Education savings: Getting a late start on the college fund

The Question: My son is 14 years old, and I haven't saved a penny for his education yet. I'm starting to panic. What should I do?

As American newspaper columnist Bill Vaughan once said, “A college education adds many thousands of dollars to a man’s lifetime income — which he then spends sending his son to college.” This sentiment is as true today as it was when Vaughn was writing in the ’50 and ’60s, only these days, it’s often two working parents who, combined, can’t afford their kids’ tuition. But don’t panic ? you probably have more options than you think, even if your son is only a few years from high-school graduation.

Without question, the best way to save for a child’s university education is through a Registered Education Savings Plan. It works like any other investment account — your money buys stocks, mutual funds and bonds — but as a bonus, the government will chip in 20% of any contribution up to a maximum of $2,500 per year. It’s a good idea to open one soon after a child is born, but don’t worry if you haven’t — every year, you are eligible for a retroactive government top-up on one year that you missed. Your child is 14 now: plunk $5,000 into an RESP account before your son’s next birthday and you’ll get an extra $1,000 from the feds — $500 for this year and another $500 for the year before. Do this every year until your child is 18 and it’ll be as though you started saving four years ago.

In addition to the government’s contribution, you’ll also get a return on your total investment. But don’t try to catch up by looking for “hot tips” in the stock market. “If the kid is less than seven years away from university, the money has to be in something rock solid,” says Alison Griffiths, former host of the W Network’s Dollars and Sense. Keep the cash in low-risk products. The return won’t be astronomical, but at least it will be safe.

Of course, not everyone has five grand lying around to deposit into an RESP, especially if you’re already contributing to a Registered Retirement Savings Plan. But with some careful planning and saving, says Mathieu Paradis, a CFP with Wealth Strategies based in Orleans, Ont., you can contribute to both. Try putting $1,000 into your RRSP every month and use your year-end tax refund for education savings. Someone in a 42% marginal tax bracket and earning about $90,000 would, on $12,000 in RRSP contributions, receive a refund of approximately $5,000 to invest in education.“You’re killing two birds,” he says.

The feds aren’t your only option for financial help, either. Hundreds of scholarships are offered to students every year. If your kid happens to be among the brightest in his school, this certainly helps. But there are scads of lucrative grants and scholarships forkids of all stripes: athletes, mature students, science buffs, and kids of various cultural, ethnic and socio-economic backgrounds. Every year, many of them go unsought and unclaimed. For a detailed list of what’s out there, check out

Another frequently overlooked option: character building! Get your child investing in his own future. At 14, your son is old enough to be mowing lawns, babysitting, and doing all sorts of odd jobs at home and in the neighbourhood for cash. “They should know they’re not just getting a free lunch,” says Sarah Kinnear, a senior tax and estate planning specialist at Investor’s Group. At 16, teens are eligible to start working a part-time job. Maybe he won’t be able to contribute thousands, says Eric Tyson, co-author of Personal Finance for Canadians for Dummies, but even just 5% or 10% is better than nothing. Also, ask the child’s grandparents to contribute to his RESP on birthdays and holidays instead of buying pricey gifts. Your son may not be thrilled about the idea right now, but he’ll thank you later.

Other means of securing funds for tuition exist, Tyson says, but they should be used only as a last resort. For example, a home equity line or second mortgage can offer families a quick cash infusion, especially if their mortgage is almost paid off. But it will also plunge parents further into the red, often at a time when they can least afford it. “The parents might be a few years from retirement,” he says. “Do they [really] want to take out more debt?”

As you start saving, remember to maintain an open dialogue with your child about his career ambitions. After all, university isn’t for everyone. Make sure you’re not projecting your goals for your son onto him. Maybe he doesn’t even want to be a neurologist like you’d hoped. Maybe he’s passionate about being a graphic designer, a police officer or an electrician. If that’s the case, count yourself lucky. Community college bills are a whole lot smaller.