Education and Your Values
When children enter your life, you have a lot of immediate concerns, such as keeping them alive despite valiant efforts on their part to run into the streets to get squished, and to poke cutlery into electrical sockets. You’re also managing the suddenly limited time that you have, and trying to figure out where all the money went. (Hint: It went to the kids. They soak it up through their skin.)
At the same time, you’re thinking of their future. In 2016, 54% of working-age Canadians had either college or university qualifications – and that number has been rising. If values are demonstrated by where we invest our time and our money, it seems pretty clear that advanced education is a powerful value in Canadian society.
If you’ve been reading with us for a while, you know that the Spring Plans team is writing all about values this year – how to define yours, articulate them, and put them into action using financial planning and implementation tools.
We’ve always been adamant that your goals are your own. They can’t be dictated by greater society, your community, or your local financial institution – though all of them do have their own level of influence.
Time and time again, industry insiders, reporters, and academics continue to ask us: Why do people struggle with their personal finances? Often, they answer their own question: It’s a lack of financial literacy. People simply don’t have enough data.
We beg to disagree. There is an enormous amount of data to be had out there. This is the Information Age! You can find out everything you need to know about anything with a click of your mouse.
Therefore, if we have all the data and literacy we could possibly need, and then some, what is the problem?
The problem is that we’re not sure how to use the data. You can have buckets and buckets of information but what’s the point if you can’t use that information to make your life better? That’s why we think the first step towards successful financial planning isn’t having all the data. It’s knowing what we want – and why we want it.
The WHY is what we are working on this year. In February, we discussed the value of safety and security, a WHY that’s important to so many people, and how we can satisfy that in all areas of our financial planning. In March, we turned the tables and thought about one specific part of financial planning – your cash flow – and discussed how you can use that regular daily operation to help you live your WHY every day. In April, we turned our minds to the value of family, how its meaning differs for each person, and how to define and action it in your own finances.
This month, we’re talking about a specific part of financial planning: your education strategy. If this is an important value for you, your family, your business, and your life, let’s make sure you’re finding a way to live it, so regret doesn’t become a part of your financial plan.
Your Values in Action
As always, we recommend taking that first step in design thinking: Empathize. As we mentioned in our March article on cash flow, this is really about “doing your homework” – digging into your WHY before we start trying to find solutions.
We know that you’re an action-oriented person! You know education is one of your top values, so why are we dithering about it here?
Trust us, we’re not big ditherers either. We know that spending just enough time to really understand our “why” in the beginning stops us from jumping into a solution that isn’t exactly “right” for us… and trying to untangle it later.
Education can actually mean a lot of different things to different people (you may be surprised). Many people focus solely on bachelor’s degrees or vocational post-secondary education when they consider their education values. However, have a look through below, and you’ll realize that you likely do have some very specific values-based opinions on each of these.
From the womb through kindergarten, there is the opportunity for a great deal of formal education. Of course, there’s the informal and vitally important education that happens in your home, and exactly what that means is unique to you and your family. From there, there’s the community level education that your child learns through your extended family, with your friends, and your greater community.
There are activities, such as learning to swim, dance, play sports, musical instruments, and even to cook (safely of course!) that can start at a very young age. There are types of formal education that range from preschool to Montessori and much more.
As a parent, you’re weighing your time and budgetary restraints against what’s available for your child. You may value free play more than formal education, or formal education more than free play, or both equally.
What is important to you, as a parent, at this stage in your child’s life?
(Important: Whatever it is, it’ll probably be at least 25% the right thing and 25% the wrong thing. Remember that you are not actually omniscient and whatever you do for your child that is done with love is the right thing for them.)
From a financial planning perspective, once you’ve determined what’s important to you at this stage, it’s likely a cash flow discussion. If you’ve had the wherewithal to somehow plan this years in advance of having children, good for you! In that very rare case, you may have actually been able to put away some cash in savings accounts for this. We find that this time period can be very, very tight for parents. Your ability to earn is somewhat limited as one or both parents may have taken time off from work, and you don’t have as much freedom to work overtime. Your costs have gone up quite a bit due to the choices you have made around early education and childcare, which, hopefully are going to get less expensive soon – but right now, a lot of people are paying more for childcare than they are for housing.
