Saving for Post-Secondary #Education is a Team Sport - #RESPs and Planning for #EducationCosts

Saving and Planning for Post-Secondary Education is a Team Sport

The way I see it, we as parents are the coaches, trainers and managers of the team, and our kids are the players. 

via BrainyQuote

Each member of the team has a role and responsibilities in preparing, planning and saving for post-secondary education. Education is expensive, and saving for that expense should start early. 

Contributing to an RESP for your child is a great way to save your child's education. 

But in order for our kids to truly understand the value of money and education we need them to take an active role in saving, paying and planning for their education costs. 

Middle School is a great time for "Team Education" to start writing the education play book. Below are some exercises and links to resources to help prepare your team for the big game of life. 

• Dream Job Research Assignment: Have your child pick 3 careers or areas of interest and research what is required to do that job including: education, institutions offering program, acceptance requirements, and cost of program. 
• The Cost of Living: How much money will you child need for school and living expenses. Tools such as RESP calculators, student budget calculators, and budgeting tools  can help you figure it out. Get your kids to do The Money Belt on-line budgeting exercise to get a realistic idea of the actual cost of living away from home.  
• Show Me The Money: Besides the RESP savings the coaches are contributing, where will the other funds from. Another research assignment: Have your child research what funding options are available (scholarships, loans, part-time jobs, summer employment, ScotiaBank Awards, Bursaries, and more). Don't forget putting Birthday money or a portion of any cash gift into education savings really adds up over the years.

These exercises are a great way for both you and your child to clarify and manage the expectations each of you have in regards to post-secondary education funding, and focus your education plan.

LINKS TO RESOURCES:

The Money Belt - Info for Parents 

The Money Belt - Info for Students

ScotiaBank Customer Contest for Students

ScotiaBank - yconic Student Bursary Contest

Government of Canada - Services for Youth 

Scholarships Canada

Yep, just me Cathy thinking out loud about planning and saving for education costs.

Note: I received compensation for sharing my ideas on planning, preparing and saving for post-secondary education. All opinions are my own.  

Overdraft Protection Is A Form Of Credit #FinancialLiteracy #ThingsYouNeedToKnow #FLM2015

Overdraft Protection is a Form of Credit. 

Credit made available to you, if used is debt and becomes part of your credit history.

This should be made very clear by a financial institution when offering Overdraft Protection on your account. 

I'm not talking about auto-transfers from another account that has funds available to cover a shortfall, which is also be called overdraft protection. I'm talking about approved lending to cover an overdraft up to a certain amount for a specific charge and rate of interest. 

A recent scenario: 

• Thing 1: (young adult in grade 12) goes into his bank and is offered over-draft protection on his account which is not overdrawn, nor ever been overdrawn. This service is verbally explained to him, after which a form is produced for him to sign, He signs for and accepts this offer with the enthusiasm of a youth who is feeling very grown up to be asked and seen as an adult. He does so without paying attention to the fine print since it has already been explained, or asking questions he probably doesn't even know to ask. 
• Thing 1 was not asked if he is a student, or employed, or told his account would changed from a student account to a regular account, thereby changing the fee structure of his account. He was not told this is a form of credit and as such would reflect on his credit rating and credit history.
• As a result overdraft protection of $300 is placed on his account, and it appears his student account is at this time switched to a regular account with all the service charges that go with that account. 
• In the past Thing 1's Debt Card transaction were declined if there were insufficient funds, but this is no longer the case and the account is overdrawn. Additionally there is an overdraft fee of $5 a day (according to the bank employee) which has been charged until we realize he is more than $200 overdrawn. 
• Thing 1 goes into the bank and uses his birthday money (his only source of income) to pay off his overdraft, and has this account switched back to a student account. 
• When Thing 1 goes to remove the overdraft protection he is told by the bank employee serving him if he takes off the overdraft protection, since he had an overdraft it will show and reflect poorly on his credit history. Overdraft protection is removed anyways.

We have raised our kids to be financially literate and make good choices about money. Their bank accounts were opened and their allowance auto-deposited bi-weekly like a pay-cheque specifically to help teach them about managing their money. We've clearly stated under no circumstances are they to apply for or accept credit before they are working and have a means in which to pay it off. It is not free money, it is debt, and there is a cost to debt beyond the amount of the loan. 

