Higher education is a costly pursuit in Canada and is likely to become more expensive. Youth unemployment is at 13 per cent and many recent graduates are having difficulty finding work, moving back home with their parents and taking on more debt.
A recent poll conducted by CIBC showed that nearly half of post-secondary school students are afraid they won’t be able to pay back debt upon graduation due to a lack of well-paying jobs. More outstanding is the fact that roughly 60% of Canadian parents have had to use money originally intended for their retirement to pay for their kid’s education.
There are often better solutions to piling on more debt or taking funds from retirement. Exploring what these options are by planning for these costs early on and learning to keep finances in check is becoming increasingly more important for students and parents alike.
Three quick tips for students and their parents:
- Loans are not ‘free money.’
Canadians have become increasingly more comfortable with debt and nearly 25% of students have admitted to using student loans for things like vacation. Before accessing credit for the first time, parents should educate their children on the potential negative consequences of over borrowing and borrowing for the wrong reasons.
- Apply for grants, bursaries and/or scholarships.
Unlike loans, grants do not charge interest and do not require a return of capital. Yet, many students and parents do not optimize the amount of grant money available to them. A Registered Educational Savings Plan (RESP) is one way to create education savings and receive ‘free money’ from the government on up to 20% of what you contributed.
- Create a budget and establish a plan.
Many students heading off to college will be managing money for the first time and there is a real chance they may underestimate the cost of living on their own. Sitting down with parents or an adviser to consider costs involved in a post-secondary education and creating a plan that outlines how much the student and parents will cover can provide a real leg up with budgeting and savings.
With Labour Day just around the corner and the new school year on the horizon, instead of sending your kid off to university with a care package, show you care by educating them on their finances. The best lessons aren’t always learned in the classroom.
Cattelan Private Wealth Counsel.