Your Kids’ education or your retirement?

The best of both worlds would be to pay for both your retirement and your kids’ education, but in a world of limited resources…

In my eyes, an individual’s retirement takes priority.

Kids can get scholarships, work while studying, work during the summer and study during the regular semester, or they can get a loan and pay it back later.

If you don’t provide for your own retirement, no one will do it for you. You will have to depend on the government’s pension plan, which is not generous and will deprive you of a comfortable retirement.

In an ideal world, this is how I would prioritize the allocation of money:

1. Make sure you don’t have any credit card debt (or any high-interest debt).
2. Ensure you are saving for retirement.
3. After you have contributed the amount necessary to stay on track for your retirement, start contributing to your kids’ education.

The Numbers Behind a College Education

Right now, in 2024, a Canadian student can expect to pay about CAD 7,000 per year. Your kids could earn part of that during a summer job quite easily. They could also work part-time during the school year.

If we multiply CAD 7,000 by 4 years, the total cost of tuition could be about CAD 28,000. Let’s figure out how we can find those CAD 28,000.

Registered Education Savings Plan (RESP)

The nice thing about saving for your kids’ education is that you get some help from the government. It’s called the Canadian Education Savings Grant, where the government matches 20% of whatever you contribute, up to CAD 500 per year. For example, if you contribute CAD 2,500 per year, the government contributes CAD 500 for up to 15 years (CAD 7,500).

If you contribute CAD 2,500 and the government contributes CAD 500, you have a total of CAD 3,000 per year.

The government will contribute up to CAD 7,500 (15 years x CAD 500 = CAD 7,500).

Assuming you invest it in an index fund with an expected 6% return, after 15 years you would have CAD 74,000. Taking full advantage of the government program, you could have enough money to pay for your kids’ education several times over.

Help from Family and Friends

We see it all the time: at Christmas, kids get all kinds of toys, designer clothes, electronic gadgets, and gift cards. How about asking your family members and friends to help contribute to the kids’ education? Sure, the kids will not be amused when they get an envelope with contributions to their RESP. Our consumer society doesn’t celebrate savings; it celebrates the flash of a new item. But in the long run, your kids will get much more value from RESP money than from another plastic item.

Every Little Bit Helps

There are many ways to cut down on education expenses without cutting down on education.

• Your kids don’t have to go to a branded university. They could get many essential credits at a regional college.
• There are courses (with college credits) that can be taken online for a fraction of the cost or for free. Well-known universities such as Yale, Harvard, or Stanford offer free university classes online.
• Some companies’ internships count as college credits.
• Some employers (such as Amazon) pay 100% of their employees’ education.

Bottom Line

You don’t have to give up on retirement to pay for your kids’ education. There are many alternatives. Many parties are happy to help: from your family and friends, to the government, to corporate North America, to many employers. All that is needed is the willingness to do something. If you leave your planning to the last moment, there you have very little choice, but if you plan ahead of time, you could retire and provide your kids with an education.

Other personal finance blog posts

• Personal financial lessons from Bill Gates to the average man
• Are You Insured, Uninsured, Or Self-Insured? Which One Works Best for You?
• I made it to $500,000. I am a half millionaire.