the cost of education!
Thankfully, my wife and I listened to a fairly knowledgeable advisor (John Tabet, you may know him…) and began to save up for these costs long before our kids could even think about reading, writing and arithmetic. We also took advantage of their grandparents who willingly shelved out financial gifts for birthdays and Christmas to be invested in a solid dividend paying investment (CIBC) that has grown over time. Applying these funds as well as our own savings into an RESP (Registered Education Savings Plan) on an annual basis has been one of the wisest financial decisions we have ever made, and it is finally paying off.
Our article “Saving for your Child’s Education” (July 2014) talks about using an education plan involving an RESP to save for college or university. In short, contributions are made using after-tax dollars but benefit from a government grant worth 20% of your contribution, and in some cases a top-up depending on income called the Canada Learning Bond. As we meet with clients and talk about financial matters, often a question is raised as to whether it is better to use extra funds to either pay down a mortgage or contribute to an RESP. Based on today’s low mortgage rates and contrasting this to a 20% grant from the government – which is like obtaining a 20% return on investment (who wouldn’t like that), the math supports making an RESP contribution. You can contribute $2500 per year to an RESP and receive a $500 grant (20%).
Starting early is the key to success because you can compound the value of your contributions and the government grant. Assuming a modest 4% average annual return on investment:
- $100 per month for 17 years; grows to $35,489
- $200 per month for 17 years; grows to $70,979
Given that the average tuition in Ontario is around $10,000 per year, and the cost of residence and a meal plan is also $10,000 per year, a four year university degree could cost around $80,000. Yes, either you or your child could borrow this money to pay for college or university, but the result is negative compounding where you are paying interest rather than having compounding work for you.
You may have different ideas as to how the cost of education should be shared with your child, or you may determine that having your student live at home makes more financial sense. Whatever your approach, saving now and getting the benefit of the government grants makes good financial sense.
Certainly in our case, we have found that it was easier for us to save up over time than to foot the bill all in one shot. Knowing the cost of education as well as the associated costs that go with that education has been, well an education. As they say… “a little education goes a long way”.
Side bar: Last year, we took our boys to Montreal to visit a couple of university campuses and found ourselves in the midst of a protest march by students complaining about cost of university. Riot police were out in full force and there was a time where I actually did wonder whether it was safe to be anywhere near to these students. What irked me about these “protests” was that these students were bitter about having to shell out $3500-$4000 in tuition for Quebec resident students. Outside of Quebec, the rest of the nation’s students (and their families) deal with much high tuition costs.