School work

  By Guest Blogger Doug Rowat

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Teenagers. They’re a lot.

But whether they appreciate it or not, it falls on their parents (or certain other individuals also with the strength and patience to love them) to pay for their post-secondary education.

Registered Education Savings Plans (RESPs) can help, so here’s, as the kids say, the 4-1-1.

Let’s begin with some simple estimates for post-secondary education costs and an illustration of the extent to which a RESP might be able to help cover them.

Naturally, the cost variables are almost endless—where your child plans to go to school, the program they’ve selected (dentistry? Cha-ching), whether it’s a university, college or trade school, whether they’ll need housing, whether they’ll need a car, etc.

We can’t cover all of these variables, but StatsCan pegs average undergraduate tuition alone at nearly $8,000 per year and RBC estimates the average total cost of one year of post-secondary education at more than $17,000. RBC’s estimate is an all-in cost that includes student residence, books and course materials, transportation, etc. So, let’s assume, for the sake of argument, that a four-year program will set you back around $70,000.

But let’s further assume that I’m speaking to a reader who’s just had a child. Therefore, we’ll need to gross up this amount by the rate of inflation for the next 20 years, a typical age that a student might enroll in a post-secondary program. This brings the down-the-road cost to more than $125,000 for a four-year program.

And that’s one kid. Scared yet?

So how can a RESP help? Let’s make a few assumptions here too. First, RESPs should generally be positioned aggressively because, unless your child is the next Doogie Howser, it’s likely going to be many years, if not decades, until the funds are needed, therefore market volatility should largely be discounted. Risk can be dialed back closer to their enrollment date, but generally speaking, a RESP should be heavily weighted to equities. Therefore, we’ll assume a long-term annual rate of return of 8%. Btw, a RESP can hold most traditional securities: stocks, bonds, ETFs, mutual funds, GICs and so on. (But use ETFs—you already know how we feel about everything else.)

RESPs have a lifetime contribution limit of $50,000 per beneficiary and the government will contribute up to $7,200 more—the Canada Education Savings Grant (CESG), which isn’t counted against the limit and is one of the primary advantages of a RESP. Naturally, contributing more earlier will enhance the long-term growth, but not everyone has this contribution flexibility, so we’ll further assume a steady contribution rate of $2,500 per year, which will maximize the yearly CESG (20% of the $2,500 contribution, or $500) in the earlier years and reach the $50,000 contribution limit after 20 years.

Under this straightforward scenario, which emphasizes consistent rather than sporadic contributions, the RESP would grow to almost $145,000 by year 20, nicely covering the average inflation-adjusted cost of a four-year post-secondary program. Remember also that the remainder of the RESP not drawn for school expenses will continue to grow each year for another four years. Over the coming decades we could also see the Canadian government increase the CESG limit.

The below chart is useful because it shows that even if you open a RESP late, there can still be significant accumulation (e.g., a RESP opened with only 10 years until a child’s post-secondary enrolment could still potentially grow to more than $93,000).

It takes patience and steady contributions, but a RESP might eventually grow to cover a great deal of post-secondary education costs

Source: Turner Investments, RBC, the Bank of Canada. Post-secondary education costs are adjusted at a 3% annualized inflation rate. Assumptions for the growth of the RESP are (1) $2,500 annual contribution, (2) maximized CESGs and (3) an 8% annualized rate of return.

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If this still doesn’t cut it, your kid can also work during the school year (waiter, bartender, factory worker—noble professions all, and all of which I’ve worked), which further increases the likelihood that school costs will be met.

RESPs are tax deferred, so eventually the accrued funds will need to be, not only used for school, but also declared as income, which is taxed in the hands of the beneficiary (the student). RESP withdrawal strategies vary, and consulting a financial planner is helpful, but usually students are living off of ramen noodles and earning next to nothing, so the tax consequences tend to be relatively mild regardless.

RESPs have limitations, including the above-mentioned $50,000 contribution limit and the CESG maximum of $7,200. Other limitations include annual withdrawal limits on the grant and earnings portions, though these maximums usually aren’t a problem unless the student has extraordinary cash flow requirements. The clock is also always ticking: in order to be entitled to the CESGs, enrollment in a post-secondary institution must occur within 35 years of the RESP being opened, but again, this isn’t a problem for most. The institution they enroll in must also be accredited and approved by the Canadian government (any ‘universities’ promising to make you filthy rich through flipping real estate or offering classes near the airport probably don’t make the cut).

But regardless, these are limitations, not actual downside. If you’re planning to help out a kid with their post-secondary education then a RESP should be opened as soon as the ink is dry on their SIN card. And if there’s more than one kid in play, make it a family RESP, which offers more benefits and greater flexibility for siblings.

And when they’re eventually teenagers and you’ve proudly built up their education nestegg, you can walk them through how the RESP helped. They’ll be more interested in getting back to their Roblox, or whatever teenagers will be doing 20 years from now, but at least you’ll know that you did your best.

And with any luck, down the road, they’ll face the same indifference from their own kids.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Investment Advisor, Private Client Group, Raymond James Ltd.

Source: https://www.greaterfool.ca/2026/01/17/school-work/