Natalie Gomez with her youngest child Juleo at their home in Brampton, Ont., on Monday.Sammy Kogan/The Globe and Mail
When Natalie Gomez first became a mother, she began checking off the usual steps to save for her children’s future. The Mississauga resident enrolled them in a registered education savings plan, made regular monthly contributions and set up a life insurance policy.
But a fast-changing job market and the potential for artificial intelligence to upend postsecondary education have also made it important for the mother of two to ramp up investments and focus on budgeting for extracurriculars early on.
“You never know what could happen when they grow up,” Ms. Gomez said. “So I try to instill in them, ‘Let’s be smart, because then you could do whatever you want to do.’”
Alongside long-term saving, Ms. Gomez and her husband spend about $700 a year to put their children, ages 3 and 5, in early reading and writing extracurriculars, as well as sports programs.
That’s in addition to contributing roughly $600 a month across RESPs, a life insurance plan that accrues interest over time and high-interest savings accounts. “They have pretty much four bank accounts that are making them money,” Ms. Gomez said.
Ms. Gomez plays with Juleo at their home.Sammy Kogan/The Globe and Mail
While planning for a child’s future has always involved unknowns, today it often means setting aside even more money to hedge against uncertainty. But for many parents, a savings strategy like the Gomezes’ is well out of reach.
An Embark Student Corp. survey released Tuesday found that just under a third of surveyed parents said they’re confident they can fully cover the cost of postsecondary education, while 27 per cent said they won’t be able to.
The survey was conducted online between March 10 and 15 across a sample of Canadian residents who are members of the Angus Reid Forum, between the ages of 18 and 50, and are either parents or future parents.
Meanwhile, the cost of education is rising. According to Royal Bank of Canada data released this month, postsecondary education in Canada can cost more than $30,000 a year when tuition, rent, food, transportation and books are factored in.
Parents have long leaned on RESPs to plan for their children’s future. These tax-sheltered investment accounts allow parents to contribute a lifetime maximum of $50,000 a child and benefit from the Canada Education Savings Grant, a federal program that matches 20 per cent annually on parents’ contributions up to a yearly maximum of $500, up to a lifetime total of $7,200.
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Nearly three-quarters of parents surveyed by Embark have opened an RESP. But relying on these investment vehicles alone is not enough to instill financial confidence in parents, many of whom are trying to balance immediate expenses such as mortgage payments while investing enough to cover the cost of education.
“The optimal figure is to save $2,500 in the RESP to collect the maximum grant,” said Andrew Lo, chief executive officer of Embark. If parents invest the contribution with the grant properly, he said, they can end up with more than $100,000 by the time their child is 18, “which is a full ride to a four-year university program.”
But, he said, “what we’re finding from our data is that parents are saving about $1,000 to $1,200 a year.” That’s less than half of the recommended amount.
Parents in Atlantic Canada are the least confident when it comes to educational expenses, with 48 per cent saying they won’t be able to afford their child’s postsecondary education, according to the survey.
“University is a big expense, and you worry, is AI going to have their job in four years or the job they think that they’re going to be hired for?” said Jennifer Ashton, a Halifax resident whose daughter is graduating from high school this year and is drawn to programs outside Nova Scotia.
“You want the best for your kids, and you raise them preaching that the sky’s the limit,” Ms. Ashton said, but “the costs are going up for everything.”
Ms. Gomez and her husband spend about $700 a year to put their children, ages 3 and 5, in early reading and writing extracurriculars, as well as sports programs.Sammy Kogan/The Globe and Mail
Many are leaning on family for help on everything from RESP contributions to daily expenses. Embark’s survey found that more than a third of new parents say they’ve received financial help from family, with 21 per cent receiving one-time assistance, and 16 per cent getting continuing support.
For 31-year-old Miranda Butcher, prioritizing RESP contributions for her three-year-old and preparing for expenses for a second baby, due within weeks, have meant relying more on tips from the coffee shop where she works to supplant her family income, as well as getting help from relatives.
“I feel like I shouldn’t have to ask them to use the hard-earned money from their own work,” Ms. Butcher said. But, she added, the fluctuating prices of rent, utilities, food and gas left few other options.
Grandparents are often eager to contribute toward their grandchildren’s future and leave a legacy, though many are favouring options that give them more control over how and when funds are used, said Leslie Gottlieb, senior financial adviser and founder of Bright Start Financial in Toronto.
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Life insurance policies that act as a savings vehicle can be especially useful in this regard because they’re conservative, tax-sheltered and grow steadily, she said. “The dividend gets paid into the plan every year.”
A major concern for both parents and family members supporting their children’s education is also the growing uncertainty around both the cost and value of it, said Aravind Sithamparapillai, a financial planner at Ironwood Wealth Management Group in Fonthill, Ont. “The job landscape just isn’t what it used to be in terms of job stability and which degrees will actually put you on a path towards the right career.”
But he likes to remind parents not to overlook RESPs even when they aren’t sure what type of schooling their children may pursue. “Funding the RESP isn’t just sending a cheque to tuition – it’s groceries, computers, electronics, transportation.”
Beyond formal education savings, Mr. Sithamparapillai said parents need to be just as intentional when investing in tutoring, extracurriculars or sports. “You can save all the money for your kids to be 18 and go to university but if we think how to arm them … we’ve got to teach them to be resourceful, critical thinkers.”
