Should you pay for your child’s post-secondary?

Should you pay for your child’s post-secondary?

The simple answer is – it depends. 

The cost of post-secondary education in Canada is not covered by the government, and depending on if your child attends trade school, college or university, the cost that students and their parents must pay can total thousands of dollars.

A new study shows that a 4-year undergraduate degree and residency will cost an average of $75,387 – and that cost is expected to grow by nearly 40% in the next 18 years. Whether or not you can afford to pay some or all of that cost will depend on many factors, including how many children you have, if and how you’ve started already saving, whether your child will living on campus or at home, how many children you have and many other factors. 

There’s no one-size-fits-all answer – but there are some things you can think about that will help you decide.

Things to consider when deciding if you should pay 

Your current financial situation

The rising cost of living in Canada can make it hard to manage everyday expenses, let alone work towards big-ticket items like buying a home, buying a car or saving for post-secondary school. 

It’s a good idea to look at how you’re coping now to see if there are any changes you can make to your financial habits that can help you save if you’re considering contributing to the cost of your child’s education:

• Check your budget. Review your budget to see how saving more each month could impact covering essentials like the mortgage and groceries. It may be the case that you need to tighten your budget to accommodate saving - for example, you may want to cancel unused subscriptions, reduce habits like eating out, consolidate or pay off debts, or even look for ways to earn more money. You can use tools like a cash-flow calculator | PDF 124 Kb to help you break down your bills and payments to see what you could realistically afford to put towards a saving-for-school fund.
• Review your investments. It’s a good idea to review your portfolio once a year to see how your investments are performing. You may want to consider some adjustments; for example, if your child is approaching post-secondary school in the next few years, you may choose a more conservative investment strategy to make sure your investments don’t drop resulting in less money for their education.
• If and how you’re saving for a rainy day. More than half of Canadians are living paycheque to paycheque, and almost half say they don’t have enough money saved to cover an emergency. Even if you’re saving for something like university or college, it’s important to always pay yourself first and establish an emergency fund to cover costs due to unforeseen things like car or home repairs, or job loss.
• If and how you’re saving for the future. While it can be tempting to save more towards shorter-term financial goals like paying for school, it’s important not to do so at the expense of your long-term financial future. If you do need or want to put more towards post-secondary savings, try and make sure you’re still putting even a small amount each month towards your retirement. Accounts like a Registered Retirement Savings Plan (RRSP) as well as contributing to a workplace pension can help you build your retirement income while you also save towards other goals.

Your future financial goals 

It’s important to balance helping your children financially with saving for your own future. 

A 2023 study revealed that 52% of Canadians don’t feel they have enough left at the end of the month to save for their retirement, and this may especially be the case if you’re either paying tuition currently or are saving towards doing so in the future. Taking advantage of products like RRSPs can help your money go further, and tools like our Retirement Income calculator can help you see how much your registered savings could give you when you retire. If your employer offers a workplace pension, this can be another way to save for the future. 

Making sure you’re not neglecting your retirement savings to pay or save for school can help ensure you’ll have enough saved when it’s time to retire. Falling short of your desired retirement income can mean:

• You may have to adjust your quality of life or retirement plans, such as travelling less.
• You might not be able to achieve your dream of retiring early.
• You may have to semi-retire, or keep working to some degree during your retirement.
• You may have to work for longer or work multiple jobs to boost your retirement savings. 

In short, make sure you’re contributing to your retirement savings every month, even if it’s only a small amount. A little can go a long way over time.

Your family dynamic 

Perhaps you have only 1 child who dreams of attending university, or maybe you have 3 who all have plans to pursue post-secondary education. 

If you’re a blended family, you may have children of different ages to think about – for example, you could be balancing the cost of childcare for younger children from a second marriage with the costs of college or university for your older children.

You could also be one of the many Canadians who are supporting aging parents physically and or financially while also taking care of your own family. Dubbed the “Sandwich generation”, these caregivers often face finding a delicate balance of caring for children and parents while also taking care of their own financial future. 

Every family is different, so it’s important to think about how your unique situation will play a part in your decision.

Timeline 

Another key factor is when your child plans to start school – or perhaps more importantly, how much time in which you have to save. 

Some parents open savings accounts like a Registered Education Savings Plan (RESP) as soon as a child is born, meaning they have 18 years to save. However, others may not start saving until later, which can lead to increased financial stress as well as less money saved overall. 

Let’s look at an example. Luke and Anja live in Ontario and welcomed their baby in January 2024. They opened and began contributing to her RESP right away. They made an initial deposit of $500, and contributed $250 a month for the next 18 years. The rate of return on their RESP is 3%. By the time their daughter is ready to start university in 2042, they’ve accrued $78,348 towards her education. 

Let’s look at the same example, only this time, Luke and Anja did not start saving right away. Instead, they began saving when their daughter began high school, giving them just 4 years to save. Using the same initial deposit, monthly amount and rate of return, they save just $19,839. 

We can see how important it is to start saving sooner; by not starting to contribute right away, Luke and Anja missed out on saving nearly $60,000. Contributing any amount each month, even if it’s small, can add up over time. 

The above example is for illustrative purposes only.  Situations will vary according to specific circumstances.

Total cost 

It’s wise to have an idea of how much you’ll need to save to help you get there. 

