Parents tend to have it in the back of their minds fairly early on that they might want to prepare for their children’s college costs. Fortunately, those costs are less burdensome in Canada than in many other parts of the world. Part of this is because of education before college. An in-depth look at who spends most on education just a few years ago in fact put the average spent between primary school and the undergraduate level around $22,000 in Canada — far below rates in, say, the U.S. or China. This means parents often have more opportunities to save for college while kids are going through earlier levels of education.
But conditions are also favorable because tuition levels at many prominent Canadian universities are also more manageable than some international counterparts (at least for students who hail from Canada). Despite all of this, parents who intend to send their children to college still need to prepare, and costs aren’t cheap even if they’re better than in some other countries! Planning for tuition costs can be a complex process, but the general rule — as with most savings and investment plans — is that the earlier you start, the better off you’ll be. It’s with that in mind that we’re suggesting a few simple tips for how to start financial preparation for college early.
Set Up an RESP
The simple question of what is an RESP is one a lot of parents end up looking into when they start exploring college savings options. And the basic answer is that it’s a primary plan for a lot of Canadian families that allows for various ways of maximizing a college fund over time. An RESP is a tax-advantaged account, which is to say that the holder is not taxed on appreciation of funds over time (whereas some other kinds of accounts count this as taxable income). It is also a fund that the government will contribute to, adding matching 20% of any contributions up to $2,500 per account per year (meaning if you put in $2,500 the account will have gained $3,000). Over several years time, an RESP can put you in an excellent position to pay for much of your children’s tuition.
Augment Personal Accounts
Another, more independent option is to augment your personal accounts to allow for college savings. For instance, if you run your own investment portfolio or buy into an index fund, you might consider starting a mirroring account with a small amount of money. That way, you can have the accounts act similarly, investing as you ordinarily would but with one account aimed solely at tuition. You won’t have the same advantages you get with an RESP, but it’s still a worthwhile option for parents with investing experience — or for those who might have the means to invest beyond the maximum amount allowed in an RESP.
Plan Ordinary Savings Over Time
There are unlimited tips for everyday savings — from general ideas like avoiding emotional spending, to practical tips like cooking one extra day per week instead of going out to eat. These strategies are often framed as ways of gathering together significant funds in a short time, which is typically a little too ambitious. If you have years to plan for though, and you can find a few ways to put some ordinary savings strategies toward a college fund, you really can make a meaningful dent in eventual costs.
Talk to Your Kids
Finally, include your kids in the process! It’s important regardless to teach your kids about money, and if you can manage to instill an understanding of the importance of savings, you’ll benefit in multiple ways. First, your kids will be just a little bit less expensive, because they’ll be able to stretch their own money (say, when they get allowance or summer jobs one day) a little further. Additionally though, teaching your kids about money might help them down the road if they’re involved in helping with tuition costs (as is not uncommon in Canadian families).
These are ultimately fairly straightforward steps! They require some strategy and commitment, but in the end, they’ll help you toward being able to put your kids through college.