RESPs and postsecondary education

Lasse is five years old. He won’t be going to university for another thirteen years. And Yann is only 8 months old. He’s got even longer before his university years begin. But when the boys do go to school (assuming, for the moment, that they do), it will cost an awful lot of money. 

One of the greatest privileges I have had is to graduate from university — nine years, three degrees, two schools — with no debt. For my undergrad, Master’s and PhD, I had so many scholarships that I was, in fact, paid to go to school. It was a wonderful, if surreal, time of my life. I was paid to read, to think, and to learn. What a privilege, and what a joy. But scholarships, whilst the ideal solution to the cost of postsecondary education, are part merit and part luck. Whilst I expect my boys to strive to do their best, I don’t assume they’ll get full scholarships. We want to plan now to be able to offer them enough money to get a first degree debt-free. This strikes me as one of the best investments we can make for them: it is not only an investment in their education, but also in their start to adult life. If they can graduate debt-free, their financial future will be that much more easy to build and navigate. Yes, it is a privilege, and it is one I am only too glad to try to give to my boys. 

Even though we’re far from pulling money out of our family RESP for the boys, there are some questions that are critical to think about whilst they’re still young.

What do we want to pay for?

The costs of university vary greatly according to location (hometown, out-of-town, or out-of-country) and program. Ideally, we’d like to be able to pay for our boys to complete an average cost first degree at any university in Canada — including room and board costs if they choose to move away.

Yes, living at home would be cheaper. But there is a whole world out there, and your university years are a terrific time to start exploring it, to start living semi-independently and to experience new people, new ideas, and new ways of life. If my boys choose to go away to school, I’ll support them fully. It was four years of undergraduate education at McGill that taught me to study hard, balance work and fun, do my laundry and shop for groceries, organize my money, make lifelong friends, and to stand on my own two feet.

What will we not pay for?

The additional costs of a degree taken abroad. The additional costs of a specialized degree taken in Canada. Beer and fun money (that’s what summer jobs are for). Public transit. Cars. Postgraduate degrees. Probably other things, too, but that’s a good start.

Will any strings be attached to the money?

Yes. Oh, yes. Exactly what those strings will be isn’t fixed yet — after all, it’s a fairly long time in the future — but there will be some tie to GPA and effort put into schoolwork. 

With my scholarships, I was required to keep a high GPA. Low grades? No scholarship the next year. No excuses, no re-tries, no second chances. And let me tell you, I studied hard. Perhaps too hard. But I learned to work hard, to prioritize ruthlessly, and gained a strong appreciation for the value of someone else’s money. 

How much money do we need?

What will university cost in Canada in 12+ years, and what variables are there? Let’s look at my other alma mater — the University of Toronto. A bachelors degree in Arts & Science is currently $6,400 a year for four years, whilst an engineering degree is $14,300 a year. Assume an additional $1,000 in ancillary fees a year, and $500 for books. And residence + meals? About $13,000 a year, depending on options. Per year, then, we are at $20,900 for a BA/BSc and $28,800 for a BEng. And that’s without any travel home. Over four years, we’re looking at between $83,600 and $115,200 per child. And that’s not accounting for inflation over the coming years. 

Oof. Those are big numbers. In fact, they made me sit back in astonishment, and I like to think I am prepared for these costs. (On second thought, maybe I will encourage the boys to stay home…)

If we average those numbers out, we get about $100,000 per child (still ignoring inflation — sometimes, round numbers are nice.) 

Where is that money going to come from?

To take full advantage of the RESP’s matching grants, you need to contribute $2,500 a year per child — which will entitle you to $500 a year from the government, to a lifetime maximum of $7,200. Assuming you contribute $2,500 a year for 15 years, and receive the matching funds, you will have $44,700 — less than half of the estimated cost. Hopefully, of course, that money will be invested and grow, but even with decent growth it is far from enough unless your child lives at home. Within the RESP, however, there is an upper limit for contributions: per the CRA, the lifetime limit on the amounts that can be contributed to all RESPs for a beneficiary is $50,000. Any additional funds would have to be saved in another account — a TFSA or a non-registered account.

Without getting into how an RESP should be invested, the main take away is clear: start saving early. The year the baby is born, preferably, and save the maximum allowed as early as possible — and then hope it grows.