This dollar figure will depend on several factors, such as:

• Whether your child plans to attend university, college, or a trade school.
• How long they plan to spend in post-secondary school, e.g. getting an undergrad versus going onto get a Masters or Doctoral degree as well.
• Which province or territory is the school located in.
• If your child will live at home and commute or live on or near campus.
• How much their program tuition fees cost.
• How much money will be needed to cover books, technology like laptops, and other materials associated with their program.
• How much will be needed to cover cost of living expenses like groceries and travel.
• Whether or not they qualify for financial aid and/or student loans. 

Another important thing to decide is whether you plan to cover all the costs associated with them attending post-secondary, or just a portion. For example, you may agree to cover the cost of tuition, and leave it to your child to cover the costs of things like residence, books and travel. 

Having an open and honest discussion with your spouse, your kids, and even your wider family members can help determine the best way forward for your situation.

Ways to save for post-secondary 

If after discussions you do plan to cover some or all your child’s post-secondary costs, it’s important to start saving as soon as possible. It’s also wise to take advantage of tax-sheltered accounts as well as government benefits that can help you save as much as possible, too: 

Registered Education Savings Plan (RESP) 

A Registered Education Savings Plan (RESP) is a tax-sheltered savings account designed to help you save for your child’s post-secondary education. As of 2024, the government matches 20% of your annual RESP contributions up to $500 per year for each child, with a lifetime maximum of nearly $7,200. In 2022, nearly 57% of eligible children in Canada received federal education savings benefitsOpens a new website in a new window into an RESP. Our 2021 survey revealed that nearly half of Canadians contribute monthly to an RESPOpens a new website in a new window, but while it may be the most popular way to save for future education, it’s not the only way. 

Tax Free Savings Account (TFSA) 

Despite its name, a TFSA is not a typical savings account – it’s a place where you can put investments like mutual funds or segregated funds. It’s versatile, so you can use it to save for a more immediate goal, like saving for a new car or a trip, but you can also use it to save for retirement or education costs. In 2020, researchOpens a new website in a new window revealed that 16% of families saving used a TFSA to save for post-secondary school. 

Mutual funds 

Mutual funds provide you with a variety of competitive funds and types of investments to help you meet your goals. They allow you to access different management styles and invest in different sectors, countries and types of holdings. This can help you and your advisor balance risk and long-term returns. 

Government grants 

The Canadian government has resources available to help parents with the costs of raising a family. You can apply to the Government to receive some benefits, while others can be claimed on your tax return. See if you are eligible to receive the:

• Canada Education Savings Grant (CESG) – The CESG is money the federal government adds to a RESP to help with the costs of post-secondary education. This money can help pay tuition fees for full-time or part-time education for students enrolled in university, college, trade school, or an apprenticeship. It can also be used to help students attending CÉGEP colleges in Quebec.
• Canada Child Benefit (CCB) – The CCB provides eligible parents with children under the age of 18 with a monthly, tax-free payment.
• Canada Learning Bond (CLB) –The CLB is money paid out by the Government of Canada to help low-income families save for post-secondary education.

Inheritance

Any money received via inheritance from grandparents for example could be contributed towards saving for education. Alternatively, you may want think about leveraging your own inheritance to help with the costs. You could weigh the pros and cons of passing on a “living inheritance” to your children, which means giving it to them while you’re still alive. 

Alternatives to paying for post-secondary 

Ultimately, it be the case that paying for post-secondary isn’t the right choice for your family. 

Perhaps the costs are simply too high, your savings aren’t enough to cover it, and borrowing money to pay for it will cause you financial difficulty. This doesn’t mean that all hope is lost – there are still ways to finance paying for further education: 

Scholarships, grants, and bursaries

Canada has hundreds of scholarships, bursaries and grantsOpens a new website in a new window available that students can apply to receive. ScholarshipsOpens a new website in a new window are typically based on merit, such as a high Grade Point Average (GPA), whereas bursaries and grants are normally based on financial need. Unlike a student loan, this financial aid does not need to be paid back once your child has completed their studies. 

Student loans and lines of credit 

More than half of Canadian parents are willing to take on debt to pay for their child’s educationOpens a new website in a new window, but this may not always be the wisest choice financially. This is because you’re closer to retirement age than your child, and taking on high levels of debt later in life may make it harder to save for retirement. However, your child may be able to borrow money towards the cost of their education via a:

• Student loan – Student loansOpens a new website in a new window are available through the Canadian government. Your child (the applicant) can apply and if eligible, they’ll receive a set sum of money that they’ll have to repay with interest once they’ve graduated.
• Student line of credit - Lines of credit are available through lenders like your bank. Your child can apply and receive an amount that they have access to, but do not necessarily need to use. For example, they could be approved for a $15,000 line of credit, but only find they need to use $7,000 of it. They’re only responsible for paying back the $7,000. Students must pay at least the interest on their line of credit, even while studying. Once they’ve finished school, most financial institutions allow a grace period during which only interest is payable (normally 6 – 12 months after graduation), after which they’ll need to start making repayments on the loan amount too. 

Whether or not your child could or should borrow money to pay for their education will depend on many factors, but perhaps especially on whether they plan to have an income during their studies that could help with things like debt repayment. 

Working while studying 

It may be the case that your child works while studying, perhaps part- or full-time depending on if they’re studying part- or full-time. This income can help cover the cost of not only student debt repayment should they take any out, but also day-to-day costs like books, travel costs, and groceries.

Aside from the financial benefits of having your child contribute to the cost of their schooling, it can also present an opportunity for your kids to learn about budgeting, time management, how to balance debt repayment with saving, and other crucial life skills. Working could also result in work experience, which can be helpful when your child enters the workforce after finishing their education. Employers often appreciate candidates who have both education and practical work experience.