It's time we formally expanded the list of parental financial obligations to include saving for a child's postsecondary education.
The cost of university or college, even for children who stay in town, is too expensive to be covered by typical part-time and summer jobs. Student loans can make up the difference, but heavy reliance on them can result in debt that delay financial independence after graduation.
Here are four strategies for parents to help cover the cost of a postsecondary education:
Use registered retirement education funds
The pitch for RESPs: Contribute up to $2,500 a year per child and the federal government will provide a matching 20-per-cent grant through the Canada Education Savings Grant (more money is available to lower-income families). If you can afford to contribute to an RESP, it's almost negligent to forgo this grant money.
Start putting money into RESPs when your kids are babies. All you need to get going are social insurance numbers for yourself and your child. You can invest in RESPs in bank branches and through group plans, but a plan held with an online brokerage firm or investment adviser offers the widest choice of investments.
Invest aggressively until your child is 13 and then start reducing risk year by year. There's a good case to be made that an RESP for a child starting a three- or four-year program should be entirely in term deposits or a high-interest savings account. RESP withdrawals are taxable in the hands of the beneficiary student.
Get grandparents, aunts and uncles to contribute to RESPs:
More and more grandparents are setting up RESPs for their grandchildren and committing to making regular contributions over the years. Expensive housing and daycare mean some parents won't be able to take full advantage of RESPs. Grandparents can fill the gap by setting up RESPs with their grandchildren as beneficiaries.
More casual help from grandparents is also valuable. Instead of giving a bunch of junky presents to grandkids on birthdays and holidays, grandparents can give just one present and a contribution toward the family's postsecondary educational savings.
Tax-free savings accounts:
Parents who want to save additional amounts beyond RESPs should consider using a TFSA. Also, you can give kids aged 18 and older money to put in their own TFSAs. The TFSA contribution limit for 2016 is $5,500.
TFSAs are worth considering if you're getting a late start on saving for a postsecondary education. CESG money is only available until the end of the year a child turns 17.
Get your kids to contribute to their own education funds through their part-time job earnings:
Starting around age 16, set up a high-interest savings account for your child that will be used exclusively for college or university costs. When the child is working, encourage regular contributions to that account.
Kids often have their own savings goals – concert tickets, smartphones and such. Let them save for those things, but insist on a minimum percentage going into the postsecondary account. Maybe 10 to 20 per cent at first, and more in the final two years of high school.