For parents of Grade 12 students, things are getting real. You and your kid are likely researching college and university programs, touring various campuses and finalizing applications.

Now’s the time when the full cost of this starts to hit you. And you might be asking yourself: “Do we have enough?” The answer, for most parents, is “No.”

If you’re a parent, there’s a good chance you opened a Registered Education Savings Plan (RESP) for your child – 55 per cent of Canadian kids have one and are receiving the federal grants added to the account when family contributions are made. It’s one of the easiest financial decisions a parent can make. This is a good thing – starting to save for a postsecondary education that is 17 years away has many benefits. Tick the planning box.

But this is often where the planning stops and it’s easy to see why. There are too many unpredictable factors and uncertainties. Will my child even go to university? Where will they study? Quebec is planning to nearly double tuition for out-of-province students and in Ontario a government-commissions panel has recommended tuition increases – what other surprises will there be? Will my kid be able to work and save money to help offset the cost?

Students who leave home to study face the added uncertainty of having to cover the skyrocketing cost of rent. This is particularly onerous and unpredictable, since rents in cities large and small across Canada have hit record highs, crushing affordability for students, who are the least equipped to cover these higher costs.

As a financial coach, all the families I work with want the RESP education money. In 2019, 73 per cent of young people in Canada pursued some form of postsecondary education. Money in an RESP isn’t just for university – it can be used for all kinds of programs.

I crunched some numbers to find out the cost of going to university in Ontario. I looked at the University of Western Ontario, the University of Waterloo, McMaster University and the University of Windsor. Taking an average of the four, I calculated that students need about $125,000 for a four-year undergraduate arts degree, if they live away from home.

That covers tuition, residence or rent, food, activity fees and books. On top of this, they’ll need money for other stuff: cellphone plans, transit passes, spending money, clothing, haircuts, a new laptop, and plane and train tickets home to visit mom and dad. Of course, that’s in today’s dollars; this cost could rise to about $152,000 for babies born in 2023, once we account for inflation.

We also know that using just an RESP isn’t enough to cover this cost. If you faithfully contribute enough to get the maximum lifetime government grant of $7,200, you’ll put in $36,000 over 14 years. If you stop there – as some parents do – you can expect to have about $75,000 in the account by the time the child is 17, assuming you’ve invested the money and earn 5 per cent per year.

Since you can contribute up to $50,000 to an RESP, you might choose to contribute the maximum amount and put in $2,971 a year for 17 years, ending up with about $100,000. Much better but still short.

When I talk with parents about putting an education savings plan in place, I have two main questions. First, do they want to assume their child will spend four years at university living away from home or do they want to use a less costly assumption? With rents across Canada soaring to record highs, this will have a major impact on how much the university years will cost.

Second, how much of the bill do they want to cover? On the second point, parents are often firmly in one camp or the other. Either they are adamant that their child shouldn’t have to work while studying (usually because they didn’t have to) or they are adamant that they should (usually because they did).

If you expect your child to work before and during university, you can set your savings target lower – but be careful about assuming they’ll be able to earn enough to make a substantial difference.

Based on the answers, we then choose a target savings goal and develop a savings plan to get there. For example, if your target is $125,000 by the time your newborn moves into residence, one way to get there is to save $2,500 a year over 14 years plus an additional $6,000 a year starting at age 11 for a total of $78,000 in savings. With a 5-per-cent return on your money, that allows you to hit the $125,000 target. In addition to the RESP, you can use a Tax-Free Savings Account if you have the room – otherwise a non-registered investment account will do.

Saving this kind of money is difficult for many families. Parents look to bridge the gap by working longer, sacrificing extras such as vacations, and getting help from the grandparents. All-in-all, education savings is the biggest cost you’ll face after buying a home and saving for retirement. If you genuinely want to have enough, take the time to do the planning.

The Globe and Mail, November 19, 2023