September can be an expensive month for Canadian parents as children head off to university or college. However, whether a child is just starting their post-secondary education or is considering applying for a master’s degree, advisors can work with clients to help pay for tuition and books.
According to a study released Monday by BMO Global Asset Management (BMO GAM), 70% of parents are concerned their children will not be able to afford university or collage. In fact, 42% of surveyed parents say they expect to pay for almost half of their child’s education with federal/provincial student assistance (18%), student savings (17%) and scholarships (11%) making up the difference.
Expecting to pay for the lion’s share of their child’s educational bills perhaps accounts for the increase in registered education savings plan (RESP) openings over the past two years. According to the study, in 2014 66% of parents had opened an RESP for their child, up from 52% in 2012.
While more people are opening an RESP, Robert Armstrong, vice president, head of managed solutions, BMO GAM, in Toronto, still views these accounts as an opportunity for advisors. Says Armstrong: “If you’re not offering that value add [of an RESP] maybe someone else will.”
For those clients that perhaps weren’t able to maximize an RESP before a child heads to school or who simply put off opening one at all, advisors can discuss other types of savings plans. As education expenses add up, Armstrong says advisors may want to suggest clients open a tax-free savings account (TFSA) to put a little more aside, such as tax refunds or end-of-year bonuses, to help a child as he or she goes through school.
One thing advisors should warn clients against is that whether the money is being withdrawn from an RESP or TFSA, they should not take on any additional investment risk as a means of making up a funding shortfall. “Once the child is in post-secondary school you don’t want to be looking at your investments in terms of trying to get that higher return,” says Armstrong. “That investment, that withdrawal you’re going to be taking should be in an extremely low risk product because you don’t want to be taking risk because those dollars are spoken for.”
In cases where a child decides to stay in school past a traditional four-year program, advisors and their clients may have to bring others into planning discussions. “Parents are now willing to ask friends and family for help,” says Armstrong. “In the past maybe they were too proud to ask grandparents for help but I think if a child goes beyond that four program this is something to be proud of and I think a lot of grandparents are willing to [contribute].”
According to the study, 46% of parents wish they had more support from family and friends in providing for a child’s education and 52% wish people would contribute to a child’s post-secondary education in lieu of gifts.
Survey results were compiled by Pollara through a sample of 1,000 online interviews of Canadian parents with children under the age of 18 conducted between August 5 to August 8.