Canadian Money Forum banner

1 - 20 of 24 Posts

·
Registered
Joined
·
36 Posts
Discussion Starter #1
There are plenty of online calculators out there and I've read several articles stating how much money will be needed for a 4 year University Education. Is there anyone out there that has had kids go through university while wondering beforehand if they've saved enough?

I know there are plenty of opinions out there on kids paying for some or all of their education but I plan to provide 4 years of education pay to each of my three kids (2, 8, 12). I may pay for more if if they go into something that requires more years but I'll worry about that later. I'll encourage my kids to live at home as we live in a major city with a university that has most major programs available.

My finances for schooling will likely be ok as we have over 100K set aside already in RESPs for the 3. I'd like to stop contributing in a couple years but I'd hate to leave free money the government gives on the table. Maybe that's a good question too. What are the thoughts on leaving government money on the table and diverting that money to more retirement savings instead?

So many factors to consider...
 

·
Banned
Joined
·
3,080 Posts
We maximized the grants and saved about 65K (one child). That is not going to be enough. Our daughter is in the 3rd year of a 6 year program: 2 years of undergrad followed by 4 years of professional school. The school is out of town. We cover all major expenses: tuition, rent, utilities/internet if not included in rent (this varies year to year), groceries, trips back home every school break. I'm guessing the total bill for 6 years will exceed 100K. This is just a rough guess at this point.

Government grants are free money. I would not leave them on the table. You should be able to get your contributions back, tax free, if you end up with excess savings in the plan. With 3 kids in the same plan, you will have to plan your withdrawals carefully.


I'll encourage my kids to live at home as we live in a major city with a university that has most major programs available.
Your encouragements may or may not work. Teenagers can be extremely stubborn. Some are happy to stay; others are eager to leave. Set their expectations early and firmly. Tell them what you will / will not cover if they decide to go out of town. For example, tuition and books are covered whether they stay or go; rent out of town is not.

In our case, the encouragements (and fights!) didn't work. Our daughter was determined to leave, even though we live in a major city. She ended up in a program that is not available locally, so there's that.
 

·
Registered
Joined
·
7,086 Posts
Personally, I’d make sure you got all the government grants as that’s an instant 20%+ ROI. I’d also encourage your kids to make contributions to their education, apply for scholarships, get summer jobs, etc. Especially if they want some sort of expensive program.

The sooner they learn they aren’t entitled to whatever they want, just because they want it the better off they’ll be. When I wanted to move away for school, my parents helped, but I still had a loan and three part time jobs to do what I wanted. Had I stayed in the same town, everything would have been paid for had I not moved out.

People who are given everything for nothing tend to not appreciate what they get as much. If you have to work for it, you tend to value it more. You also feel the waste more if you piss it away.

That being said, I’ve got one kid in post secondary with three more on the way over probably the next decade. Right now there’s enough to send them all through a program of their choice. If they want more, they may have to work more, get a job for a few years and save for, or maybe I’ll pay for more depending on their attitude. There are still contributions for three kids and time, so I’m sure they won’t run out of money even at this point, however they don’t know that and the two oldest are still working on scholarships and other forms of things to help contribute. It keeps them on the right deans list.
 

·
Registered
Joined
·
52 Posts
I am trying to figure out how much to save as well. Have 15k for my 2.5 year old. So I almost feel I am at the point where this should appreciate more than the cost of education.

I don't want to pay for everything for my kids. One of the reasons I worked so hard is because my parents didn't pay for everything. They gave us enough for 2 terms. It made me ambitious to get scholarships and have a part time job. It was consistent with how they raised us. If we wanted something, "How are you going to pay for it?" was the standard response.

I had quite a few acquaintances who didn't appreciate University because they got a free ride. They failed tons, skipped a ton of classes, and gained zero wisdom in the experience. And you can guess how their work ethic was afterwards.

As well, with how much one can learn online if they are driven, I am starting to doubt the value of University in the next 20 years. I am guessing Technology will disrupt this Sector as well, and cost will be driven down at some point.
 

·
Registered
Joined
·
1,591 Posts
I'd err on the side of too much. You can get your contributions back without penalty and the growth is taxed in their hands. That doesn't mean all the growth has to be spent by them. You can have them gift you back the excess if there is any. A lot of people I know had their parents do their taxes while they were in university so one could minimize the family tax bill by moving around tuition credits. Add RESP withdrawals to the mix and there's more benefits.

As for the comment of creating entitled kids - in my experience, kids who blew their university experience (and parents funds) did so because they were already lazy and entitled. Simply getting their college paid for did not make them so. I have many friends who had a fully paid ticket and worked very hard, just because they were raised to work hard and focus. They are all successful because they were raised to work hard. I wouldn't be worried about having so much RESPs that it creates an entitled child. I'd be worried about creating the entitled child in the 14 yrs preceding.

I remember reading on MDJ of someone who had something like 325K saved up in RESPs for his kids (2 or 3 kids I can't recall). Just good stock investments. At that point it becomes part of the retirement drawdown plan.

