How to plan and save for your children’s education

Do your homework

How do you know where to get started? The first step is to do your homework and figure out how much college or university might cost. 

If your children are young, it may be difficult to estimate the cost of an education to become a farmer who is also a firefighter who sells pickles on the moon. But you can look at the average cost of college and university tuition fees across Canada today to get an idea of how much you may need to save. 

According to Statistics Canada, full-time graduate students paid, on average, $7,437 for the 2022/2023 academic year, whereas undergraduate students paid $6,834. Of course, tuition costs can very widely by school, discipline, and even location. For example, undergraduates in Nova Scotia had the highest tuition fees at $9,328, 36.5% higher than the Canadian average. And undergraduates in a professional degree program pay the highest average tuition fees  compared to other degree programs. 

What’s your savings plan? 

Once you have an idea of what the potential cost could be, the next step is to tackle your savings plan. 

Think about:

• How much do you currently have saved?
  
• How much of your current savings can you set aside for college or university? 
  
• How much you can set aside going forward? 
  
• Where are you saving your money—are you taking advantage of an RESP or a tax-free savings account (TFSA)?
  

What’s an RESP? 

An RESP is a Registered Education Savings Plan, which is a plan that lets your investments grow with taxes deferred until your child starts withdrawing money to pay for post-secondary education.

RESPs are a popular option for parents and grandparents. The subscriber (or contributor) makes contributions on behalf of a beneficiary (the child). The contributions aren’t deductible or taxable on withdrawals. The growth is tax-deferred until withdrawals are made, at which time it can be taxed in the beneficiary’s hands if the beneficiary enrolls in a qualifying post-secondary educational program. 

Contributions to a child’s RESP may qualify for the Canada Education Savings Grant (CESG) if your child is under the age of 18. CESG boosts your annual contributions by 20%, up to a maximum grant of $500 per year (or a maximum of $1,000 if there’s unused grant room from a previous year) to a lifetime limit of $7,200.  

If your family’s income is below certain amounts, you may also qualify for the Canada Learning Bond.

However, RESPs have a lifetime contribution limit of $50,000 and the CESG and investment growth must generally be used to pay for qualifying educational programs. 

What’s the difference between a TFSA and an RESP? 

A TFSA allows you to contribute up to $6,500 a year (that’s the limit for 2023), get tax-free investment growth, and withdraw your money for any purpose, not just for qualifying educational programs like an RESP. 

For children under age 18, RESPs are the preferred savings vehicle because of the age limit for the CESG. Once your child is over age 18 and the CESG no longer applies, they may want to consider their own TFSA or other options.

What if the plan changes?

A lot can happen between age 3 and 18. As your children grow up and start to consider (more realistic) career options, you can reassess your plan and your savings strategy. 

If it looks like your child could pursue an expensive degree or go to school in a more expensive location, consider doubling down on RESP savings while you can still take advantage of the CESG. 

If your child may not attend college or university, emphasize TFSAs and nonregistered savings options because they’re more flexible. 

Other resources 

You don’t have to do all of this on your own. In many cases, you and your child may have access to:

• Grants, bursaries, and scholarships—The great thing about scholarships and grants is that they don’t need to be repaid, plus there are thousands available. Some are based on merit, some on background or affiliations, others on financial need. Your child can contact the college or university’s Financial Aid or Student Awards office to learn more about awards they may apply for.
  
• Student loans and lines of credit—There are many student loans available, both private and government, with varying interest rates, repayment terms, and borrowing limits. The federal government has a helpful list of student grants and loans, scholarships, and apprentice loans and grants. Many borrowers could need a combination of government and private loans.
• Part-time jobs and living at home—Living at home can help your children save on living expenses, especially if you live close to a university or college, or they can attend class virtually. Working part time can help pay some of the extra bills that come with college or university too. 

Get guidance

Successfully saving and helping your kids pay for college or university requires a plan. Once you figure out the goal, and how you’re going to work together to meet it, put it in motion. 

As you talk and plan with your children on their future, consider consulting a financial advisor who can recommend additional strategies to maximize your education savings, build flexibility into your plan, and help your children fulfill their career dreams (even if their plans change).