I acknowledge: Thing 1 is not without fault here, and this was a learning experience, and thankfully only a $200 life lesson. Thing 1 definitely should have paid attention to the details regarding overdraft protection before signing and entering into a contract AND to his account balance. 

He should have discussed it with us before signing on the dotted line, so we could explain this is a loan or form of credit. We would have asked to see a copy of what he signed, and about the charges involved, or changes to his account. We would have discussed the pros and cons of overdraft protection and when it is appropriate. We would have asked why a student with no means to pay off an overdraft needed overdraft protection. And how it would be used by someone with no auto-debits, payments or cheques written on his account: because in all other situations it is no longer protection against possible cash flow issues, but instead pre-approved authorization to spend more money than you have. 

What was the need for overdraft protection?

As an ex-banker and a parent I am appalled that this happened. He didn't ask for this product, a product he had no idea existed prior to being asked if  he wanted it. I suspect the employee requires better product training or was attempting to reach product and cross-sales targets or both.

I was a personal mortgage and loans manager and I assure you I would NEVER have approved this for an unemployed high school student with no means to pay off the overdraft. Even with pressure to cross-sell and promote products (and there was lots) I never suggested or offered products that weren't a good fit for the client. The only way to actually know that is to talk to the client, never make assumptions, and ask the right questions. You need to ask and answer the questions the client doesn't even know they need to ask, because you not the client are the expert. 

That makes for a happy, long-term and loyal customer. 

Now I was not there when the overdraft protection was put on Thing 1's account, nor was I there when it was removed. To complicate things further it was put on at one branch but had to be removed at the branch where the account was opened. 

Had I been there these are some of the questions I would have asked:

• Are there rules and policies about giving overdraft credit to someone and if so what are they? 
• Do they normally extend credit to a high school student with no job or means to pay off that credit (even if they are 18 years of age)?
• Is there a pamphlet given to the client when overdraft credit is put on their account explaining all the details and charges?
• Is the client required to sign something and initial beside specific details such as the account being changed, charges for the new account, and overdraft interest and charges.
• Is the client asked if they've ever had credit before, and the term credit fully explained.
• Is the client told overdraft protection is a form of credit and therefore part of their credit history. If the overdraft is not paid off or stays on the account for an extended time not only will it cost a fortune but also reflect poorly on their credit rating and history. 
• By changing the account from student to a regular account (with services charges) if the account is overdrawn due services charges does the same $5 a day overdraft fee still apply? Basically will the client end up in a vicious cycle of overdrafts due to fees causing more overdraft and so on ...?

At the end of all this I have two messages: 

Parents: talk to your kids about credit so they can avoid Thing 1's experience. You might want to include a conversation about cellphone service contracts as well.

Financial Institutions: You can do way better! I'm disappointed that instead of teaching a young adult about money management he was offered products that serve only the bank not the client. 

From a basic business stand point, you have no idea who or what he may become and this will not make him a long-term loyal customer. My husband and I have been with this same institution for 20 years (since just before Thing 1 was born) and should this bank check our portfolio it would be clear that we're clients worth keeping. You would never have pulled this nonsense on us, but in the end it was our birthday gift to our son that paid off the overdraft, so it feels personal to me. How you treat everyone, not just the "important people" matters to me, and this certainly doesn't make me want to recommend this financial institution to others. Just food for thought.

Yep, just me Cathy thinking out loud about overdrafts, credit and financial institutions. 

Note: I was not compensated for this post. The purpose of this post to merely to share my experience and information with my readers. All opinions are my own. 

Like Father, Like Son, but Twice the Price. Planning for Rising #Education Costs.

They have "the knack"

I met my husband at university, and at the time he was an engineering student. He was funny and smart and studied about things I had no understanding of. We graduated and he worked at things I had no understanding of. On occasion I'd overhear him speaking in that mystical language of tech, but it wasn't until later I realized he had "the knack."

