31 Aug, 2012
A back-to-school-post with food for thought
There is always an influx of back-to-school related articles this time of year, isn’t there? I’ve read a lot about back-to-school fashion, school supplies (Ha – I wrote one myself), study habits, and healthy lunches, but I want to take a moment to look further down the timeline with the help of Fishbowl patron Tradex.
As parents we are often worrying whether our kids are doing their homework and wearing their rain boots, but there are bigger things we need to think about too, namely the issue of paying for our children’s post-secondary educations.
Mark and I figured out that RESPs are the best way to save for this inevitable expenditure. For two big reasons:
- It’s a great deal that includes FREE MONEY. How could we say no to free money? The government kicks in a percentage of the amount you contribute. And if this free money is invested early enough it starts to earn interest. And you know what that means, more free money. Woot!
- It’s a forced savings. And although I’d love to spend that money elsewhere it’s far better than coming up with the cost of tuition (and everything that comes with it) the day after high school graduation.
My friends at Tradex wanted to make sure you knew about a couple important things about RESPs.
Starting early is key. It means you can reduce your contributions and let time do the rest. Over a 10-year period, an annual $2,500 contribution along with the maximum government grant of $500 (see previous about free money) entirely invested in a Canadian Equity Mutual fund compounding at 8%, will grow your RESP savings to $43,459.69. This can be achieved with monthly contributions of about $200.
And here’s something that many people don’t consider: Tuitions go up. And increases in tuition tend to be much higher than the general rate of inflation. AND there’s more to it than just tuition, there are “Compulsory Fees” for example, athletic fees, student association fees, etc. And according to some recent Statscan numbers these averaged $820 in 2011/2012, up 5.5% from 2010/2011. This is more than pocket change for many of us.
Some parents start saving money without having any actual idea of how much they actually need. Guess how much the average Canadian undergraduate student in dentistry paid per year of schooling?
Dentistry students (or maybe the parents of dentistry students!) pay the most at $16,024, followed by medicine ($11,345) and pharmacy ($9,806). Can you imagine shelling that out all at once? You MUST check out this document from the UBC dentistry program that calculates projected costs for the class of 2016. I suspect you will need resuscitation after you do.
Not all programs are this expensive, but they’re expensive enough. And for parents of two or more children it means we will be laying out twice as much.
Check out these real-life invoices Tradex received when processing recent RESP withdrawal requests. I challenge you to have a dollar figure in mind before you click and see them for yourself. You may be surprised!
- University of Ottawa, B Comm (Accounting)
- Carleton University, Engineering
- Crossroads Truck Training Academy
- University of Toronto, BA
Tradex has a great idea to share with you. Ask grandma and grandpa to contribute to your child’s RESP. Heck, they can make it a back-to-school tradition! Even a few dollars a month, starting from infancy, can make a big difference. There can even be multiple RESP’s in existence for a particular child as long contribution limits are observed. (I had no clue!)