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Geoff Johnson: It's never too early (or late) to start saving for your kids' education

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A student makes their way across the University of Victoria campus on a cool and rainy March day. ADRIAN LAM, TIMES COLONIST

An innovative program to give first-grade students in Los Angeles an education savings account with a $50 seed deposit was expanded last week to include all Los Angeles Unified School District first graders, city and county officials announced Monday, calling it the largest program of its kind in the U.S.

The Opportunity L.A. program, which began last spring for first-grade students at select high-need district schools, was expanded this spring to automatically enrol every first-grade student at all 519 district elementary schools.

The Los Angeles Community ­Investment for Families Department administers the program. Opportunity L.A.’s initial seed funding is deposited into deposit-only savings accounts, held by the city.

Families can make deposits over the years leading to high school graduation and beyond. The funds can only be used only for education costs and only after high school graduation.

While this sounds like a forward-looking idea for Californians, might the provincial government consider a similar program for British Columbia?

According to RBC investment ­adviser Aaron Fennell, the total cost of an ­undergraduate degree at a Canadian ­university can be about $17,500 per year, or $70,000 for a four-year degree ­program.

Statistics Canada quotes nationwide average costs that are even more ­staggering: $96,004 for students in ­residence for a four-year degree ­program, or $48,074 for students living at home.

Total student debt in Canada in 2022 is at least $18 billion, according to Statistics Canada.

There are more than 1.7 million ­student borrowers in Canada, and the Canadian Federation of Students ­estimates that the average student loan is around $27,000 — which covers costs for one year, not a four-year program. In 2018 alone, more than 22,000 ­ex-students across Canada filed for insolvency.

But here’s the real kicker: The average time to pay off student loans in Canada is between nine and 15 years.

Of course, while some form of ­post-secondary education is pretty much essential these days for anything beyond a McJob, there are other options that don’t involve going to university.

Students attending a Canadian college can earn a certificate or post-graduate career-related diploma. Most colleges also provide university-transfer and apprenticeship programs.

But the costs of traditional college don’t vary that much from university degree programs. Trade schools are often more affordable than traditional colleges — and trade-school graduates typically have less student-loan debt.

Even so, some trade-school programs can cost as much as $20,000.

All of the above speaks to the need, as Los Angeles Unified School District has realized, to encourage parents to start thinking about how to pay for ­post-secondary education long before their children near high-school ­graduation.

The best time to begin planning for the costs of earning qualifications for ­whatever career your child might ­eventually choose is right now — even if your child will graduate from high school as soon as five or six years from now.

One way — maybe the best way — to do that is through a Registered Education Savings Plan. Most financial institutions offer some form of RESP, and ­actuarial calculations of investment growth through even a modest RESP are ­surprising — and reassuring.

So, for example, according to ­predictions attached to the RBC plan, an RESP based on a $25-per-week contribution will produce something like $11,623 after six years, $29,308 after 12 years, and $50, 911 after 18 years.

Perhaps the biggest advantage of contributing to an RESP is the Canada Education Savings Grant (CESG) — a supplementary incentive from the federal government. For an eligible beneficiary under the age of 18, the government will give 20% of the first $2,500 contributed annually to an RESP.

That adds up to a potential additional $500 per year invested in the RESP. There are also other tax-related benefits and some restrictions that your financial institution can explain.

The bottom line to all this: Why now? Because post-secondary education will certainly become much more expensive in the future.

In fact, on average, most actuarial tables predict that today’s $17,500 per undergraduate year could become $31,000 by 2037. The same calculations predict that today’s $70,000 for a four-year program could become $128,000 for a four-year program with residence and $70,000 without residence by 2037.

Not surprisingly, RESP takeup has soared in tandem with tuition costs. In 1999, only 16 per cent of Canadian households with children had an RESP. Today, that share stands at 51 per cent and is increasing yearly, according to RBC.

gfjohnson4@shaw.ca

Geoff Johnson is a former superintendent of schools.