Why I Stopped Saving for My Kids’ Education

With two clicks of my mouse I cut off the saving that I had previously been automatically been putting towards my children’s education each month since shortly after they were born. It wasn’t a huge amount of money only $167/per child per month so it wasn’t like I had to do it because of cost cutting or anything.

So why? Well because I hit the goal I had set for their RESP fund. It had recently broke the $80,000 threshold I had set for the total amount saved for both kids.  So that gives both kids an even $40,000 each to help cover the cost of their education.  Yes I’m fully aware that won’t fully pay for a post secondary degree depending on what they take and where they take it.  You see we never planned to pay for all their education costs.  We instead wanted them to have a better start than we did.

My wife and I after graduation had a total of $60,000 in student debt back in 2000 which actually was fairly low for two bachelor degrees when we both we paying for living costs as well as the usual tuition and book costs.  But it did take us a while to pay off those debts so we wanted out kids to end up with a better start in life than we got.  But rather than trying to guess how much to save based on the wide spread of costs depending on what my kids take for post secondary education we decided to instead just save a flat $40,000 per kid to cover the basics and let them decide is the additional cost above that amount is worth it.

Also if I’m going to be completely honest I really only expect one of my kids to go to university.  My one son loves math and science so I can totally see him taking a engineering, science or geology university degree. The other son will likely end up with some other  post secondary education like a trade or diploma.  For him school has always been an effort and frankly I don’t see him in a university, but should he want to try the money is there regardless of what he chooses to take.

On the plus side now that we have stopped those payments to their RESP we can now use their Canada Child Benefit (which over the summer went up to $340/month) to actually pay for those kid related expenses like new clothes and food for my 13 year old who is growing at an insanely fast pace right now.  Like seriously the kid has grown almost six inches in a year and eats at times like a bottomless pit (given my own memory of those times growing up this is hardly surprising).  Also the money helps pay for their activities like swimming lessons or other classes they want to pursue.

Of course some people might wonder why stop investing in their RESP at all.  Why not not just keep saving and pay for all their post secondary education costs?  Well when I went to university I saw some of those kids who had all their costs paid for by their parents and at times it didn’t end well.  Kids would party too much and study too little and waste everyone’s money and time by failing badly at most of their classes.  So I really want my kids have to come up with some of the money for their education.  It might be from working a summer job or applying for scholarships I really don’t care how it gets paid as long as they have to do some effort to get it.  I want to balance my kids having a good starting point in life with my kids not getting entirely a free lunch.

So how do you handle saving for your kids education?  Do you plan to pay it all or partly or none?

11 thoughts on “Why I Stopped Saving for My Kids’ Education”

  1. I too believe that all kids should have to pay for part of their post secondary schooling – as part of their ‘financial education’. For our two sons our rule was we paid for the tuition, fees, and books and they were expected to pay for their living expenses and they could keep any scholarships or bursaries they received to encourage them to apply and do well. Since living expenses are variable costs it gives them control and hopefully teaches them to learn to manage these expenses.

  2. I don’t fully agree with this approach for the RESP. I agree with having kids have some stake in their education. But from a purely mathematic perspective, I would bet you are leaving money on the table. Depending on when your child was born you have so much contribution room. RESP essentially has two buckets with one containing two parts.

    1) Contributions
    2) Accumulated Income (combination of grant money and investment income)

    Personally, I plan on ensuring my child(s) RESP receives the maximum “Grant money (currently at $7,200)” which results in a contribution amount over the years of $36,000 per child. Ideally the RESP has average growth of 5% per year. For withdrawals, the child will only use the “Accumulated Income” and I will then withdraw the “Contributions” with no penalty or taxes and use for my retirement or spending. See a quick excel calculation below. Over an 18-year scenario (not including gains during university years), this results in approximately $40,000 available in the “Accumulated Income” bucket. This maximizes the grant and tax deferred amounts. If you really want to maximize the tax deferred amount, you can contribute an additional $14,000 but that monies will receive no grant, but if this amount is added early, it could result in significant investment income gains. Additionally, you can move up to $50,000 of the “Investment Income” to RRSP later on, so using the “Grant money” first is priority.

    Contribution Grant Total Income (Assume 5% per year)
    0 $2,500 $500 $3,000 $150
    1 $2,500 $500 $6,150 $308
    2 $2,500 $500 $9,458 $473
    3 $2,500 $500 $12,930 $647
    4 $2,500 $500 $16,577 $829
    5 $2,500 $500 $20,406 $1,020
    6 $2,500 $500 $24,426 $1,221
    7 $2,500 $500 $28,647 $1,432
    8 $2,500 $500 $33,080 $1,654
    9 $2,500 $500 $37,734 $1,887
    10 $2,500 $500 $42,620 $2,131
    11 $2,500 $500 $47,751 $2,388
    12 $2,500 $500 $53,139 $2,657
    13 $2,500 $500 $58,796 $2,940
    14 $1,000 $200 $62,936 $3,147
    15 $0 $0 $66,082 $3,304
    16 $0 $0 $69,387 $3,469
    17 $0 $0 $72,856 $3,643
    18 $0 $0 $76,499 $3,825

    Total Contributions $36,000
    Total Grant $7,200
    Total Income $37,124
    Total Accumulated Income $44,324

  3. I plan on maxing out Little Bun’s RESP with his own money (like you) but as I don’t want to retire earlier than 50, he will be ready for university by the time I could retire…

    Any cash outside of his RESP stays in a high interest account for him / invested as well. I’m keeping a balance of 50/50 to make sure he has ready cash for things he will want and the rest in the RESP is for his schooling.

