Canadians fail to plan properly for university

Forget saving for retirement — if there’s anything you should be discussing with your younger clients, it’s saving money to send their kids to university.

According to a new survey from the Bank of Montreal, a year of university — tuition and living expenses — can run about $11,000, and for many the costs are even higher. With a number that large, it’s surprising to learn that more than 50% of students polled in the BMO study underestimate the costs of education by as much as 34%.

“The results are pretty surprising,” says Sid Chopra, director of everyday banking at BMO. “We were shocked to see them.”

Even more unsettling is that only one in five university students have consulted a financial advisor about their education costs, and more than half said they haven’t even had a conversation with their parents about saving for university.

“It’s shocking news that students haven’t talked to their parents and, more importantly, developed a budget with parents or a financial expert,” says Chopra.

The study also found that, on average, students expect to pay back their student loans within five years of graduation, which could delay the purchase of a house or investing for the future, says Chopra.

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Why aren’t more families planning for university? Chopra explains that it comes down to planning a proper budget, which many people don’t do.

“That requires understanding what you have, your RESPs and loans,” he says. “But the real issue is more around understanding what the expenditures could be and budgeting for that.”

Chopra says more students should utilize a financial advisor who can help assess what their “inflows and outflows” are. “The perception out there is that financial experts are for people who have jobs and are ready to plan for retirement. Students are busy focusing on other things, but it’s our job as a financial organization to deal with this issue.”

Financial advisors who talk to students might want to discuss “the full picture,” which includes unplanned costs, such as entertainment or travel expenses. Chopra also says it’s wise to set aside two accounts — a chequing and savings account — for day-to-day costs and future tuition fees.

But while students share in the responsibility of saving for university, parents should be thinking about tuition fees from the day their child is born. The best way to save, says Vera Adamovich, a CFP with Independent Planning Group, is with a registered education savings plan. “We make them aware of the RESP,” she says. “There’s free money to be had from the government, and systematic contributions to a plan like this is painless.”

She says even $50 a month to start is a good idea. If your client can put $2,500 into an RESP by the end of the year, the government will kick in another $500.

“Imagine doing that over 17 years,” she says. “Education comes, and you’ve got two years of university completely paid for.”

Adamovich says children should help out with savings, too, by putting part of their allowance in their piggy bank or directly into the RESP. “Then, when they go to school, they will have several sources of income.”

She says a lot of her clients don’t seek out the numerous scholarships available, which could also help cut costs.

But what if your client can’t afford to put thousands of dollars a year into an RESP? Graeme McPhaden, a CFP with Armstrong & Quaile Associates in Toronto says putting away $10 a month is better than nothing. “In 18 years you’ll have close to $2,000,” he says. “Now you have at least the cost of a semester of courses covered.”

He also tells clients to put into their RESP the $100 a month that they receive from the Universal Child Care Credit. They’ll receive the yearly $1,200 credit only until the child turns six, but that’s a good start to university savings.

One novel way to save for a child’s education, says Adamovich, is to tell family members to give cash, instead of gifts, for Christmas and birthdays. “If a parent puts in $100 every Christmas for their kid, that growth could easily be more than $2,000 for education.”

Still, no matter what you do, it’s important to get kids thinking about their financial future early. McPhaden admits that it’s hard for kids to save money, especially if they’re only 13, but it “shouldn’t be something to talk about the week before you’re off to frosh week” either.

“It’s wise to have a plan to follow and figure out how to get a kid in university without accumulating a lot of debt,” he says. “You can’t do much the summer before school starts. That’s too late.”

Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com

(09/07/07)

Bryan Borzykowski