It's Your Money  

Should you pay for your child’s university education?

High cost of education

Back to school time puts education at the forefront of most parents’ minds. And for many parents, many of these thoughts are about their kids going off to university at some point and how they plan to pay for it.

But should you pay for your child’s university education? If you have the resources to do so, many parents assume that it’s the right thing to do but it may not be that simple.

Is simply paying outright for their education the best method? What will it teach them about financial responsibility? Will they take their courses seriously if they’re not footing the bill or will they just do the bare minimum to get by and party the rest of the time?

University should be partly about getting out into the world, having some fun and earning some valuable social skills but the financial aspects should not be too easily ignored. The cost itself can be staggering.

The average four-year degree program, including books and living expenses will run close to $100,000 right now if you’re not living at home. For a child born in 2013, this cost will climb to around $140,000 by the time they’re ready to start their post-secondary educations.

Many parents are mentally committed to paying for their child’s entire post-secondary education, even if they can’t afford to. Doing so could put their own retirement plans in serious jeopardy though.

Speaking to a Certified Financial Planner (CFP) professional and creating a financial plan is paramount to determining what you can really afford.

But what if you have the funds available? Let’s say you saved diligently in your RESP plan and have enough money set aside or if you simply have the disposable income on hand to foot the bill? Paying your child’s full way still might not the right solution – at least not without some planning and conditions.

Whether you have the funds or not, that degree is going to cost a fair bit of money and your child should be taught to understand the significance of the investment you’re making in them. 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 attract no interest until after they’re done their program and they can be paid back in full at any time.

Not only that, but you can also hold onto the investments for four more years and can earn some extra growth during that time. RESP money can be drawn out of the plan while they go to school but can be reinvested in a TFSA or non-registered plan to keep growing.

But here’s where the financial education part comes in. Sit down with your child and discuss the terms for using the education money you’ve set aside to pay off the loans. This might be as simple as saying that you’ll pay the loans off in full once they earn their degree but if they drop out part way through, the loans are theirs to pay back.

You might base the loan repayment on the marks they attain as well. If they achieve a 4.0 GPA, you’ll pay off 100 per cent of their debt. A 3.5 or higher might warrant a 90 per cent loan repayment and so on.

The terms that you settle on are up to you, but some variation of this suggested structure would go a long way in teaching your child financial responsibility and help to ensure that they take their course load seriously.

For those parents fortunate enough to be able to pay for their child’s education, take some time to think about exactly how you want that process to play out. Simply paying their education costs as they come up may not be the best way to truly help them.

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About the Author

Brett, designated as a chartered investment manager and certified financial planner, is the regional director (Okanagan) for IG Wealth Management.

In addition to his “day job," Brett was appointed to the board of directors of FP Canada (formerly FPSC) in 2014, named as the board’s vice-chair in 2017 and took over as board chairman in 2019. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FP Canada board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected]

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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