3 ways to conquer future tuition bills

09/10/2015

Soaring tuition costs aren’t anything you (and your child) can’t handle

University fees in Canada have tripled since 1990 and they show no signs of tapering off. By 2031, one estimate shows a four-year university degree will cost around $150,000. Depending on the report you read, new graduates owe between $10,000 and $27,000 in student loans today.

As for your children, will you have enough to help them achieve their goals?

With a bit of planning, it is definitely possible. Because you have three advantages working for you.

The early bird gets the compound interest

Start planning university for your child now, even if they’re still in diapers. The key is the compounding returns over time.

Let’s look at two situations:

1. Robert is attending university in 15 years. His parents save $1,500 per year for 15 years with a 3% investment return.
2. Sandra is attending university in only 5 years. Her parents save $4,500 per year for 5 years and also earn 3% on their investments.

We’re going to assume that both Sandra and Robert’s parents are reinvesting the interest. Now let’s turn to the compound interest rate calculator at GetSmarterAboutMoney.com:

Robert: $27,983.59

Sandra: $23,910.99

The difference is a whopping $4,072.60.

If you’re watching closely they both contribute the exact same amount of money ($22,500). The only difference is the timeframe.

By starting earlier (and reinvesting your earnings), Robert’s RESP is thousands of dollars ahead. Talk about the power of compounding.

Dip into the government cookie jar

There is free government money out there for your child’s education. This free money comes as part of registered education savings plans (RESPs).

RESPs help parents save for a child’s post-secondary education. Investments in an RESP grow tax-free, and are eligible for the Canada Education Savings Grant. For every dollar contributed to an RESP, there will be an extra $0.20 provided by the CESG, up to a maximum of $500 per year, with a lifetime maximum of $7,200. Depending on when your child was born and the province you live in, you may qualify for a number of additional programs.

The scary thing is, many Canadians aren’t taking advantage of this grant.

You don’t have to be an expert. Nor do you have to settle for low-return RESP providers

There is a limit to how much you can deposit in an RESP, but don’t limit its growth by choosing a high-fee/low return provider. Keep that in mind when deciding what route to go. A lack of knowledge about investing shouldn’t mean you feel forced to choose a plan that delivers sub-standard returns.

One low fee robo advisor in Canada is transforming RESPs for new parents. Portfolio IQ provides professionally and actively managed investments, packaged for the fast-paced online world we live in. When you open your account, you’ll be prompted to answer a few questions about your goals and risk tolerance. In about 15 minutes, you’ll get a customized portfolio tailored to you. Best of all? The robo advisor will do the hard work so you can enjoy your time with your kids.

Ready to get started?

Have you started saving for your child’s education? Share your questions or comments below.

Portfolio IQ^TM is a service provide by Questrade Wealth Management Inc., (QWM), a wholly owned subsidiary of Questrade Financial Group Inc. Management fees and expenses are associated with the Portfolio IQ^TM service as well as the underlying ETFs in the portfolios.  The performance of the portfolios is not guaranteed and the values of the underlying ETFs in the portfolios change frequently. Past performance may not be repeated.