We married and he fixed the dishwasher, stove, washer and dryer. He was my in-house IT guy and made the "interweb" and computers work. He knew magical things like science and math, and could do long multiplication and division in his head! Surely there could be no others like him. He must be one of a kind!

We lived together in marital bliss with our two young children amongst the working appliances and computers, until one day it all changed ...

my youngest started to speak the mystical language of tech with his father. My eldest and I looked on in amazement, not understanding a word they said, but realizing this meant there were not one but two with "the knack!"

My son was going to follow in his father's footsteps.

But here's the catch: twenty-five years ago my husband graduated with a Bachelor of Engineering Degree and the tuition and residence costs for that 4-year program was between $35,000-$40,000. Today, tuition and residence for my son at the same university for a 4-year Bachelor of Engineering Degree will be between $80,000-$90,000.

The same degree at the same university is more than double the cost!

AND

Engineering Programs are more expensive than many other programs, meaning the difference between the tuition for an Engineering and an Arts program is nearly $4,000 a year.

We're Going to Need a Plan!

By the beginning of middle school, most parents start to see the direction in which their kids' abilities and interests lie. By Grade 8, they're making decisions about whether to take Applied (college stream) or Academic (university stream) courses in high school. This is the perfect time to get kids involved and thinking about post-secondary education, saving for that education and understanding budgeting and money management. 

This is also a good time for kids to look into grants and scholarships. Scholarships (aka money) can be incentive to work hard and keep their grades high, since many universities offer a scholarship for high averages at the time of admission. The university I attended currently offers admission scholarships between $4,000-$16,000.

Waiting until your child knows what they want to be isn't when the plan should start. Although it's never too late to start saving for post-secondary education, the earlier you start the better.

• TIP: If you find the language of Registered Education Savings Plans (RESPs) to be like the mystical language of tech, the Heritage Funds Glossary of Terms might be helpful.
• Although your child's direction and area of study won't be revealed until later, saving for that studying needs to start ideally as soon as they're born, allowing your RESPs to accumulate over time. Regular contributions can add up to big savings over 18 years. 
• Setting up monthly auto-contributions makes it easy, and ensures you don't forget. We all have the best intentions but a plan makes it happen.
• Starting early allows you to take advantage of all the grants you're entitled to, providing you meet the criteria.
• TIP: An RESP is a great place to put cash gifts from family and friends, and your kids know those who care about them invested in their future! When my nieces and nephews were young I gave them a small toy and the rest was a cash gift for their education fund.
• Be sure to check if your employer offers post-secondary scholarships to employees' children who maintain an honours average.
• Review your RESPs and savings plan regularly to evaluate where you are compared to your goals, and if adjustments need to be made. 
• Lastly, they say it takes a village and the Heritage Funds Blog is a community that offers resources and advice on a variety of topics from education, parenting, and finance to crafts and activities. 

You don't need to have "the knack" to put a great plan for your child's education in place, but you can't delay, so start saving today!

Yep, just me Cathy thinking out loud about the rising cost of education.

Note: As a Heritage Mom I was compensated for this post, and for sharing my thoughts about RESPS and saving for post-secondary education. All opinions are my own and reflect my personal experience saving for my two kids' education. 

Teaching #FinancialLiteracy: Toddler to Teen & Importance of #RESP Savings

Teaching our children about financial literacy goes hand in hand with saving for their post-secondary education and RESPs.

Saving for our children's education is a priority; without a plan the rising costs of post-secondary education could leave them with crushing debt that takes years to pay off. It's important my kids truly appreciate this gift and to do that they need to understand exactly how we saved, how much we saved and what we chose to forgo in order to contribute to their RESPs.

If our kids have not learned to properly manage their education savings, then we as parents have missed a big step in the process.

Spending is the opposite side of the "coin" to saving and kids need to understand both to properly manage their money. Lessons about money management and saving for their education should start early and be part of a child's daily life.

There are lots of ways to teach kids about money sense and financial literacy at all ages.

Younger kids:

Giving them a choice and comparing options teaches them that numbers can be broken down into smaller parts, to compare parts, and the concept of saving for later.

