Will the student be living at home while attending post-secondary school?
In my mind, this is one of the two biggest uncertainties regarding post-secondary education costs (the other being whether the child will attend post-secondary school at all). The problem is that the amount of money required for a student to attend school out of town is roughly twice the amount necessary if they live at home. By the time you find out where the child will be going to school, it will be too late to adjust your RESP contribution strategy.
One solution is to save just enough for the student to live at home and go to school. If he wants to go to school in a different city, he can pay the extra costs himself. This plan only works if there are schooling options in your city.
My plan is to make the maximum contributions for my children and just keep the excess amounts for myself if they end up going to school in our city. If they are living at home, my children probably won't need the entire RESP savings.
Other options for utilizing excess contributions include:
• Give them to the child after graduation to help get her started.
• Use them for further education, such as a Master's degree.
• Contribute them to another RESP for a younger sibling.
Will you be working or retired when your children go to school?
For younger parents, there is a pretty good chance that they will be working during the child's school years. If their RESP account savings are insufficient, younger parents can probably make up the difference from their income -- which reduces the pressure of making large RESP contributions.
For older parents like myself, there is a reasonable chance that they won't be working during the child's post-secondary school years. If you will be retired when your child is attending post-secondary education, your options will be limited if the RESP account does not contain enough money. In this case, it is more important to make sufficient RESP contributions during your working years.
Future post-secondary educational costs
Every once in a while, a financial institution does a study on future educational costs and releases it to the media. This is done to encourage parents to contribute more money to their RESP accounts and to help those financial companies make more money.
I usually find these studies quite depressing because they always foresee incredibly large future educational costs. You will often see estimates well in excess of $130,000 for a complete post-secondary education.
For several reasons, I decided to ignore these reports and just come up with my own estimate. My estimate might not be perfectly accurate, but I doubt it is any less accurate than the scare reports issued by financial companies.
7 Problems with educational cost estimates in media reports
i. Conflict of interest
Any company that offers RESP accounts has a vested interest in publishing studies that promote RESP sales. By making more aggressive assumptions about future costs, a company can easily inflate future educational cost estimates.
The direct costs of education, such as tuition, have been rising at rates significantly higher than inflation. Most studies assume that this trend will continue indefinitely, which may or may not actually happen.
iii. Living costs
Items like food, shelter and other living costs are difficult to estimate and are quite controllable by the student. I suspect these studies estimate these costs on the high end.
iv. RESP will pay 100% of educational costs
These studies assume that the RESP account is the sole source of funds to pay for your child's education. The reality is that your child may have other sources of income to pay for school.
Most students work in the summer or on co-op work terms and can help pay for some of their educational costs. Some students will work during the school year as well. Lastly, unless parents are in a dire financial situation, they should be able to throw in a bit of cash for any shortfalls as they arise. And of course student loans, grants and scholarships might be a possibility as well.
v. Will the child be living at home?