Education, RESP’s and Insurance

The cost of education in Canada is a lot lower than in many other places. Nevertheless, the cost can still be prohibitive for many people. Even with government grants and loans, some forethought and planning are required for most people to ensure their kids can manage a post-secondary school. As the parent of two kids that both have master’s degrees, here’s my thoughts and stuff that we did that helped make it successful.

RESP’s

Number one thing you can do is start saving early. And there’s no better vehicle than an RESP to do so.

I’m not going to get into many specifics with RESP’s other than recommending that you open one. However, the basic framework is this. You can deposit up to $2500/year per child into an RESP and the gov’t will give you a grant of 20%. That’s an immediate 20% interest rate you earn, guaranteed, first year on each deposit. $2500 savings gives you $500 from the government every year. It’s quite simply the best deal going. And you can do this every year until they’re 16. Start young enough with $200/month and you should have more than enough to put your child through university.

Choice of university/living at home

We’re fortunate that we had a variety of post-secondary institutions local to us. And as such, I gave our kids a choice. Move out to go to school and we’ll help with your living expenses including a bus pass. OR, live at home and we’ll buy you an inexpensive student car so you can commute. Both kids chose to live at home, both of them cost of the value of a beater car but that was way less than paying for an apartment and seperate internet/heating/laundry/food costs.

In fact, because they lived at home, when they went to school it actually cost us LESS. That’s a bit of a bold statement, but here’s why. They were living at home so there was no change in baseline costs. But when they went to school we stopped contributing to their RESP and started withdrawing to pay their tuition and other costs – so when they went to school we actually ‘saved’ on no longer paying into an RESP.

Further since they were living at home, the actual costs of school were manageable, we had enough in their RESP’s to last them through most of their undergrad. Tuition, gas money and entertainment, books and supplies were the primary costs, and they came out as either lump sums for tuition, or as a monthly allowance for most other things.

The combination of having them live at home plus some savings in an RESP meant that university went from being a potential insurmountable financial obstacle, to not really that big of a deal – it didn’t break us.

It’s my opinion that the specific university people attend is less important than many people like to think. If you agree, then having your kids go to a local school so that they can live at home can be a huge savings.

I will say this though – we gave our kids lots of freedoms and privacy when they were in school and living at home. No real monitoring of their comings and goings other than asking for a general indication of what they were doing and when they’d be home. Made them lunches, helped with laundry, all the mom and dad stuff, we kept doing that as well. The battle you’re fighting here is a 20 year old wanting to get out from under the roof of mom and dad, so we tried to make it more appealing to live at home despite them having to put up with our existence :).

Insurance – protecting your costs

When our kids went into masters programs things got a bit more expensive. That meant that they took out some government grants and loans. They also took out a student line of credit that we had to cosign for. We wanted to protect ourselves in the event that the kids were unable to finish their schooling, but still leaving us on the hook for a fairly large student loan.

We started with life insurance. We put $250K on both of them, more than they needed for school but at that age it’s so inexpensive that larger amounts don’t cost enough to really get on the radar. So we got enough that they could keep it after graduation and when they started a family. We also got them a Term to 100 (permanent, life time) policy because we knew they’d want it eventually and again, the costs were low enough that it was worth it to me to lock it in.

Secondly, we purchased $100,000 of critical illness insurance on them; again a permanent lifetime policy (and again, just because the costs were low enough that we were OK paying a bit more to lock in a policy they could keep after school). If the worst case happened, we were now had enough insurance to cover their student line of credit. And, we had obtained policies with locked in low premiums that we could give to them when they started their own family.

Turns out, this wasn’t a hypothetical. Our daughter was headed back to her second year of her masters when she went in to get a mole removed. The doctor removed that mole, then decided he’d be a bit extra cautious and took a second mole as well. The second mole turned out to be early stage cancer. And the critical illness policy paid out a lower sum (critical illness policies have a few lesser conditions that they pay out lower amounts for). But that lower sum paid for her treatment at an out of country cancer clinic near where she was going to school. And perhaps even more importantly, paid the costs to have her mother take time off work, travel, and be with her as she navigated the treatment.

Foresters Financial

So this next section is a bit out of the norm, but it’s interesting nonetheless. Foresters Financial is a Canadian life insurance company that has a bunch of ‘member benefits’ that their policy owners have access to. Here’s the full list. There’s a variety of very interesting benefits for the children of insureds, but the primary one related to this post is their scholarship program. If you’re a Foresters policyowner, your kids have access to scholarship programs. And while there are some qualifications (they want to see things like the kids volunteering, etc), the scholarships are NOT competitive – a lot of applicants get them. I haven’t run the numbers, but I’d bet that if you obtained a scholarship for your kids through their program it’s likely worth more than the cost of the insurance.

To get access to these benefits, all you have to do is be a policyowner. Doesn’t matter how much life insurance you buy from them, or what type. And both parents don’t have to be insured, just one.

So we actually bought a $100,000 20 year term policy on mom so we could access these additional benefits. Female age 35, $100,000 of term 20 with Foresters……The Term Guy website shows the premiums as being $12/month. $12/month for the life insurance seems cheap for life insurance, and it doesn’t seem expensive even if you’re just buying the insurance for the additional benefits like access to scholarships.

And that’s how we navigated the costs of putting our kids through school. Start saving early with RESP’s and take advantage of government grants. Choose a university that allows them to live at home, and then giving them the freedom so they don’t want to live away from home. Then accessing lesser known scholarships, while also protecting ourselves with insurance against the costs of the education.