We reminded you above that you’re not omniscient. We want to remind you at this point that you may also not have unlimited financial freedom. Again, the best choices made for your child and your family are the ones you made with love.
Private and Public Elementary and/or Secondary Education
You might be someone who really values the education that your children might receive through a private school. It may be that the school you have in mind provides your children with support in their spiritual and religious education. It may be that the school you have in mind provides your children with a style of teaching and learning that you are confident would suit them well. It may be that the school you have in mind provides your children with resources and connections that you think will help them later in life.
Or, you may be confident that public education is exactly where your children will thrive. Perhaps you think they’ll have access to a greater cross-section of cultures. Perhaps you are happy with your particular school district and the education that is being provided. Perhaps private school rubs your values exactly the wrong way.
As you can see, this is not a financial decision. It’s a values decision. The correct answer for you and your family comes from your own experience, your background, and the unique individual who is your child.
From a financial planning perspective, this might be something we can save for in advance, if we know what we’re up to and we have the cash flow, the assets, or the gifts from family, to support it. It might also be a cash flow discussion, and a choice to be made between an annual family holiday or a new car and the type of education you want for your children.
It took us a while to get here, but we made it! This is what most people think about when we’re talking about education planning. Your child(ren) may decide to pursue vocational school, trades, or university education. You may want or be able to support some, all, or none of that financially.
The first step is to understand what’s important to you. Do you want to support a two year program, a four year degree, graduate school? Do you want your children to attend school near you, and live in your home, or do you want them to experience another part of Canada or even the world? Do you want them to personally experience the financial weight that post-secondary education carries, alongside the weight of the education itself?
We find that a lot of people like to do what their parents did for them or, conversely, the thing their parents didn’t do for them, because they know the pitfalls of their own experience.
We’ve got quite a few more tools at this stage than we had at earlier stages, including:
Education Savings Accounts and Incentives
We’re positive that when you read “education strategy”, you think immediately about Registered Education Savings Plans (RESPs). These are accounts with special tax rules (similar to Registered Retirement Savings Plans – RRSPs – and Tax Free Savings Accounts – TFSAs) that are designed to encourage parents, grandparents, guardians, aunts, and uncles to contribute money toward a child’s education by offering incentives to do so. These include cash incentives like the Canada Education Savings Grant or B.C. Training & Education Savings Grant, and tax incentives like allowing your investments to grow inside the plan without being taxed, and to be taxed in the hands of your child (who probably makes less money than you do) upon withdrawal.
The RESP is a definitely a great tool to have in your education strategy kit, which is why we’ve written about it many times, most recently here. But it’s not the only tool, and for some people it’s not the right tool at all.
For example, what if the education you want to strategize around is your own? It’s probably too late to take advantage of the sweet RESP incentives…but did you know you can loan yourself or your spouse up to $20,000 tax-free from your RRSP to fund education expenses, and it’s tax free as long as you repay the amount you withdraw over the following ten years? It’s called the Lifelong Learning Plan (LLP – because of course more acronyms!).
Or, what if you’ve taken full advantage of the RESP like a good little saver, but your wee genius is going to pursue multiple degrees or attend a prestigious (and expensive) school in the U.S.? You’ll need more than your $50,000 in RESP contributions, the federal government’s $7,200 grant, and whatever growth you can earn…possibly a lot more. Another way to put your values into action is to open a completely separate account to manage your additional savings and investments. Depending on the level of control you want to have over the proceeds, and how you want to manage the investments, an informal trust account might be just what you’re looking for.
Your Next Steps…
There are many tools that can help you and your family implement your education values. They will all include a degree of cash flow planning, because we’ll want to know where the money is coming from. They will all include a degree of portfolio planning, because we’ll want to determine how best to invest that money. They will also be a part of your overall plan, because while education for yourself or your children might be an important value, it will be vital to weigh the investment in that value against all the other values you have, and their priority on your goal list.
Before you start getting caught up in arranging your priorities, however, just get to know what this particular value means to you. We always want you to consider what an “ideal” scenario would look like before you start diving into prioritization. Getting clear on the best-case scenario, and clearly understanding the values you hold is the first step. After that, let’s figure out the priorities, and the realities, together.