The cost of enrolling in undergraduate programs in Canada continues to rise, with rates up an average of 5% for the 2012-2013 academic year compared to a year earlier. This is hot on the heels of an average increase of just over 4% for the 2011-2012 school year [via Stats Canada]. The majority of parents want to be able to help their children with the rising cost of post-secondary education, so what are some of the most effective ways they can save?
RESPs
Registered Education Savings Plans are one of the most popular ways Canadian parents are putting money away for their child’s post-secondary education. Money placed into these investment accounts is able to grow tax-free. Plus, the government provides a 20% grant on RESP contributions up to $2,500 a year – a great advantage, especially if you start early and are able to consistently contribute the full amount.
TFSAs
Tax-free savings accounts can be a great place to put away additional money for your child’s education. In fact, now Canadians can contribute a maximum of $5,500 per year into their TFSA. If you open a tax-free savings account for yourself, you don’t have to worry about paying taxes on interest or investment income, or being taxed when the funds are withdrawn.
Non-Registered Accounts
Opening a non-registered account and using it just for your kid’s education is also an option. It’s easy to set up, and flexible in that you can withdraw the funds for any reason at any time if needed. However, you’ll need to be diligent with your savings, and resist the temptation to use the money for other things. Note that as the account holder you’ll be able to retain control of the money available even after your child reaches the age of majority, but will also be on the hook for taxes owing from income and capital gains.
No matter how you invest your money, you need a budget – and maybe a little help – to reach your end goal!
Budget
Realistically you’re going to need to save additional income in order to ensure your child is able to attend the college or university of their choice without taking on huge student loans. Setting, (and sticking to) a budget can help you to prioritize expenses and curb unnecessary spending. Saving a little extra cash now can really help your child in the long run when it comes time to go away to school and manage their expenses.
Involve your Child
With rising tuition and living costs, it’s often necessary for kids to help out with the money needed to fund their education. Have your child get a job at a local store or summer camp in order to help pay for some of the fees associated with higher education, like textbooks, school supplies, and general living expenses. Sit down with them and develop a budget so that they know what they’re working towards. The Financial Consumer Agency of Canada has a Student Budget Worksheet that can help identify all of a university student’s potential costs.
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