When to start saving for your child’s education
The short answer? The sooner, the better.
When starting a family, the cost of college or university may seem like something to think about in the distant future. However, with both the cost of living and the price of post-secondary education on the rise, putting money aside now can be a big help when the time comes.
For the 2022/2023 academic year, students in full-time undergraduate programs will pay an average of $6,834 in tuition feesOpens a new website in a new window, up 2.6% from the year before. For graduate programs, the cost rises to $7,437 a year.
With that in mind, when it comes to planning your child’s future, it can be a big help to start saving as soon as you can.
How to start saving
There are many saving and investment accounts as well as government grants and benefits that can help as you start putting money away for school.
Registered Education Savings Plan (RESP)
Registered with the Canadian government, an RESP is a tax-advantaged savings account to help you save for your child’s post-secondary education. The money in an RESP is invested tax-free to help maximize the amount available when your child is ready for higher education. Many people choose to set up automatic contributions to grow the money in their RESP, with the monthly minimum contribution being $25.
Canada Education Savings Grant (CESG)
The CESG is a grant paid directly from the Federal Government into an RESP. Everyone with an RESP is eligible to receive it, regardless of your household income. The CESG pays 20% of annual contributions you make to all eligible RESPs to a maximum of $500 per beneficiary. The lifetime limit is $7,200.
Canada Learning Bond (CLB)
Low-income families may also qualify for the CLB. If you’re eligible, the Government of Canada will contribute up to $2,000 to an RESP.
Tax-free savings account (TFSA)
In addition to savings accounts that are specifically designed for education, you can also use regular tax-free savings accounts to help pay for college or university.
Provincial education savings incentives
Depending on where you live, you could also qualify for additional financial help. For example, in Saskatchewan and British Columbia, the provincial governmentOpens a new website in a new window may also add money to an RESP if you’re eligible – and this is on top of federal grants like the CLB and CESG.
Savings accounts and other investments
Finally, you can always use money from regular savings accounts and personal investments to help pay for your child’s education.
How much should you be saving?
Every family is different, but a good rule of thumb is to start saving early and save often.
It’s important to remember that the price of tuition may be substantially more than the current average when it’s time for your child to start college or university, and that you may need to cover more than just tuition. You might also want to make sure you’ve got additional costs covered like the price of living on campus, commuting or travel, and other expenses such as books or, supplies, food and more.
The amount you may choose to save will depend on things like your household income, daily expenses, and other savings and investments you may already have. Maximizing the annual limits for things like RESPs or TFSAs can help grow your money, and even small contributions now can add up later.
What happens if your child doesn’t go to school?
Of course, it could be the case that when your child reaches high school, they decide that post-secondary education isn’t for them – but that doesn’t mean all your saving was for nothing.
There are still options available if your child doesn’t want to go to college or university. You can leave an RESP open for up to 36 years, so they can always use it later if they change their mind. Depending on the RESP, you may also be able to move the money to a Registered Disability Savings Plan or Registered Retirement Savings Plan (RRSP).