For the past year, I have been investing in piano lessons for my five-year-old daughter. Learning to play is a privilege I wish I had enjoyed growing up and I have always wanted to give my kids the opportunity.
Unfortunately, my daughter sees experience not as a privilege but an exercise in torture. Every practice session dissolves into crying fits and she fidgets her way through the lessons. Perhaps she's just not ready for the responsibility. At $50 a class, we have been paying a high price for a miserable return.
So I am now planning to divert that $200 a month away from my daughter's musical education and towards her higher education instead. The extra money will go into her registered education savings plan (RESP). After all, if she isn't going to become a famous concert pianist, I need to make sure she gets a good university or college degree.
Despite the recession, families are not cutting RESPs out of their households budgets, according to Peter Lewis, vice-president at Canadian Scholarship Trust Foundation, one of Canada's largest group education savings plan providers.
"The recession has reinforced the importance of higher education to many families," he says. "There's no question statistically that the more education you have the more likely you are to be employed in an economic downturn."
Although the recession dampened employment and lowered wage levels across many sectors, the numbers plainly show that a post-secondary education can help graduates weather economic storms. There were 306,000 jobs lost in Canada from September 2008 to November 2009, according to a StatsCan Labour Force Survey. But over the same period, there were 104,000 more jobs for university graduates, leaving 410,000 fewer jobs for those with less education.
The recession has also shown parents that it is essential to save for their children's education, says Mr. Lewis. "Many families are counting on their income or a refinancing of their house for education, but you don't want to do that during a downturn. It helps to plan in advance and have the money saved for school."
StatsCan pegged university tuition fees in 2009/10 at an average $4,917, up 3.6 per cent from the previous year. Add to this an increase of 6.8 per cent or $749 in additional compulsory fees and the grand total hits an average of just under $5,700.
On top of that are books, transportation and living expenses. Costs continue to rise faster than the pace of inflation, leading some to believe that children born today will be looking at post-secondary costs in excess of $100,000.
Setting money aside in an RESP will also get you free government money. For every $2,500 you contribute per child each calendar year, the government will contribute $500 through the Canada Education Savings Grant, up to $7,200 in total. That's an impressive 20 per cent annual return.
If you're torn between investing in your child's future education or your own retirement, you need to consider your marginal tax bracket.
"While it is very important to save for your children's education, you should make sure that every dollar that you save gives you the best return on your investment," says Tina Tehranchian, a certified financial planner and a financial advisor with Assante Capital Management.
If you are in the "highest marginal tax bracket of 46.4 per cent, you are better off contributing to your RRSP and using the tax savings to contribute to your RESP."
Ms. Tehranchian agrees that a higher education is essential to securing a solid future for one's children. "This is why it is so important for families to have a financial plan."
Still, there are many parents across Canada who either aren't putting away money, or aren't aware of the available government incentives. Only 39 per cent of Canadians eligible for the Canada Education Savings Grant are participating, according to a recent Human Resources and Social Development Canada review of the program.
If you're trying to trim your family spending, RESPs is not the place to do it.
"It's one of the last things that families want to cut," says Mr. Lewis, who has six children and a plan for each one. "I might stop going for that Starbucks coffee before stopping the RESP."