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For parents, raising kids can be stressful. Navigating the minefields of everything from diaper rash to daycares can make a sleep-deprived parent’s head spin.
And that’s before they even become teenagers!
Perhaps one of the most stressful parts of raising kids is thinking about saving for college. With costs in Canada creeping up on $100,000 for a 4 year degree and American costs being even higher, it’s enough to send parents on both sides of the border running in desperation to their nearest shrink or investment specialist.
Stress-free Saving for College
But saving for college doesn’t have to be stressful.
My wife and I have always valued higher education. Both of us did undergraduate and graduate studies. As a teacher and life-long learner, I’m a firm believer that education (whether formal or informal) is the key to unlocking many of the possibilities that the future holds for our kids, aged 5 and 2.
For us, it wasn’t a question of if we were going to save for university. The only question was how much we’d save and where we’d get the money from.
In Canada, this meant contributing to an RESP (Registered Education Savings Plan). The RESP allows parents to save for college in a tax-deferred account. They also give parents access to Canada Education Savings Grants (CESGs), a government match of 20% on annual contributions up to $2500.
It should be noted that the $2500 is the maximum amount on which the government will match 20%. There is no annual maximum contribution, and the lifetime contribution limit is $50,000. (For more details, check out this Government of Canada site, or The RESP Book by Mike Holman)
NOTE: The American cousin of the RESP is the 529. While the accounts are similar in that they are designed for saving for college, the nuts and bolts are quite different. Check out this link for information on the 529.
With the $2500 per child in mind, we did the math and figured when our first child was born we’d need to save a little over $200/month.
Fortunately for us, we didn’t have to come up with all of the money on our own.
Back in 2013 when our daughter was born, government tax breaks provided us with a monthly bonus of around $100. (My American friends: I know your system isn’t exactly the same as ours but you can use the tax breaks you’re furnished with to fund your 529’s in a similar way)
All we needed to do was make up the difference to reach $2500 and get the maximum 20% match.
With my wife on maternity leave, and me the only one bringing home the bacon, things were a bit tight. I was working out of town, and going down to one income was a bit of a shock to the system. We ended up contributing a little under the maximum amount of $2500 that first year.
Growing Family = Growing Savings
As our family grew, so did the government benefit we received. This was because of the birth of our son, and the government evidently wanted to buy our vote, ahem, I mean was more generous.
With a second munchkin now a part of our brood, we get $385 (it will go down as our kids get older).
Having two kids and twice the amount of college we need to save for, our maximum contribution level has doubled, to $5000.
In order to get the 20% government match, we’d need to save a shade over $400. $385 was almost all the way there, and we hadn’t even dipped into our pockets at all!
Fortunately for us, the grandparents stepped in to bridge the gap. We’re very blessed to have grandparents that help contribute to the grandkids college savings. Each birthday they give us a cheque to help pay for university. With this extra nudge, we were able to reach the $5000 level and get the maximum 20% CESG grant.
Saving Enough for College?
Now some may be saying, “Wait a second here. Saving $5000 a year isn’t going to be nearly enough to fund your kid’s college education!”
And you’d be right.
And that’s by design.
I don’t want to pay for ALL of their schooling. They need to have some skin in the game.
I don’t want to pay for ALL of their schooling. They need to have some skin in the game. Click To Tweet
I can remember being in university and having kids skip classes. All my Scottish brain could think was, “I paid $600 for this class. The semester is 15 weeks long and I have class twice a week, so 30 classes…carry the 1…that’s $20 or so per class! There’s no way I’m tossing 20 bucks out the window!”
My friends who were having their education fully funded weren’t quite so frugal when it came to doing the cost-benefit analysis of ditching class.
I want my kids to take responsibility for their learning. This includes paying for a portion of their tuition.
I fully expect them to work while in school. Maybe not during the semester but certainly over the summer. I want them to experience the feeling of satisfaction and fulfillment when they get that degree and know that not only did they work IN the classroom for it, but they invested their hard-earned money in themselves as well.
If All Goes According to Plan…
With the track we’re on now we should have around $70,000 when our daughter is ready to go to school. The plan is to use the RESP money to pay for a portion, though not all, of her schooling.
We’re also going to encourage our kids to attend a local school. We live in a large metro area with several high quality schools in the area. Barring choosing a specialized program, like optometry, veterinary school, or bagpiping, not only should this be totally doable, it should also be much less expensive than moving away to study. We’ll also let them live at home for free as another financial benefit to help start them off on the right foot.
If everything goes according to plans (which life rarely does, but I can hope, can’t I?), they should graduate from school with a marketable degree and no student loan debt.
For many students, this is the helping hand they need to start off their working lives ahead of the game.
And it’s not costing me a cent.
Are you saving for college? How are you attacking college savings? Share in the comments below or on Twitter @method_money or my Facebook page Method To Your Money. You can also find me on Pinterest. To get more great ideas on how to save money, sign up to receive my weekly emails detailing how to keep more of your hard earned cash!