• You can have three pieces of licorice or one bowl of ice-cream.
• You get one soda on the weekend and you decide when, but if you have it all Friday night there will be none left for later.
• You get 2 hours of screen time on the weekend. You decide how you use it; all at once or 4 half-hour portions.
• Summer Learning: Make a folder called When I Grow Up. Decorate the folder with drawings about your top three picks for a career when you grow up. List the careers and at least 3 reasons why you chose each one. (put the list into the folder)

Older kids:

Now they are ready to learn the value of actual money. This is a good time to open a bank account for them that they are responsible for. We always had two, their account and the "special account" where large money gifts went. These funds required parental approval to access and spend. Money in their account was theirs to manage, which included allowance and a small portion of the money gifts.

• Talk to your child about something they really want, how much it costs, and how long it takes to save for it. Make a written savings plan that includes regular progress checkups. They will learn about saving and planned purchases rather than impulse buying. Just because you have money doesn't mean you have to spend it.
• Each time your child asks for something point out the cost in a currency they understand. For example: 1 fast food drive thru = the cost of 2 packs of Pokemon cards, or 1/2 the cost of a skateboard or video game.
• Dime Jar Multiplier Experiment: Make a chart numbered 1-30 indicating the day in numbers. Each day put that number of dimes or buttons or marbles into a jar. E.g.: Day 1 - 1 dime, Day 2 - 2 dimes, etc. Count the dimes in the jar on the 30th day. Explain that this is similar to what happens to RESP money you save for their education. It multiplies over time.
• Summer Learning: Have kids research and organize all the information they can find on three careers they're interested in. Include photos, links and resources to refer to later. (Put it into the "When I Grow Up" folder)

Tweens and Teens:

Now is the time to ramp up the financial literacy learning. By middle school our kids had their own bank account and bank cards. Allowances were auto-deposited every two weeks like a pay cheque and the "Bank of Mom" was closed for business. No more borrowing against future allowance, or birthday money.

• Have kids keep a "Cheques and Balances" sheet of spending and savings for their account, and explain the concept of debits and credits. Keep balance sheets and receipts in a binder to be balance once a month.
• Take them grocery shopping and only buy items on sale and/or you have a coupon for. Explain the increased saving of both being on sale AND applying a coupon to a purchase. The CESG for RESPs increase savings in a similar way. Even better have your kids look at flyers, and coupons to create a meal plan and grocery list before going grocery shopping. Then calculate saving from planned purchases of sale items and/or coupon use. What percentage of the total bill did you save?
• Calculate the annual savings if the amount saved on the grocery shopping trip was saved each week. Then calculate the total contributions if that amount was deposited to an RESP annually over 18 years. Even without the multiplier effect it adds up!
• Summer Learning: Take the previous research about your top career choices and expand the research to include education required, three post-secondary institutions offering the programs, the acceptance requirements and the cost of the programs at each institution. Put costs into a chart and compare tuition costs between programs and institutions. (add to the "When I Grow Up" folder)
• Have kids make a list of all the expenses and income for a year of college or university both living away from home, and living at home. Use the lists to make budgets for a year and compare the two. (add to the "When I Grow Up" folder)
• Have a brainstorming session with your child about their findings; how much will they need, how they will afford the costs, what expenses they are responsible for, and areas that need to be adjusted to better meet their education goals and stay on budget. It's important for both parties to be open and honest about their expectations in terms of contributions and what if any conditions apply. (take some notes and add to "When I Grow Up" folder)
• Once your child has read a bit about what an RESPs is get your child to make their own education savings plan with SMART goals for the expenses you have agreed they will be responsible for. This may include a new RESP or just contributions to an existing RESP.

After each lesson and stage, sit down with your kids and use what they have learned to discuss the importance of having a plan and starting early to save for their education and RESPs.

You can find several useful links to information about RESPs and post-secondary education savings in my post: RESPs and Saving for Your Kid's Post-Secondary Education. 

Yep, just me Cathy thinking out loud about financial literacy and RESPs.

Note: As a Heritage Mom I was compensated for this post, and sharing my thoughts on RESPs and saving for post-secondary education. All opinions are my own and reflect my personal experience saving for my kids' education.