I discussed with a writer on Monday my experiences with the entire RESP system. I had an epiphany: if I look at the current costs that I know of and the maximum amount that you can put into an RESP, this will only (barely) cover the cost of tuition at your child’s university (at this moment in time).

Suppose you put 2,500 dollars in the RESP every year of your child’s life from birth and get the CESG kick-in of $500 per annum. In that case, you will have about $43,000 (assuming no growth in your investments (but also assuming no losses)), taking your child to University at around age 17/18. You religiously put money in every single year.

I have pointed out previously that tuition for some schools is running about $4-5,000 a term (4 months) thus about $10K a year or $40,000 for a complete undergraduate degree (assuming only 4 years to complete).

This means if you invest wisely and get a little growth, you should be just fine, because you’ll have tuition paid for and even have a little extra for books and such. So this is good news, isn’t it?

No, because here are a few of the flaws with the model I just gave you:

- Where your child lives at University can double the amount of money you need for their education.
- The tuition fees at Universities have been growing at a rate higher (in some cases MUCH higher) than inflation (check out this Stats Can Overview on Tuition to get a taste).
- Extra fees included on top of tuition, those grow at an even higher rate than tuition rates.
- The Business of University Fees points out how many exciting fees universities will want you to pay.

## Really, Just Tuition and Fees

So with all of this growing at a greater rate than inflation, and the RESP allowances not following suit, will your current RESP even pay for 1/3 of your child’s education in 18 years? I don’t know, but you better start thinking about that now, when you could put some extra money away, just in case.

The other option you have is let your kids worry about it when they get older.

Any readers care to disagree with the math, I will gladly discuss this one.

“some schools is running about $4-5,000 a term (4 months) thus about $10K a year or $40,000 for a complete undergraduate degree”

Yes, “Some schools” but what is the medium. I imagine that it is not the average cost of tuition right now. I think you are talking about the highest level.

http://www.cbc.ca/news/canada/university-tuition-rising-to-record-levels-in-canada-1.1699103

No that is about what I am paying for Trent University, which is about the median, and it will continue to rise. Acadia is the most expensive school (or top 5), and other schools have many fees attached as well (University of Waterloo for sure).

Can you use the RESP funds for tuition in a private school in Canada or the US?

RESP is for Post-secondary education, CanLean has a site check it out for more details of where you can spend with the fees: http://www.canlearn.ca/eng/index.shtml

The maximum allowable contribution for an RESP is currently $50,000.

In the article you mention putting in $43,000 so you still have $7,000 of contribution room.

RESP rules and limits change every few years. I could see the maximum contribution limit being raised in the future.

Yup, good point, thanks for updating this, I’ll need to do yet another post on this 🙂

Don’t worry, that scene is burned into my mmory.

I almost had a question about the math, but I think I figured out what you did. Are you assuming you only contribute up until the point that you maximize the CESG?

This paragraph confused me because of the last line.

“If you are putting 2,500 dollars in every year of your child’s life from birth, and getting the CESG kick in of $500 per annum, you will have about $43,000 dollars (assuming no growth in your investments (but also assuming no losses either)), assuming your child goes to University at around age 17/18, and you religiously put money in every single year.”

I assumed you meant put money in every year, even after maxing the CESG, but then I realized that “religiously” was the key. Few people take that to mean “sticking to the rules all the time” in practice so now it makes sense again. 😛

I wish I could find that clip of Homer Simpson singing, “I am so smart, I am so smart, S-M-R-T…”

What Sustainable PF says isn’t so tough for a frugal kid in a good COOP program. I have such a kid living away from home for both school and work terms. High school work savings and part of her RESP got her through her first two school terms. Since term 3 (her first work term) she has been a net saver, no need for further RESP funds. If she continues to get good COOP jobs, she’ll graduate with savings from work and the remainder of her RESP funds untouched. After the first two school terms, work and school terms alternate at her school. A good COOP job is enough to support yourself for a work term and also pay for the next school term.

Excellent point, and I should know better, since I have a CO-OP degree from Waterloo! I smell another post here…

So the RESP gives the kids, hopefully, full tuition paid. Awesome. What a great leg up for our children.

But guess what kids? GET A JOB in high school and SAVE money. Why? Our jobs mean NO LOANS from the govt for you! We’ll help you out some but not a full ride. Neither of your parents had a full ride and you won’t either.

We worked, we saved, we lived on shoe-string budgets in university. You will too! Great lessons to learn about managing finances.

If you decide to not do this then you can work out of high school until such time you can pay for more education.

Post-secondary schooling is a privilege, not a right. Your parents already spent a bundle raising you, and, will pay for your tuition via 17/18 years of saving to help, not spoon feed, you.

You should teach a high school course for Grade 9 students, or at least do a guest lecture.

Maybe a bit off topic but something else to think about is what if your child chooses not to continue their education. I just collapsed my son’s RESP, and my financial guy said it’s the first time he’s ever had to do that {really?!). I had to return the government portion (with it’s growth) and then had the option of taking my deposits back and forfeiting all growth (in effect a 20 year interest-free loan to my financial institution) or transfer the deposits with growth to my RRSP. I am under the impression that this is RESP regulations and not specific to my financial institution. Fortunately I had the room in my RRSP to make the transfer, but this could be disasterous for someone who didn’t have the room. The RESP system worked well for my daughter who did go on to post-secondary, but I’m left with thinking that RESP’s aren’t all they’re cracked up to be and probably aren’t for everyone.

Losing the CESG back to the government is reasonable (but the associated growth sounds a little fishy), the growth penalty on the other hand that sounds wrong (the having to forfeit all your growth), that is an institution rule (in my opinion), you’d have to pay tax on the growth, but that is all that should happen (luckily you could transfer it to your RRSP), but I would investigate that one a bit further.

I’d question your assumption of zero growth over 18 years – that’s highly unlikely. Even an extremely conservative investment would be expected to grow with inflation over that long of a timeframe.

Also, it’s quite possible that higher education is the next bubble. Rising costs that outpace the overall inflation rate aren’t sustainable long-term. At some point the rate of growth will slow, and it’s possible that tuition costs could actually drop.

Yes, the zero growth is a bad assumption, but I disagree on the Education bubble, if anything prices are increasing in costs, and after seeing what can happen in the U.S., I think this is going to go on for much longer.

One hope that I have is that actually education in a digital future will be a fraction of the cost now. It really should only be a matter of time before online courses are credited and offered to anyone who wishes to take them. Education will be more self-directed and perhaps even more interactive, all for far less than building classrooms and hiring “teachers” who could easily be replaced by the occasionally updated youtube video.