Using elementary math to plan for a post-secondary education

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Calling all parents of school age children. University can cost a ton. Regardless of your child’s age we recommend you begin planning now.

September is back to school month so now is a perfect time to look ahead. Today we will use elementary school arithmetic to plan for a post- secondary education.

The starting point should be with the cost. A reasonable estimate is between $20,000 and $25,000 per year. This includes tuition, books, rent, food, clothing and entertainment.

If the cost is $25,000 that is $100,000 for a four year degree. Inflation will increase the cost by the time a young child is ready to head off to university.

That expense is per child with many families having two or three children who will attend university. Parents encourage their children to study and learn. That comes with an expensive price tag after children graduate from high school.

In the early high school years, there are several family decisions to be discussed and made with your child.

How are the costs to be split? A healthy option is to consider cost sharing between you and your child. They would contribute some money during their first year and then as their summer earning power increases, contributions can increase.

Regardless of a family’s affluence, the child’s participation is a part of the journey to becoming a self-sufficient and financially independent young adult. All children will benefit by taking on some financial responsibility.

There are creative ways they can be involved and motivated to earn and save money. You may pay for the tuition and text books while your child can be responsible for their spending money.

If they fall short, then that will affect their ability to spend on the fun things that university offers. These simple little money management issues help with financially literacy and responsibility in the years ahead.

For many families, providing financial assistance for their children to attend university can be one of their most expensive ventures where other needs are also competing for their money.

Parents with children in university may be saving for retirement, so funds are limited. Accumulated personal and mortgage debt becomes a nasty reality that many families will likely have to address. Interest has to be paid and the debt should be paid off.

In the context of everyday life, a post-secondary education is very expensive and has to be balanced with other financial priorities.

Our suggestion is to have a plan. What is the savings target for both the parents and child? Do the arithmetic and understand how much must be saved annually to reach your university fund goal.

Next decide on the best way to save and consider a Registered Education Saving Plan which has two advantageous features.

There is a grant of 20% paid on the first $2,500 contributed each year while your child is under the age of 18. For example, if you contribute $2,500 this year there will be an additional $500 deposited to your account.

Consider this as a guaranteed return of 20% on money saved. This program is our federal government recognizing the parents’ need to save for their children’s education and the government motivating them to do so.

The generous government grant of $500 annually has a maximum cumulative amount of $7,200. In round numbers that means the grant is only fully available for 14 years.

The second advantage of a Registered Education Savings Plan is any money earned on the investment is not taxed as long as it remains inside the Registered Education Savings Plan.

There are many decisions that you will make to plan for your children’s university education. Regardless of the decisions the important thing is to plan ahead and start saving now.