Many parents at this time of year may be wondering what to give their child/children for a graduation gift. Instead of giving some of the more traditional gifts such as a watch, bicycle, personalized note cards or school sweater and jacket why not consider giving the gift that will keep on giving for years to come – a financial plan.
“As a financial planner we see lots of parents these days who are concerned about their children learning about finances and how to manage money,” says Blake Griffith, a financial planner and adviser with Sun Life Financial. “They are really interested in seeing their children get good financial advice early in their lives.”
Higher education is a costly pursuit in Canada that likely will get more expensive in the future. The total cost for an undergraduate university degree currently can exceed $80,000 and is expected to be more than $140,000 by the time a child born now is old enough to enrol.
According to recent statistics students who require a Canada student loan now graduate with an average debt of $28,000. With a youth unemployment rate of more than 13 per cent, many are having trouble finding jobs and either have to move back home with their parents or take on more debt to survive after graduation.
Planning for the cost of a post-secondary education and learning how to develop and stick to a budget are becoming increasingly important for students coming out of high school.
In his practice, Griffith will sit down either with both parents and the children or just the parents alone to discuss a financial plan.
“We really encourage that an education financing plan is in place at the start,” Griffith says.
“Who pays for what often comes down to family values. Some parents want their children to pay some of the costs. In other cases the parents are willing to pay everything but in return expect the child to earn top marks. There’s not one approach which is correct as long as there’s a plan in place.”
Griffith encourages parents to sit down with their children and help them create a budget. Many children heading off to college or university will be on their own managing money for the first time in their lives and have a lot to learn.
“Since for many children this is their first time on their own, there is a real chance they might underestimate the true costs of living on their own,” says Griffith.
“Once they’ve had a semester or two experience under their belt they are able to compare their estimates to reality. That’s why it’s really important for the parents to assist with the budget in the beginning.”
Griffith recommends parents look at either or both of Registered Educational Savings Plans (RESPs) and the Tax Free Savings Account as vehicles to help them save for their children’s education.
An RESP is a great way to save for a child’s or grandchild’s post-secondary education. Parents, grandparents and friends can contribute money any time into an RESP up to a lifetime total of $50,000 per child. These contributions are not tax deductible, but any investment income that’s earned within the plan is not taxed until it’s withdrawn.
In addition to tax-deferred growth, the federal government will automatically contribute a Canada Education Savings Grant of 20 per cent of what you put in up to $500.00 a year to a lifetime maximum of $7,200 for each child. If your family income is low you will receive an even higher amount.
“The most important thing is to have a plan to determine the most effective way to save for their education,” Griffith says. “And the earlier you start the better.”
WATCH: Do you have a financial plan?
Editor’s Note: Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.