Back to school puts education at the forefront of most parents’ minds. And for many parents, many of these thoughts are about their kids who will be going to college at some point and how they plan to pay for it.
But do you have to pay for your child’s college education? If you have the resources to do it, many parents assume it’s the right thing to do, but it might not be that simple.
Is simply paying for their education the best method? What will this teach them about financial responsibility? Will they take their classes seriously if they don’t foot the bill or will they just do the bare minimum to get by and party the rest of the time?
Part of college should be about getting out into the world, having fun, and learning valuable social skills, but the financial aspects shouldn’t be too easily overlooked. The cost itself can be staggering.
The average four-year course of study, including books and living expenses, will currently amount to almost $ 100,000 if you don’t live at home. For a child born in 2013, that cost will climb to about $ 140,000 by the time they are ready to begin post-secondary education.
Many parents are mentally determined to pay for all of their child’s post-secondary education, even if they cannot afford it. However, this could seriously jeopardize their own retirement plans.
Talking to a professional chartered financial planner (CFP) and creating a financial plan is paramount in determining what you can actually afford.
But what if you have the funds available? Say you have diligently saved in your RESP and have enough money aside or just have the disposable income on hand to foot the bill? Paying for your child’s entire ride may still not be the right solution – at least not without some planning and conditions.
Whether you have the funds or not, this degree will cost quite a bit of money, and your child should learn to understand the importance of your investment in it. So what should you do?
One option that I particularly like is to have your child take out student loans, even if you have the funds available. Their student loans will bear no interest until they have completed their program and they can be repaid in full at any time.
Not only that, but you can also hold the investments for four more years and gain additional growth during that time. The money in the RESP can be withdrawn from the plan while they are in school, but can be reinvested in a TFSA or non-registered plan to keep growing.
You can also base the loan repayment on the grades obtained. If they achieve a GPA of 4.0, you will pay off 100% of their debt. An amount of 3.5 or more may justify a 90% loan repayment, etc.
The terms you choose are up to you, but some variation of this suggested structure would go a long way in teaching your child about financial responsibility and help ensure that they take their class load seriously.
For those parents lucky enough to be able to afford their child’s education, take some time to think about how you want this process to go. Just paying their education fees as they arrive may not be the best way to really help them.