Saving For College: Are You Making These Mistakes?

As the cost of higher education along with the household debt continue to skyrocket in Canada, parents are scrambling to set aside money for their kids’ education. 

Besides, there are a number of mistakes many parents are guilty of making, which further impedes the process of coming up with the necessary amount of money. These mistakes are either slowing down the rate at which they save or are increasing the expected college contribution causing them to part ways with much more funds than is necessary. 

Here are 5 of the most common mistakes that parents make when saving for their kids’ college.

  1. Not using Registered Education Savings Plans (RESPs)

Registered Education Savings Plans are by far the best investment vehicles parents have at their disposal to save money for their children’s education. Through RESPs, parents can receive a grant of up to $500 a year per child from the government. This translates to a maximum of $7,200 in lifetime grants per child (until the child turns 17).

As one of the largest RESP providers in Canada according to online reviews, Knowledge First Financial, notes that RESPs are tax-sheltered. This means that as long as the money remains in the account and withdrawn at maturity, it cannot be taxed. Because of this, the money can grow at a much faster rate when compared to other saving options. 

Another benefit of using RESPs is the freedom that comes with the account. Parents can withdraw money for their child’s post-secondary education when they deem appropriate. They can also freely decide on the amount they wish to withdraw. Although the government makes regular contributions to the account as well, the parent is the one who makes all the decisions concerning the money.

  1. Guided by Guilt

Guilt is a powerful emotion and is bound to lead you into bad decisions if you let guilt dictate your education saving decisions. If your budget simply cannot accommodate some universities’ tuitions then that’s okay. Don’t sacrifice more than you can afford to. Not having the wherewithal to handle a $10-$20,000 per year expense should bring no shame—this is not a manageable cost for most people. There are some parents who, in order to avoid the guilt, go into debt or raid their retirement funds to send their kids to expensive schools. The tragedy is, these folks have no means of restoring their coffers or rationally paying off the debts, which leads to retirement years full of financial strife. Is that a future you want for yourself?

  1. Hiring Financial Advisors

Some parents think hiring a financial advisor is necessary to help them learn how to accumulate more money for their children’s future. While financial advisors have the skills to assess and help individuals and groups with money and investment issues, they are not required when it comes to helping parents develop a savings plan for their children’s education. 

On the contrary, hiring an advisor works against the whole agenda of saving. Parents have to set aside money to pay for the advisor which they could otherwise be channeled to an RESP account for their child. You could have a free consultation with an RESP advisor instead and they can walk you through the whole process of opening an RESP. 

  1. Choosing to Play It Too Safe

Some parents choose to save their money in low-return, low-risk options such as in savings accounts, certificates of deposit and even checking accounts. 

Unfortunately, these accounts only work when dealing with short term investments hence they have low interest rates. By choosing short term investment vehicles to fund long term prospects e.g. college, parents are guaranteed to fall short of their goal by miles. 

The solution instead is to use moderate investment vehicles such as RESPs to save for college or high investment vehicles that combine monetary savings with other investment options such as stock, mutual funds, bonds, etc. Parents also stand to benefit from tax-free growth, which will allow the funds to accumulate at an even faster rate.

  1. Procrastination

There’s no doubt, the college burden is enormous. Some parents get sticker shock upon realizing how much they are required to pay for tuition. Unfortunately, some of these parents choose to hold off saving for college because it seems too far especially when their baby is just an infant. The truth is that although the total figure can be overwhelming parents can start with small monthly contributions and work their way up. 

A $100 might seem insignificant when you’re trying to raise $125,000 but any amount that you can contribute is better than not contributing at all. Waiting until you can be able to make “adequate” saving deposits will eventually translate to the total contributions being much lesser than needed. The correct way to handle procrastination is to actively develop a savings plan with small contributions and later increase the contributions over time.

Written by Jon the Saver

This post was written by yours truly, Jon Elder. My mission is to help you succeed in your personal finance life. Join me on the journey to financial freedom! You can subscribe through RSS FEED or EMAIL updates. You can also find me on TWITTER
. Happy investing 🙂

Jon the Saver

This post was written by yours truly, Jon Elder. My mission is to help you succeed in your personal finance life. Join me on the journey to financial freedom! You can subscribe through RSS FEED or EMAIL updates. You can also find me on TWITTER and FACEBOOK . Happy investing 🙂

More Posts - Website

Related posts:

Google+ Comments

%d bloggers like this:
Read previous post:
Financial Tips For Preparing For Big Future Purchases

You truly never know what lies right around the corner. The future is completely unpredictable and you could easily find...