Managing money can be a student's most important lesson
Before students step onto campus, talk dollars and sense with them.
It's that time of the year. After a long summer, students across the country are getting ready to head back to school. If your children are heading to college or university, there is probably some last minute planning going on in your household. Sometimes, financial planning is the last thing on the minds of students. Many will be living far from home and are more worried about grades, friends or shopping for back-to-school supplies.
As parents, we know how expensive it can be. Undergraduate tuition fees for a Canadian university range anywhere from seven to almost twenty thousand dollars. If you factor in the cost of food, rent and books, a student could graduate with nearly $100,000 of debt.
When students enter university or college, one of their first assignments will be managing their own finances. It's a big step. They'll be handling larger amounts of money — and larger responsibilities for the first time.
Before they even step onto campus you should talk dollars and sense with them. Be clear about what you'll pay for and what they are expected to contribute.
If you have set up a Registered Education Savings Plan (RESP) for you child, you'll be able to withdraw that money and use it to pay for a post secondary education. Your child will have to declare the RESP money as income, but the tax implications can be negligible given what the average student earns in a year.
You should try to contribute as much as you can to the RESP while your child is young so that you can take advantage of the power of compounding, while still obtaining the full CESG (Canada Education Savings Grant) that you're entitled to. The lifetime contribution limit per beneficiary is $50,000 and the maximum CESG is $7,200.
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Okay, so you've done your part, but what about them?
Discuss budgeting and offsetting costs with a part-time job or summer employment.
Thousands of Canadians turn to scholarships, grants and bursaries for additional educational funding. A great resource is the Government of Canada's CanLearn site.
Once they are at school, you can help ensure that bills get paid by setting up automated bill payments for recurring expenses.
Access credit, but beware: It's a double-edged sword. Use credit cards only to the extent that you can pay off the outstanding balance in full each month. I recommend keeping the borrowing limit low. I'm sure you've heard horror stories about students graduating with a mountain of credit card debt. I suggest a line of credit to provide peace of mind when dealing with unanticipated expenses. They are often more cost effective than credit cards.
Though they might not think its necessary, be sure your children file tax returns. If they have earned qualifying income, they'll build RRSP contribution room. Post secondary students are eligible for income tax credits on tuition, fees, textbooks and a variety of other expenses. There is also an "education amount" credit for every month a child is in school, as well as credits for student loan interest. Tuition, textbook and education amounts not used by a student can be transferred to a parent or claimed in future years by the student. In the future, they'll also be able to use the RRSP room that they may not have been able to contribute to while in school.
This is also a good time to get your child interested in investing by suggesting that he or she join a university investment club. And, make sure to introduce your child to the benefits of a Tax Free Savings Account or TFSA.
Higher education doesn't come cheap, but it's worth it.
Here's what a former college president wrote to the incoming freshman class in a New York Times opinion piece a few years ago:
Colleges are escalators; even if you stand still, they will move you upward toward greater economic opportunity. Once you leave us, you'll have a better chance for a good job and a way to pay off your debt and to give us more money when we call on you as alumni. So don't flunk out; you've got too much invested in us, and we have too much invested in you.
I couldn't have said it better myself.
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