To RESP or Not: Should we be funding our children’s higher education?
Brendan wrote an interesting comment in the post on Radically Frugal which got me thinking.
What’s with the RESP thing? What happened to kids getting a summer job and paying their own way? Don’t do it, and use the money to enjoy life with your kids before you die, or end up crippled in a care home. A side benefit is your kid would appreciate having to earn his own, an not end up one of these “millennium” babies, having no pride, or work ethic, etc. I know many will disagree, but that is the price of being right.
Seriously, has anyone else noticed the uprising of the “entitled” one entering the workforce?
Google “CBS here come the millennials”, 60 minutes segment that nails our up and coming youth to a tee. And it all starts with the RESP.
There are huge advantages to using RESPs, two of the most significant being:
- Tax Free Growth
- A government grant of 20% up to $500 per year per child. That’s a pretty good return!
RESPs are a fantastic savings tool for post secondary education. The question I hadn’t considered until now is, should we be saving for our children’s higher education?
I went to school with a guy name Colin whose parents paid for everything. He took 7 years to graduate with a 4 year degree and spent much of that time partying. Heather, on the other hand, whose parents split every school expense with her right down the middle, worked her tail off at university and graduated with top honours. Brian, my husband, took 4 years off after high school and worked as a custodian at a high school making $26,000 / yr back in the late 1980s. He saved up for university and paid for the whole thing with cash. He’s now working on his PhD and has never had a student loan or any help from his family. My parents paid for my first year. After that I worked my way through.
Is there a pattern here or is it a coincidence that the kids who paid their own way worked harder than the kids whose parents paid? Surely there are examples of highly successful people who had their way paid through university. What about all those wildly successful wealthy individuals with trust funds who’ve never had to pay?
We all want what is best for our kids. I’d love for my kids to graduate debt free but I’d also like for them to value their education. One of the best ways of giving value to something is to have them pay for it themselves.
As parents, our first financial goal should be to live in such a way that our children never have to support us. It’s not a wise idea to save for your kid’s university years at the expense of your own retirement savings.
In truth, up until now, if we’d had more money we would have saved more in their RESPs. Every month since they were a few months old we’ve put $100 each into their RESPs. Over time it’s added up but it’s no where near what they’re going to need for higher education in Canada, even if they live at home! Our hope is that it will cover 1/4 to 1/2 their costs and they will have to pay for the rest. We also hope that by paying for part of their higher education with their own hard earned money, they’ll value it more and work harder while they’re there.
At this point I think we may abandon our plans contribute higher amounts to their RESPs as our income increases. We need to focus on maxing out our TFSAs and RRSPs first. After that, if there is some left we may consider adding to their RESPs but will remind ourselves that if we want what’s best for our kids the best gifts we can give them include financially secure parents and the value of a good education.
Should parents be funding their children’s higher education costs if they can afford it? What are your thoughts?
Kathryn works in public relations and training for a non profit. In her off hours, she volunteers as a financial coach helping ordinary Canadians with the basics of money management. Her passions include personal finance and adult education. Kathryn, along with her husband and two children live in Ontario.