    All of the government money stays as his money – my partner and I decided this early on – but from there he is on his own.

    He is still pretty young but I have an inkling he will want to go to post-secondary education as he is showing early signs of having an affinity for it.

    He should have about $100K in his RESP by the time he is ready for school plus an extra bit of cash set aside for other things.

    That said, who knows? I’m planning for what I can only assume now.

  4. Thank you for this post. Mine is only 5, and we have about 9k saved. Hoping it will be pretty big by the time he graduates! That said, I’ve also wondered when is a good time to stop contributing. The bonus is, your 40k per kid will also hopefully grow a bit over the next few years. Right now, with free money from the government, it just makes sense to keep going. But later on we’ll be able to better assess what he will need at a minimum. I always worked during high school and university to pay for the “extras” so I think it is ok for my kiddo to do that too, but I am thankful he won’t be swimming in student loan debt like some kids are forced to.

  5. Been there done that.
    I maxed out the RESP for my kids (3) every year. It started when they were older so by the time they were 18 the plan had not attained the max allowable simply because of the shortage of time. The oldest went on through several years of university, the second did one year of CEGEP which qualified as post secondary and then in to the trades which did not qualify for the RESP withdrawals at that time. The youngest went right in to the trades so could not use the RESP. As it was a family plan RESP the oldest got to use it the most, including contributions for the other two kids. Right near the end of the plan I pulled the money out in totality which screwed up my daughter’s bursaries/grants.
    So be careful how you withdraw it and especially the timing if your child is receiving bursaries/grants. Some of those are based on the child’s income level. Withdrawals from an RESP are considered income in their name and obviously increase their income for that year. If you take the money out of the RESP and use it for yourself it is still considered the child’s income.
    So watch how you withdraw the funds. You put the money in but becomes the child’s income in the withdrawal phase.

    As to income levels differences between a uni education and trade education both of the boys in the trades can easily earn more than $100K per year. So don’t hols your nose up against someone who is not uni educated but willing to work at what they like. One is a crane operator and the other is in HVAC.
    The oldest is actually having more problems establishing herself and getting full salary – as a doctor.

    RICARDO

  6. @Debbie – Actually that is a good plan. Thanks for the idea.

    @David – True I’m leaving grant money on the table so to speak but I’m okay with that. Thanks for the analysis.

    @Sherry – Yes when they are young it a bit harder to tell what the money will be used for but it is good to have something saved regardless.

    @T on Fire – Actually that is sort of the plan…they have $40,000 now but with some growth that should keep going up a bit more before the oldest starts to need it in about five more years.

    @RICARDO – Thanks for the reminder to manage the withdrawals for taxable income. I did recall that but didn’t think about the impact to grants. As to trades vs university I’m totally okay with trade jobs…hell a lot of them have a better income potential up front than most degrees. I honestly think too many people take a university degree when they should have considered something else. I was merely pointing out in my post that my one son likely isn’t cut out for university and I support what ever he wants to do.

    Great comments everyone. Thanks for sharing.

  7. As a low income person, the first $500 gets 30% in grants, a bonus 10%. It’s not a bad idea to trickle in a bit more money just for the grants, it will outperform any other investment you make. After the grants are all maxed, I see no point in further contributions.

    Run your own scenarios with the low income grants.

  8. I think you are bang on with your plan. We also want our kids to come out of school with as little debt as possible to help give them a head start in life. I look at house prices and have a hard time figuring how they will be able to pull it off. Having said that, I agree with you and want them to have some skin in the game so that it means something to them. Not really sure about how we will present it to them, but likely will be that we cover tuition and they pay for accommodation, meals etc.. If there is anything left at the end. It is there’s to keep. Maybe give them a bit of incentive to watch where they spend. My daughter is in Grade 11 and son is grade 10, so coming up fast.
    Yikes!! I never had the chance to go to college or university so I think I am more excited for them than they are. 😉

    Good Luck and good plan!!!

  9. I have so far put 2 kids through school with their RESPs. I still have 2 more to go!! My question, for the RESPs, I have always just put the money into whatever aggressive fund my bank had to offer. Now that I am learning more about investing for myself, I am interested to know how you invested your children’s RESP money.

    Thank you as always!

  10. Put our daughter through with no loans. Did not really save for it in advance at least not in any ‘dedicated’ education fund. Meanwhile, maxed out IRAs and 401Ks

  11. Just don’t take out your RESPs on the first chance.
    DO apply for a student Loans first! With a reduced family income, your child may well qualify for grants, and those will quickly exceed the RESP bumps anyway.
    When the time comes, pay off the loans with RESP money. You can shave of thousands in education costs this way. Wish I had known! Did this with one of my three student children anyway.

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