Costs of college & university are rising, clients are asking about foreign education, and advisors need to plan for the intersection of hopes, fears, and financial realities
Post-secondary education is one of the most challenging aspects of a client’s life that advisors have to plan for. The time horizon can be short, relative to retirement, and the costs are rising. According to Statistics Canada, the average annual tuition costs for undergraduates will hit $7,734 this year, up 1.4 per cent from the year prior. RBC recently totalled the annualized costs of tuition, transportation, books & course materials, food, and rent to put the average annual cost of university education at $30,862. That cost can vary widely, however, based on where the student ends up studying, the course they’re enrolled in, and whether they end up going to school abroad.
Compounding that complexity is the fact that most parents and students don’t know what post-secondary will cost until they’re a few months from starting. Children make decisions about what they want to study in the final years of high school, then comes the process of seeing what programs they get into. They could end up wanting or needing to go to grad school. Parents have to manage costs along with their children’s expectations and hopes. Advisors serving those parents have to pull as much on their relationship management skills as their financial acumen.
“When we’ve talked with our clients, our advice to them is to have that open mind and have maximum flexibility because you don’t know the path your children are going to take,” says Steve Rowley, Senior Wealth Advisor at the Moyle Rowley Wealth Management Group of Wellington-Altus in Barrie. “Is it going to be post-secondary school or is there going to be an opportunity to study abroad? Is that something that they’re interested in? That opens up a whole new level of considerations to make.”
Grant Moyle, Senior Wealth Advisor at the Moyle Rowley Wealth Management Group of Wellington-Altus in Barrie, adds that he has personally seen the cost of education rising, as he supports two children in post-secondary education. He and Rowley both try to show clients the wide array of financial levers they and their children can pull to create as much flexibility as possible in their education decisions. That includes using provincial loan programs, scholarships, bursaries, and grants to support the savings a client has for their children.
Planning for a range of educational goals
Costs can vary wildly for different educational options within Canada, but when international education is considered, the costs can skyrocket. Education in the United States can cost between $25,000 (USD) and $45,000 (USD) for public universities and between $50,000 (USD) and $80,000 (USD) for private universities. Rowley adds that while some clients are considering US or European education for their children, advisors need to ensure that the institution qualifies for Registered Education Savings Plan (RESP) withdrawals.
Just as some clients consider more expensive educational options abroad, Moyle has noted a different shift towards more affordable options with clearer career paths. Trade schools, he says, are becoming more popular among parents and students today as they look at potential long-term careers and see AI as a potential disruptor for traditional university education based career paths. Those trade schools come with the advantage of being more widely dispersed, making it more likely that a clients’ children can live at home while they attend trade school, further saving on costs.
Weighing out these decisions can be challenging for clients as they have to consider cost, their children’s desires, their own expectations around career paths. Rowley and Moyle try to work with clients to rationalize the decision, outlining choices in terms of costs and benefits. They say that most clients will also set reasonable parameters around what their children want to study and the children’s responsibility in helping to cover the costs of that education.
Structural gaps in education planning
Rowley notes with some alarm that only 43 per cent of Canadian parents and caregivers have an RESP for their children, according to the Canadian Financial Capability Survey. RESPs, he explains, form the core of the savings approach that he and Moyle use for their clients. The tax advantages that come from the registered account can be extremely powerful for clients, but Rowley argues that these accounts’ relatively small size and high complexity make them a low priority for larger financial institutions.
RESPs can be treated a less important than RRSPs and TFSAs by some advisors, Rowley says, especially as the rising cost of living puts pressure on clients’ daily cash flows. Moyle says he prefers to include RESPs within their conversations about other registered accounts, the importance of building capital in the RESP from as early a stage as possible.
“The inflationary environment in the education area itself is absolutely exceeding the inflation that we see everyday,” Moyle says. “I like to make sure that somebody is aware that the number’s only gonna get worse. Don’t fall behind… The industry needs to do a better job at letting people know that there are options for them in how that money’s invested. They can invest in their RESP and hold assets that will beat inflation, but it’s really important to have a conversation with an advisor to understand that.”
