It seems as though modern families are stretched to the limit. They can no longer rely on company pension plans to fund retirement, and so it becomes even more imperative to make smart choice about money when they are raising their families. Saving for their children’s education and retirement at the same time may be more challenging in the years to come.

How Expensive will Education Be in the Future?

It depends on where a family lives and the number of children they have who are planning to go to school. Here are some facts to keep in mind when thinking about education costs:

  • Tuition rates have been increasing faster than the national inflation rate.
  • The average cost of education in Canada is about $5,600.00 per semester. This does not include the cost of room and board.
  • Assuming a three percent inflation rate, a child born today would pay $40,000.00 to pay for tuition alone (no living expenses) to go to school 18 years from now. This breaks down to $80.00 per month in savings (6 percent rate of growth and 3 percent inflation.
  • If you increase the rate of inflation to a more realistic level of six percent, the amount you would need to have saved for your child’s education goes up to $64,000 for education expenses, or $140.00 per month, when he or she turns 18.

In a case where there is only one child, this amount may be something that can be realistically budgeted for. For families with three children, $420.00 per month for education savings may be a bit out of reach. At this level, they may not be able to fund an education savings plan and their own retirement.

Part of the answer will also depend on where they live. In British Columbia, where families are strapped with mortgage payments and probably need two incomes just to stay afloat, there isn’t a lot of room left for savings.

Education is definitely where grandparents can make a financial impact in the lives of their children and grand children. Grandparents often have more disposable income than their children and so if you can afford it and especially if you are already give cash gifts to your grandkids why not invest it for their future instead. Education is the best gift you can give!

Tips for Saving for a Child’s or Grandchild’s Education

  • Start early. Ideally when the grandchild is born and take advantage of government grants to help top up the amount in the plan. The power of tax-free compound interest can also help the money grow.
  • Contribute those cash gifts you were planning to give on birthdays and Christmas to an RESP instead.
  • Use a family plan RESP, which can have multiple children in a family as beneficiaries so if one child doesn’t end up furthering their education his or her siblings to use the money in the plan. A course lasting at least three weeks, with 10 hours or more of instruction per week can qualify under government eligibility rules.
  • Discuss your expectations about educational costs with your grandchild. Let your grandkids know from an early age that you expect him or her to pay for part of the cost of school. A certain amount of part-time or summer employment earnings should be put into a savings account for this purpose.

Would you like to find out more about saving for your grandchild’s education? As an experienced financial advisor, I can help develop the right plan for you. Contact me for a personal consultation.