I had a discussion with a writer on Monday about my experiences with the entire RESP system, and I had an epiphany , which is that if I look at the current costs that I know of, and the maximum amount that you can put into an RESP, this will really only (barely) cover the cost of tuition at your child’s university (at this moment in time).
If you are putting 2,500 dollars in the RESP 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 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 interesting 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 really 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.