How to save for your child’s post-secondary education

With her oldest son, Jaeden, about to turn 12, Rebecca Flynn remembered feeling the pressure to start squirreling away money to save for her child's post-secondary education. “I don’t know what it is about this age, but it’s hitting me that he’s creeping closer and closer to adulthood, and that we need to start setting money aside to help him for college or university,” said the Omemee, Ont. resident at the time. The problem was, she and her husband weren’t sure how. Living on one income for years had proven difficult, especially with Rebecca in university and raising four children.

Her concerns feel even more familiar today. As post-secondary costs continue to climb—not just tuition, but housing, food and transportation—many families are realizing how quickly childhood gives way to financial reality. The pressure to plan ahead hasn’t eased. If anything, it has intensified.

Recent surveys continue to show that while many Canadian parents are saving for post-secondary education, a significant number still expect government grants to help bridge the gap. With costs rising and economic uncertainty lingering, families are feeling increased urgency to understand their options and make a plan—even if they’re starting later than they’d hoped.

Thankfully, the news isn’t all bad. Experts agree it’s never too late to start investing and cite numerous options for setting funds aside. “Ideally the time to start saving is as soon as your child is born, but putting away money for their education can be done at any point,” says Bryan Sommer, financial planner at Interconnect Financial Services in Surrey, B.C. The first step to getting the investment ball rolling is to understand the options available.

Understanding the rules before you contribute

Start with a Registered Education Savings Plan (RESP). Contributions grow tax sheltered, but best of all, the federal government pays you for saving for your child’s education, to a lifetime maximum of $7,200 per child through the Canada Education Savings Grant (CESG). The CESG provides a 20 percent grant on annual contributions. While there is no annual contribution limit to an RESP, there is a lifetime contribution cap of $50,000 per child.

Why starting late still works

Unused CESG room carries forward, meaning families who start later can catch up on missed grants, up to certain annual limits.

Restrictions do apply based on the age of the child. To qualify for CESG payments at ages 16 and 17, at least one of the following must have occurred before the end of the calendar year the child turned 15: a minimum of $2,000 must have been contributed to the RESP, or at least $100 must have been contributed in each of any four previous years.

For older teens, Bryan suggests looking at other tax-sheltered options as well. A Tax-Free Savings Account (TFSA), available beginning at age 18, allows savings to grow and compound tax free. Parents may also choose to save in their own TFSA if additional flexibility is needed.

You can open a self-directed RESP at your financial institution or with a financial planner. Individual or family RESPs generally offer the greatest flexibility in terms of contribution schedules and eligible post-secondary programs. Group or scholarship plans, where investors pool money together, are another option but may have stricter contribution requirements and conditions for withdrawal, so families should review the terms carefully before committing.

Bryan says having your child contribute to their investment is another way to increase its value while encouraging fiscal responsibility. “It gives them a sense of ownership over their future,” he says. “It’s like anything you work for; once you put in the time, effort and thought toward paying for something, you’re much more likely to take care of and value it.”

Don’t think you have enough money to get started?

If your family income qualifies, your child may be eligible to receive the Canada Learning Bond (CLB), which provides up to $2,000 to help with post-secondary savings. Eligibility is based on family income as determined under the Canada Child Benefit.

The CLB provides an initial $500 for eligible children, plus $100 for each year the child remains eligible, up to age 15. The federal government also contributes $25 to help cover the cost of opening an RESP. No personal contributions are required to receive the CLB, but an RESP must be opened in the child’s name. If the child does not pursue post-secondary education, CLB funds are returned to the government.

Children in the care of a public primary caregiver who receive a special allowance under the Children’s Special Allowances Act may also be eligible.

Teachable moments as you save for your child's post-secondary education

Teaching your teen to save can be an exercise in determination, but it’s worth it. Try these tips.

• Get your teen involved in your household budget. Show them how you track incoming funds and where these funds are allocated each month. “Involving them in the process and teaching them how to track finances won’t necessarily be the most exciting thing they’ve ever done, but helping them understand the value of saving early on will only benefit their future,” Bryan says.
• Instead of just forking out money the next time your teen asks for it, have her work for it. Doing special jobs around the house to earn commission or allowance is a great way to teach monetary cause and effect.
• Offer to match or at least contribute to their saving efforts according to what you can afford. Teens crave parental praise and support, and showing your willingness to invest in their success is a great way to encourage responsible habits.