Saving for education lagging real cost of schooling, survey says
Investors Group poll shows almost half of Canadian parents haven't saved enough to send their child to university for one year
Winnipeg, MB – August 16, 2005: Almost half of Canadian parents haven't saved enough money to send their child to university for even one year, much less for a four-year degree, according to a new poll released today by Investors Group.
The release is part of a research series sponsored by Investors Group and conducted by Decima Research that looks at families and money. It also found that even as the cost of post-secondary education rises, about half of Canadian parents don't take advantage of opportunities available to those who invest in a Registered Education Savings Plan (RESP).
According to Statistics Canada, the average cost today of a child leaving home to go to university for one year is between $12,000 and $15,000.i The poll found that 45 per cent of parents who invest in RESPs have less than $10,000 in their RESP and two thirds of parents who invest in RESPs (66 per cent) have less than $20,000 put away in them - which, at today's rates, isn't enough to put a student through their second year of university away from home. Even of those parents whose child is within five years of college or university, 38 per cent say they haven't saved $10,000 in their RESP.
Saving for post-secondary education is not getting easier. Tuition rates in Canada have risen 185 per cent from 1990/91 to 2004/05. This means they are rising at an average annual rate of four times the Consumer Price Index.ii
"The shortfall between parent's savings and the cost of their kid's education will in many cases need to be bridged with student loans," says Debbie Ammeter, Vice President of Advanced Financial Planning at Investors Group. "The weight of a large debt at graduation can be a tough way to begin a career."
Approximately half (51 per cent) of those Canadians saving for a child's or grandchild's education have not opened an RESP. Some of the main reasons offered for not having started an RESP include "there are better ways to save for their education" (25 per cent) and "I haven't got around to it" (18 per cent).
"There is absolutely no better way to save for a child's education because an RESP includes a government grant," says Ammeter. "If a parent has maxed out their RESP, they may be able to combine it with other savings and investment strategies, but there is no question that an RESP provides the best foundation for education saving."
The three unassailable advantages of an RESP are that it provides tax deferral of income, the ability to have investments taxed in the student's hands on withdrawal, and the contribution of the Federal Government's Canada Education Savings Grant (CESG)iii , which is worth as much as $7200 over a lifetime (and even more if the compounded earnings on the grant is taken into account).
Surprisingly, even among those who have an RESP, there is misunderstanding about the how they work. Over half (56 per cent) falsely believe they will lose any growth in their RESP savings if their child does not go to school. In fact, the entire original investment as well as at least some of the investment growth is returned to the parent, they only need to return the grant portion.
In spite of rising education costs, Canadian parents haven't stopped believing their children should get a post-secondary education. Over half believe they should complete university (53 per cent) and an additional 12 per cent say they should obtain a post-graduate degree. Another 22 per cent say they should complete college, while only nine per cent say high school is sufficient.
Growing dependency of adult children
Part of the reality of rising education costs is that many children may be financially dependent on their parents for much longer than previous generations. Canadian parents recognize this reality. At 46 per cent, the largest group of parents who financially support adult children expect their children will become self-supporting between the ages 22 and 25. Another 21 per cent of this group say it will come between 26 and 30, while 26 per cent believe it will be between 18 and 21. Most of today's parents say they became financially self-supporting by the time they were 25 years old. In fact, 21 per cent say they were self-supporting before they were 18 and another 74 per cent say they were self-supporting between 18 and 25 years of age.
Parents with adult children are generally positive about this increased dependency. Forty-nine per cent who have supported an adult child in the last year say it doesn't bother them or that it even makes them feel good to help out. Only 19 per cent say it's disappointing or that they don't like it.
"We are seeing a trend where adult children are dependent on their parents for much longer than they used to beiv ," says Ammeter. "Rising education costs and the increased emphasis on higher education including post-graduate degrees are big factors in why adult children find it takes a lot longer to become financially self-supporting today than for previous generations."
Important things to know about RESPs:
- By putting at least $2000 a year into an RESP, parents can get the maximum $400 annual grant from the Federal government.
- An RESP can be used to cover more than tuition. It can go to any reasonable education expense, such as books, supplies, and transportation and living costs.
- To qualify for the government grant, parents have to begin saving early. RESP contributions must begin before the child turns 16 for grants to be available.
- Avoid withdrawing contributions before the student begins school. Otherwise, a repayment of the grant could be triggered.
- If one child decides not to go to college or university, the RESP can be switched into another child's name.
- If no child goes to university or college, the capital and investment growth can be rolled into an RRSP or spousal RRSP provided the contributing parents have sufficient contribution room.
i Statistics Canada, The Daily - University Tuition Fees, Sept. 2, 2004; Statistic Canada, Paying for Higher Education, Education Matter report, 81-004-XIE
ii Statistics Canada, The Daily - University Tuition Fees, Sept. 2, 2004
iii CESG is administered by Human Resources and Skills Development Canada
iv According to Statistics Canada over 40 per cent of adults in their 20s lived with their parents in 2001. This is a marked increase over previous years (27% in 1981) and a by-product of many social trends, including an increased need for higher skill levels and education to get jobs in a rapidly advancing new economy and a much later average age for marriage. For males, the 2001 number is 47%! These factors have contributed to extending the time that young adults live with their parents.
The survey results are based on a Decima Express national telephone survey conducted with a representative sample of 1000 Canadians (18 years and older) between May 19th and 22nd, 2005. A sample of this size will provide results that can be considered accurate for the population overall to within plus or minus 3.1 per cent, 19 times out of 20.
Investors Group is a national leader in delivering personalized financial solutions to more than one million Canadians, through a network of approximately 3,500 Consultants located in over 100 Financial Planning Centres. In addition to an exclusive family of mutual funds, managed asset and other investment vehicles, Investors Group offers a wide range of mortgage, insurance, brokerage and banking services. Investors Group is a member of the IGM Financial Inc. (TSX: IGM) group of companies.
| For more information contact: | |
|---|---|
| James Loewen Investors Group (204) 956-8570 james.loewen@investorsgroup.com |
Mike Van Soelen Environics Communications (416) 969-2717 mvansoelen@environicspr.com |
