With school now back in full swing, we’re reminded of the invaluable role advisors can play in helping their clients make sure there’s enough saved in the early years to pay for the costs of post-secondary education.
Indeed, a recent Canadian Imperial Bank of Commerce poll of parents who have either sent or are sending their children to post-secondary school found that although eight out of 10 Canadian parents claim they have a good understanding of the costs associated with a post-secondary education, almost 75% don’t really seem to grasp the actual cost of tuition. What’s more, almost 40% admit they don’t know what to budget for their children’s non-tuition costs, such as books, accommodation and living expenses.
Some of the poll’s key findings include:
- As many parents underestimate (25%) the yearly tuition cost as they overestimate it (22%), with another 27% admitting that they don’t know the actual cost.
- Only 20% of parents estimated the cost of tuition at between $6,000 and $9,999. That compares to an average of $6,191 in tuition for an undergraduate degree in Canada, ranging from as low as $2,660 in Newfoundland and Labrador to as high as $7,868 in Ontario.
- Thirty-seven per cent of parents have no idea how much to budget for non-tuition expenses, such as books, supplies, telecommunications, groceries and accommodation.
- Less than one in five (19%) parents believe their children can get by on a monthly budget of less than $500. The mean estimate for non-tuition costs from the poll is $1,333 a month.
Perhaps of most interest to advisors, the poll found that 39% of parents with children enrolled in or recently graduated from post-secondary institutions said it cost them more than expected, while 46% said that, in hindsight, they should have started saving earlier.
Although 76% of parents who are saving for their children’s post-secondary school education have set up a registered education savings plan (RESP), many lack fundamental knowledge about RESPs. For example: more than half of parents believe RESP contributions are tax deductible (they’re not); 45% think money saved in an RESP can only be used for tuition (it can actually be used for any purpose and is not limited to tuition, books and living expense); almost one-third weren’t aware they can catch up on claiming the 20% matching Canada Education Savings Grants (CESGs) in another year if they couldn’t make the contribution in a previous year (in most cases, you can double up on CESGs in any given year); and 65 % mistakenly believe the last year to make a RESP contribution is the year your child turns 17 (it’s actually right up until the child turns 31 years old, although the CESGs end in the year the child turns 17).
My advice is that you should encourage parents to start early by contributing, where feasible, at least $2,500 annually, per child, to an RESP to maximize the CESGs. In fact, would even have parents max out on their kids’ RESP contributions before contributing to their own RRSPs or tax-free savings accounts.