We have 30K in ours right now for 3 kids (0, 2, 5). I think we'll end up with 80-90K per kid once it's actually needed. Maybe a bit more.
 

·
Registered
Joined
·
52 Posts
I am probably going to error on the side of getting free money. Free money is free money and hopefully we have enough room in our RRSPs to move things over if need be.
 

·
Registered
Joined
·
2,864 Posts
As pointed out, remember that only the grant money and gains above original contribution needs to be spent/taxed in the kid's hands. You can take back all the rest to yourself and collapse the account if you end up having too much saved.
 

·
Banned
Joined
·
3,080 Posts
A point about student loans.

Check eligibility criteria in your province. Here in Ontario, government grants and loans are subject to an income test. I'd love to tell my daughter to go get a student loan so she would have some skin in the game. Alas, she is not eligible for any grants and very little in terms of loans, based on the income test. The loan amount is so small, it's not worth the effort to apply. Lest you think that we are rich business owners or executives, we are not. DW and I are two worker bees in the technology sector. Neither one of us is a manager.

You can circumvent Ontario income test by getting a divorce. For male readers in the audience: make sure you own a comfortable couch before you run this idea by your wife. :biggrin:
 

·
Registered
Joined
·
605 Posts
As for the comment of creating entitled kids - in my experience, kids who blew their university experience (and parents funds) did so because they were already lazy and entitled. Simply getting their college paid for did not make them so. I have many friends who had a fully paid ticket and worked very hard, just because they were raised to work hard and focus. They are all successful because they were raised to work hard. I wouldn't be worried about having so much RESPs that it creates an entitled child. I'd be worried about creating the entitled child in the 14 yrs preceding.
+1. My siblings essentially paid for 1 degree each for each of their kids and 2 for a couple of them. They turned into great young adults with very good jobs and seem pretty appreciative of everything that their parents have provided them.
 

·
Registered
Joined
·
7,086 Posts
I think people misunderstand. We weren’t implying that a free education creates entitled kids, I was implying that it’s probab part of their upbringing and just another contributing factor.

I know my kids certainly wouldn’t “demand” I pay for an education in some other province and expect me to pay for it. Mine would take whatever contribution I offered (or none) and then figure out some way to make it happen if they really wanted to go.

In our house we don’t focus on problems, we look for solutions.
 

·
Registered
Joined
·
1,597 Posts
For me the RESP is just another tax shelter account and my plan is to get as much gov contributions as possible.

Unless you are in a "group RESP" (ie: dont do that), then then whitdrawing rules are pretty lax. You can return the contribution money to the contributers (usually you) if you feel that it would be too much for your kid(s).

http://www.moneysmartsblog.com/resp-withdrawals/
http://www.moneysmartsblog.com/withdrawing-money-resp-account/

BTW there a very good RESP book:
https://www.amazon.ca/RESP-Book-Registered-Education-Canadians/dp/0986648906

Recommended to everyone.

Another good strategy (if you have the capital) i to "kickstart" the RESP
Manulife have a little whitepaper explaining the strategy (Option 2)
https://repsourcepublic.manulife.co...-1036890e-d51b-464f-a629-389fac6086b3-lWVqIeN

By following this strategy, the RESP would be worth approx. 150k per child. More than enough to go to Harvard !
 

·
Banned
Joined
·
3,080 Posts
Another good strategy (if you have the capital) i to "kickstart" the RESP
Manulife have a little whitepaper explaining the strategy (Option 2)
https://repsourcepublic.manulife.co...-1036890e-d51b-464f-a629-389fac6086b3-lWVqIeN

By following this strategy, the RESP would be worth approx. 150k per child. More than enough to go to Harvard !
"kickstart" is a clever strategy. It makes perfect sense if you have the funds to front load the plan.

That said, I have an issue with the numbers they throw around. They assume 6% annual return in the accumulation phase (years 1-18 of the RESP life). This is somewhat unrealistic.

To achieve 6% CAGR, you have to run a high equity allocation throughout the entire life of the plan. It's a reckless strategy. What are you going to do if the stock market crashes 12-24 months before your child enters university?

A prudent strategy is to follow a glide path, from high equity allocation in year 1, to low equity allocation in year 18. By necessity, the glide path hurts the lifetime dollar-weighted rate of return. You experience several years of low returns near the tail end of the plan, when the plan value is at its highest point. You can't do 6% a year with, say, 75%-80% of the plan in GICs.

In my own case, I switched to 100% fixed income ladder 3 years before my daughter graduated high school. I locked in ~3.5% annual return for the remainder of the RESP life. I have zero regrets about this decision, even though the RESP missed a few years of good equity returns. The return OF capital is more important than the return ON capital, when the window to draw down the plan is so short.
 

·
Registered
Joined
·
4,209 Posts
IMO, kickstart sounds like a strategy designed by manulife to separate stupid people from $50k.
Contribute annually to maximize the government grants and don't be greedy.
If you have enough to do that, and to maximize your TFSA and RRSP, congratulations. Now open a non-reg acc, you're way ahead of the game.
 

