In spite of the debate raging around whether or not college is still worth it, many Canadians feel that college is a solid investment in their kids’ futures. However, the cost of college is rising. Everyone recognizes that going to university is going to be expensive. Trying to foot the bill for your kids can cause you problems with your own finances if you aren’t careful. You want to help your child succeed, but at the same time you don’t want to bankrupt yourself.
So, where is that balance?
Pay What You Can
Many financial experts, including Rob Carrick, believe that you should help your child as much as you can; that you owe it to your children to support them as they go to college. However, this doesn’t mean that you have to foot the entire university bill.
The most important thing is to consider what you can actually afford to pay when it comes to your kids’ college education. Make sure that you are financially stable, and that you are planning for your retirement. Then you can start putting money away for college. You don’t want to put your own future at risk for your kids’ college. As is often pointed out, there are loans for college, but not for retirement.
Fortunately, there are a number of opportunities for you to grow a tidy sum for your kids to use for college. The government lets you contribute to the RESP, which can help you pay for college. Check to see your eligibility for the government’s college savings credit, which is free money for your child’s education. Some provinces, like Alberta, also offer additional money to help you with college. Figure out what your options are, and take advantage of these resources to help you help you child.
Another idea is to contribute to a TFSA. The TFSA is a great vehicle for saving up for almost anything and growing wealth. If you can afford it (and if your own retirement contributions are already squared away) consider making maximum TFSA contributions each year. You’ll gain a tax advantage, and you’ll have a great deal of flexibility to use the funds as you need, whether that’s for your kid’s college education, or for your own retirement.
Encourage Your Kids to Contribute
Of course, it also makes sense for your kids to contribute to their own futures. While you do want to help with university costs as you can, you should also set expectations for your kids to pay for some of the costs. The key is to be clear from the start. Let them know that they will have to cover some of their costs. Talk to them about saving up for long-term goals, getting good grades so they qualify for scholarships, and other ways for them to contribute.
Get your kids in the habit of putting a portion of what they make from after-school jobs and/or allowance toward long-term goals, like college. Also, accept the reality that some student loans might be necessary. You don’t want your child to be burdened with a great deal of debt when the graduate, but sometimes a small amount is unavoidable. Talk to your child about managing expenses, budgeting, and the importance of planning ahead.
The key is to do what you can to start saving as soon as possible. You can even start putting money away when your child is born, and then get him or her involved at the appropriate age. The longer you plan and prepare, the better off your family finances will be — and the more likely it is that your child avoids starting post-university life with crippling debt.
Rob Carrick Discusses Paying for Your Kids’ College
Rob Carrick, author of How Not to Move Back in With Your Parents: The Young Person’s Complete Guide to Financial Empowerment, joined the panel on the Money Mastermind Show to share his insight on the topic.