My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a tax partner and the managing partner of Cunningham LLP in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog do not reflect the position of Cunningham LLP. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

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.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts 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.

8 comments:

  1. Hey Mark - you're scaring me with those education numbers.

    I do one "real" post per week and one roundup. Works for me.

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  2. I graduated from the BBA program at WLU in 2007. I estimate it cost me about $16K/yr, so $64K total. My (divorced) parents gave me a total of $4K/yr (no RESPs). I paid for the rest using savings, working through the summers, working part-time while in school for my last two years, and student loans. I graduated with $25K in debt, and I paid that off in 20 months.

    I'm a big proponent of kids paying for at least part of their education. They are the ones getting the most value, after all. Plus it helps tremendously with budgeting and money management skills. I have friends who didn't have to pay for anything except maybe earning some spending money and they are not able to handle their money very well now.

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    1. I absolutely agree with you

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  3. I'm tired of the bellyaching about tuition costs in Canada. Tuition is dirt cheap, especially if a kid decides to go to a university in his/her city. The cost rises when a child lives in residence, but all things considered $16K to $18K per year is a bargain.

    Programs like MBAs are expensive, but if Canada's universities want to compete with top international schools, they have to hire excellent professors and pay them a good salary. You get what you pay for.

    As far as the US - if a kid goes to his state's university, instead of one of the private colleges, s/he will pay very little for tuition. Tuition at in-state schools is comparable to most universities in Canada, and most states have very good schools.

    I don't whine about my son's Canadian university tuition. It's a bargain compared to what we paid for private, Catholic high school in DC.

    Finally, I agree with Daniela - kids should be responsible for contributing to their university expenses.

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  4. OCDaniela-what a great handle. Thx for your excellent comments. I could not agree more, students who have to pay most if not all of their tuition, have as you note better money management skills, but also in my opinon a greater sense of purpose with their education and where that education will take them.

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  5. Anon- I am not sure I was bellyaching; my intent was to provide a real life example for the costs of tuition. However,your points are well taken. I personally have been impressed with the teaching techniques at Ivey and consider it good value for the money, especially if it leads to a great job and the subsequent purchase of a retirment home in Az on a golf course for his parents :)

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  6. we live in the us but my daughter would like to go to UPEI. Is there any way for her to live/work in Canada for a period of time to be able to get residence tuition? Thanks

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