Amy Legate-Wolfe, Special to Financial Post
Jan. 5, 2022
New parents are full of hope and optimism for their child’s future: That future is bright. Their child will be different. Special. Important.
But those same reasons are why parents are equally full of fear and doubt. After all, special and important people need a special and important education. And that education can be costly, making new parents’ biggest fear one thing: money.
Money outweighs pretty much every other concern when a child comes along. How on earth are you going to pay for this child to be fed, clothed and, of course, educated?
It’s why many new parents start a deep search engine dive on how to save for a child’s education even when their child is technically still a fetus.
“The biggest issue is coming up with the money because people feel very stretched. I have three kids so I know that it’s very expensive,” said Jamie Golombek, managing director of Tax and Estate Planning at CIBC Private Wealth.
University and college costs aren’t getting any cheaper. Tuition, books, food and living arrangements all add up to around $18,000 to $25,000 per year, according to the Canadian University Survey Consortium. If you’re a millennial with children, it could cost $80,000 per year by the time they’re in school.
Is it ever too early?
If you’re a new parent, whether your child is born or still in the womb, you can certainly start taking some steps toward saving for their future. It should be a new parent’s first priority, even if it’s a small contribution, said Dawn Tam, regional financial planning consultant in British Columbia for Royal Bank of Canada.
“Starting to invest early means your money has more time to work for you, while you reap the benefits of compound growth,” she said. “Starting with even a small amount of money contributed monthly can make a big impact by the time your child attends post-secondary school.”
Consider that the average student leaving post-secondary education with a bachelor’s degree has about $28,000 in student debt, according to Statistics Canada. That can certainly weigh on you when you’re trying to start a family.
Then there is a new home to consider if you’re one for having a backyard. For many, this has become a dream rather than a reality, especially in today’s housing market with prices skyrocketing.
On top of that are bills, car payments and all those baby items, as well as daycare for the next several years as your child grows. All things considered, it costs about $13,000 per year to raise a child these days, even higher depending on where you live and if they are in child care.
Now that you’re sufficiently terrified, this is why it’s important to make some plans before meeting with a financial adviser to map out your own scenario. It’s never too early to open a savings account for your child’s education, but you shouldn’t put every cent you have into it while digging yourself into debt.
Start early, start small
And that’s the key word: debt. Debt has interest, and that interest prevents people from putting more of their savings aside. Paying down debt should be the first place any new parent should start. Create a plan to pay it off, and perhaps start saving for your child’s education by putting only a little aside each month or each year.
If it becomes a challenge to both pay down debt and save money for your child, Tam recommends putting together a budget and finding opportunities such as taking on overtime to increase your pay, or reducing or eliminating some expenses.
“As a last resort, if they qualify, some parents may choose to borrow money to assist their child,” she said. “This, however, should be carefully thought through to consider the potential long-term impacts on their own financial plans. Taking on a loan could impact retirement, for example.”
Get an RESP
Even if you don’t contribute much right away, it’s still a great idea to open a registered education savings plan (RESP), as well as use every government program associated with your child’s future.
For example, as soon as your child is registered, new parents have access to the Canada Child Benefit (CCB). This gives them up to $6,833 per year, per child, depending on the age of your child, and your household income. It comes in every month, so you could certainly contribute some of that money to a child’s RESP without hurting your budget.
Then, take advantage of the Canada Education Savings Grant (CESG). This grant allows parents to receive 20 per cent of each year’s RESP contribution up to $2,500, or a maximum $500 bonus per child per year. Didn’t make it one year? It can be carried over to the next year, up to a limit of $7,200 over your child’s lifetime, Golombek said.
“Certainly for younger parents in their twenties and thirties, I would prioritize the RESP over anything else, because the government is giving you a gift,” he said. “Besides an emergency fund, through a TFSA (tax-free savings account), the RESP should be a No. 1 priority if post-secondary education is important to you.”
If you happen to get any cash coming your way, don’t spend it. Set aside part of your bonus, your child’s grandparent cheques or anything else you can afford to put into the RESP. Again, this won’t hurt your household income, and helps you save for your child’s future.
Make it automatic
Instead of relying on your memory to invest in your child’s future, making automatic contributions can be a life saver, again, even if they’re small. If it’s your CCB payments, find out when those payments come into your account and schedule your RESP constributions for that day each month. That way you’ll never have to worry about missing a contribution.
There’s nothing like a child to put your household in order and start saving. Even if you’ve never been a great saver, having a child changes things. But don’t let those changes scare you.
“ The most important thing is to get some advice,” Golombek said. “We’re really big fans of meeting with a financial adviser, sitting down, talking about your whole scenario … and then looking at the big picture. And only when you meet with that adviser can they recommend those goals and fit those education savings into a monthly budget.”