·
Registered
Joined
·
2,364 Posts
We have an RESP for each of our two grandchildren. We will eventually max it out.

Will it be enough? Who knows? Edu costs are rising faster than the rate of inflation. Grad schools can be expensive. We placed a provision in our wills that the grandchildren get a slice off the top to be used for post secondary education. We can adjust that amount periodically as we renew our wills and as we better understand the needs.
 

·
Banned
Joined
·
3,080 Posts
IMO, kickstart sounds like a strategy designed by manulife to separate stupid people from $50k.
Contribute annually to maximize the government grants and don't be greedy.
If you have enough to do that, and to maximize your TFSA and RRSP, congratulations. Now open a non-reg acc, you're way ahead of the game.
In fairness, you don't need Manulife to implement the "kickstart" idea. Anyone with a self-directed RESP can easily do it. Strategy is too strong a word to describe the idea. You are making one larger contribution when you open the plan to take advantage of the tax shelter. From there on, you make regular contributions to maximize the grants. That's all there is to it.
 

·
Registered
Joined
·
3,146 Posts
I am in the boat of thinking there is never too much we can save for our kids education. We have about $130K total for our two kids (10 & 13). I mentioned in another thread, we originally planned to pay for an undergrad and post graduate. We have also told them then we expected them to pay part of the way through scholarships, and working in the summers (and maybe part time if the work load is manageable). This is all depending on our kids work ethic, attitude, aptitude, and that they will pick something that they will be able to make a decent living.

Our oldest has decided that she may want to pursue a medical degree with a specialization that isn't offered in my city. My youngest has also narrowed down a couple of choices, both requiring post graduate level and one not offered in our city. Based on the fact that my kids have already started researching careers and universities, and they are the types of kids that take their studies and work really seriously (too seriously at times), I have believe they will be successful in whatever career they choose. Though I do keep in mind that they are still quite young, they have always been mature for their age.


Our strategy, is never leave free grant money on the table, 20% ROI. Seeing that they are quite serious of school, and will probably go on beyond a 4 year degree, we have been starting to top off the additional $14K you can on the RESP, plus we have always had in trust accounts for them. We figure we can always take the money they don't use back if they end up with a whole bunch of scholarships, but also figure if they end up with that many scholarships, then we will let them keep the unused money as a reward.


In terms of paying or not paying for their education. I used to think that kids that had their education paid for didn't appreciate it, as I knew of more that dropped out or blew their money. I was also one of those kids that had a little help, had scholarships, and then had a student loan. I never even considered a post graduate degree because the thought of that extra debt was not something I wanted to challenge. I feel a graduate degree would have helped me a lot and I only didn't want to do it because of the costs. I wanted to start working right away so I could save up for it, but then kept moving up, and running of time. I want my kids to have the opportunity not to have to worry about money quite as much.

Also, I see all my siblings kids who have all had their full education paid for, over $100K each in Canada, and more in the US. The kids are all very well adjusted kids, who were always grateful for the support they had. They are all very successful now. If my kids turn out half as well as my nieces and nephews I will be so proud.

For us, we will help our kids for school if as long as they are showing their hard work and there is a value. My spouse and I are both willing to delay retirement until they finish.
 

·
Registered
Joined
·
3,146 Posts
For me the RESP is just another tax shelter account and my plan is to get as much gov contributions as possible.

Unless you are in a "group RESP" (ie: dont do that), then then whitdrawing rules are pretty lax. You can return the contribution money to the contributers (usually you) if you feel that it would be too much for your kid(s).

http://www.moneysmartsblog.com/resp-withdrawals/
http://www.moneysmartsblog.com/withdrawing-money-resp-account/

BTW there a very good RESP book:
https://www.amazon.ca/RESP-Book-Registered-Education-Canadians/dp/0986648906

Recommended to everyone.

Another good strategy (if you have the capital) i to "kickstart" the RESP
Manulife have a little whitepaper explaining the strategy (Option 2)
https://repsourcepublic.manulife.co...-1036890e-d51b-464f-a629-389fac6086b3-lWVqIeN

By following this strategy, the RESP would be worth approx. 150k per child. More than enough to go to Harvard !
We didn’t have the funds to fully kick start, and we still want the grants. We maxed out the reaps every year, plus you can put in the extra $14k, any additional money we had saved for the kids, goes into an informal in trust account account.

Also side note, $150k is not enough to goto Harvard even with partial scholarships.
 

·
Registered
Joined
·
7,086 Posts
Personally, I’d be most proud of my kids if they never had to get a job and had to work. Don’t get me wrong, I expect them to have a good work ethic and work hard at whatever they choose to do, however I’d prefer they learned investing, developed a passive income and achieved financial independence much sooner than I did.

Being able to do whatever you want is a much better goal than having a career in my opinion.
 

·
Registered
Joined
·
6,956 Posts
Also side note, $150k is not enough to go to Harvard even with partial scholarships.
Yes I also noted that in passing. Our youngest GC had planned on it at one time and $100k after scholarships per year was our planning number! (Sadly a debilitating disease forced her to aim lower.)
 
1 - 20 of 24 Posts
Top