How to plan for your child’s education from kindergarten to grad school

All parents want the best education for their child. Planning for your child’s education is a crucial investment in their future. The choices you make now can open doors to top-tier schools, provide enriching experiences and set the foundation for lifelong success.

Taking the time to plan your funding strategies, educational options and available benefits should be a component of your holistic wealth plan. It can help your child get access to the best educational opportunities, which can pave the way to personal and professional growth.

Start planning early.

The saying “It’s time in the market, not timing the market” is key when planning your child’s education. Planning early gives you the luxury of time to benefit from compound interest, source the appropriate investment solution and weather natural market fluctuations.

Starting as soon as possible means you can balance your early education funding with other financial goals, because you have more time to make contributions before the funds are needed. It also allows you to take advantage of investment opportunities that align with your goals. These opportunities could be held in a Tax-Free Savings Account (TFSA) for primary and secondary school or a Registered Education Savings Plan (RESP) for post-secondary education.

Set clear goals.

Setting clear goals is important for any type of investing, but it is especially relevant when planning for your child’s education, because you often have a predetermined timeline. Start by considering what type of education you want for your child. Do you want to send them to private or public school? Will they stay in the country or study abroad? Will they go on to post-secondary education beyond a bachelor’s degree?

These goals can be broken into short-, medium- and longer-term goals. The short and medium term are important if you are looking at sending your child to private school for their primary and secondary education; that can cost just as much as post-secondary education, if not more in some situations. Other costs include extracurricular activities that could help them get into their first-choice school.

In the long term, you’ll be looking at other expenses, like university tuition costs all the way up to doctoral degrees, books, accommodation, transportation, study-abroad opportunities, internships, clothing, food and travel costs to and from school. All of these should be factored into your plan.

RESPs, gifting and other funding options.

Remember to leverage available funding options toward your child’s post-secondary education. A Registered Education Savings Plan (RESP) is one way to start saving. It helps you save for post-secondary educational programs, whether for a degree, a diploma or a certification from a government-recognized educational institution.

RESPs

RESPs can be opened with banks, credit unions, mutual fund companies, investment firms and trust companies. They offer individual and family plans. There are also scholarship plan dealers, which are companies that sell RESPs; however, this article will focus on individual and family plans.

With individual and family plans, you can open up a RESP and contribute a lifetime limit of $50,000 per beneficiary – in this case, your child. While you don’t need to make a minimum deposit, there are advantages to making a yearly deposit of $2,500. This qualifies you for the Canada Education Savings Grant (CESG), which matches your RESP contributions up to a maximum of $500 for each child per year up to a lifetime limit of $7,200 for each child. Families of any income level are eligible for the CESG. You can also get a maximum of $1,000 CESG per year if there is unused grant room from a previous year.

The money in the RESP can be held in savings, guaranteed income certificates (GICs), stocks, bonds and mutual funds, and it grows tax-free. RESPs can stay open up to 36 years. When it comes to opening up a RESP, your team of wealth professionals can help you align it with your risk tolerance and goals.

Gifting

If you have grandparents, uncles, aunts, godparents or other family members who want to contribute to your child’s education, you can work with them and your wealth planning team to direct the funds to the right savings vehicle, whether it’s a TFSA or a RESP, without any financial or tax implications for your family.

Other funding options

There are bursaries, grants and scholarships that can help with education costs. There are also informal trusts that could be set up for your child; however, those could involve tax implications. Before setting up a trust or letting a family member set up a trust in your child’s name, work with your wealth team on the most tax-efficient way to maximize financial opportunities for your child.

Balance education funding with other financial goals.

Your child’s education is very important, but don’t forget to take care of yourself and your family. This means balancing saving for your child’s education with other life goals, whether retirement, buying a home or wealth preservation.

That’s why education planning shouldn’t be done in a vacuum. Instead, it should be part of your overall wealth plan and financial goals. That way, your resources can be allocated to different goals and adjusted as needed due to changes in income and expense requirements without compromising your financial security.
 

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