My name is Mark Goodfield and I am a tax partner and the managing partner of Cunningham LLP in Toronto. This blog is about income tax, business, the psychology of money and investing topics and is meant for taxpayers no matter their income bracket, but in particular for high net worth individuals and entrepreneurs who own private corporations. I also blog about whatever else crosses my mind; I have to entertain myself. This is my personal blog and the views and opinions expressed in this blog do not reflect the position of Cunningham LLP. I am blunt and opinionated (at least for a Chartered Professional Accountant). You've been warned.

The blogs posted on The Blunt Bean Counter provide information of a general nature and should not be considered specific advice, as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Monday, May 2, 2011

Tuition in Canada -At least my Kid does not go to School in the States

I am back, in a less cranky mood than on Friday (as today is the last day of income tax season). Today will also be my last blog for a week or so, as I am off for some R&R later in the week. Over the next few weeks, I need to refine the focus and purpose of this blog. To date, I have been pleased with the response to the blog, but I know I cannot commit to being a four or five day a week blogger. I do know that I want to try and have more original pieces than comment pieces, so I have a direction, it just needs need refinement. Anyways, enough navel gazing. For those of you with kids in university, or more specifically, saving to send your children to university, read on; although you may want to keep an air sickness bag nearby when you read the numbers detailed below.

Tuition in Canada -At least my Kid does not go to School in the States

I cannot believe the university school year is already over and my kids are returning home. This year I officially became an empty nester as my daughter marched off to university joining my son who just finished his third year. While my wife and I had different feelings upon my daughter leaving – my wife was sad and I was ecstatic - sorry kids if you are reading this, but I can only listen to you tell me that I know nothing for so long - my wife and I were both in sync on our reaction to the combined tuition bill, total shock.

You see, my son had switched at the last moment from a general science program to the Ivey business program at Western. The combined cost for my son and daughter including rent and food was in excess of $50k. My RESP quickly looked a little light. 

For a child living in residence at most Ontario schools you are looking at around $16-18,000 a year for residence, food, books and tuition. Computers add an additional cost. As for Ivey, they even warn you of the estimated cost of $37,000 for academic and living expenses on their website.

So for a child who does two years of undergrad and an Ivey HBA (I won’t even tell you what my son’s ultimate university plans are), the cost is in the range of $110,000. For a four year undergrad only, the cost is around $70,000.

I am putting the numbers out here because; I have found many parents really do not grasp the cost of a university or college education in Canada (let alone the United States, where the undergraduate cost approaches $50,000 a year in many cases). I think because many parents paid minimal tuition and in many cases went to university in the city we grew up in, we don’t grasp the magnitude of today's tuition fees, even though the media publicizes it, accurately and often.

So how does one fund their children's post secondary education? Ignoring the small percentage of Canadians that have private incorporated businesses and make their children beneficiaries of a family trust and fund their education in whole or in part through dividends, there is no magical answer.

The first building block is utilizing your RESP. Under current rules, you can contribute a grant eligible $2,500 a year and the government will provide a grant of $500 for a total of $3,000 a year. The total lifetime contributions per child are $50,000 and the total lifetime grant is $7,200. Click here for an excellent discussion of RESPs by Mike Holman who wrote the book on RESPs.

Assume you have $2,500 per child available each year to fund their RESPs up to the $50,000 lifetime maximum contribution and the RESP receives the $7,200 maximum grant limit. If the RESP earns 5% a year, you could have upwards of $90,000 in each child’s RESP. This would go a long way towards covering most children’s university or college costs. However, the reality is that between covering day to day living costs, paying down mortgages, contributing to a TFSA or making RRSP payments, etc., many parents don’t have $2,500 per child to contribute, especially in the early years. But no matter what you can afford to contribute; the RESP should form the building block for funding your child’s education.

As parents, two alternative ways to provide the discipline to fund RESPs are: (1) use your monthly Universal Child Care Benefit cheques and/or (2) your tax refund or a portion of the refund.

With the huge wealth transfer taking place in Canada, some parents may receive an inheritance. In this situation you might consider opening a separate account with some of the money you inherited to supplement the RESP, or even open an account in your child’s name (There is no attribution if the child has capital gains in that account).

Where there is no potential inheritance and money is tight, attending university or college in your home town makes any undergraduate program at least somewhat affordable. To the extent you can send your child to another city, even for a year, I would suggest doing such. It is a tremendous opportunity assuming they partake in the university experience (that means activities other then just drinking).

Many parents, whether they have the money or not, feel their child should work to pay for some if not all of their university costs. Whether this is a necessity or your philosophy, this discussion should be held when your child starts high school so they are aware of your expectations and they can plan around those expectations.

Finally, there are various student loan programs to finance your child’s education; however, family income can sometimes disqualify the child.

As noted above, this blog contains no magical solutions. This blog is meant to try and make parents more cognizant of the true costs of university and college in Canada.