Parent’s pain, children’s gain: Finding money tough but worth it to save for kids’ education
By: Joel Schlesinger
“And it’s a little bit squishier now that we have Kash,” says Adrienne, 29, about arrival of their first child.
Elbow room isn’t the only thing scarce these days. Money’s tight, too.
Blaine, 30, works full-time managing and coaching the Surrey Eagles junior hockey team while Adrienne stays home with their 15-month-old son.
After the mortgage and other expenses, the couple has little money left over, says Adrienne, who earns a little extra blogging at adrienneneufeld.com.
And yet the couple has still been able to set aside a $75 a month for Kash’s future in a Registered Education Savings Plan, or RESP.
“It’s not a ton of money, but it is a steady amount each month,” says Adrienne. “We just want to help out as much as we can.”
Many young families in B.C. are doing the same. An almost equal amount are not. Statistics Canada figures show that in 2015, about 47 per cent of eligible families did not contribute to an RESP.
That’s hardly surprising, says financial adviser Scott Evans. “We see it all the time where people struggle to contribute because it’s so tough to juggle all the competing priorities,” says the certified financial planner with BlueShore Financial, a credit union based in North Vancouver.
After paying the bills, often including a large mortgage payment, not much is left to save, says Paul Kershaw, a professor at UBC’s School of Population and Public Health.
The founder of Generation Squeeze, a project examining economic challenges of adults from age 20 to the their late 40s, he says despite having more education, adults raising children today are hard-pressed to achieve important financial milestones.
“Whether for a home, for retirement, or for our kids’ education, saving is so much more challenging than in the past,” he says. “This is made all the more difficult since B.C. has witnessed post-secondary tuition rates increase faster than any other province since 2001.”
Many parents today know this too well, having graduated with student debt themselves, a recent BDO Canada survey indicates.
Debt has forced 46 per cent of British Columbians to delay home ownership, the study found. More than one in five has put off having children because of their debts.
“If you’ve graduated and are staying in Vancouver, you’ve got to get a job, find a place to live and pay for transportation, so it can really be hard to get ahead with savings goals,” says Donna Mihalcheon, vice-president at BDO and insolvency trustee in Vernon.
Day-to-day financial survival is hard enough, let alone putting money aside for the kids.
She says the answer is as simple as it is complex: budgeting.
“You basically have to look at how much you earn versus how much you spend.”
Then it’s a matter of taking action, and the choices are equally straightforward: earn more, cuts costs, or do both. The difficulty comes in execution. Cutting costs is often easier in theory than in reality, Evans says. Moreover, many people tend to procrastinate when it comes to budgeting. The alternative is setting up an automatic monthly payment plan for an RESP with a sum you believe is affordable.
“Most financial institutions let you start with just a small amount every month,” he says, adding the contribution can be scaled back if it proves too rich for your finances.
Ideally, he adds, families should try maximizing contributions because the money attracts the Canada Education Saving Grant — a maximum of $500 a year. To do that, they need to contribute $2,500 annually or about $208 a month.
This is a fair chunk of change — but well worth the sacrifice, says Eloise Duncan, 42, a single mother of two girls: Sabina, age 10, and Camilla, seven.
“It’s the one saving thing I really feel I’ve done right,” says the Vancouver-based certified management consultant and owner of Seymour Consulting.
“The only way to really make it happen, in my opinion, is to set up that regular payment so you don’t have to think about it.”
Another automatic savings option for some is group RESP plans. But these can be inflexible compared with other choices.
“To be successful with group plans, you have to play by their rules,” Evans says.
Those rules can involve paying high fees for sales people in the first few years after enrolment and stiff penalties if you leave. For example, income earned on your contributions often remains with the plan, split among remaining members when they go to post-secondary.
“That’s an upside, if you stick with it, but do your homework to understand what you’re getting into,” he says.
No matter how it’s done, contributing to an RESP offers two key benefits: tax-free growth and the grant money.
“It’s pretty hard to find a guaranteed 20 per cent return on your money off the hop,” Evan says.
For parents like the Neufelds, it’s an offer they simply can’t ignore — especially as education, housing and everything else rise in cost.
“We likely can’t give our kids money to buy a home,” Adrienne says. “But maybe we can get them on the right foot helping pay for school so they don’t graduate with huge debt.”