Hosted by: Chris Raper and Brittany Pilgrim (Boomer and Gen Z)
Description:
What is the best way to save for your kids or grandkids education? And what should a student do if no one saved anything for them?
Chris and Brittany get into the 4 different ways to fund a post-secondary education, and which way will serve you and the generations to come best. Chris resurrects some unexpected financial advice he gave Brittany around student loans repayments. Brittany shares her experience navigating the workforce with an arts degree. Chris also gets to nerd out about the sectors where he predicts massive job opportunity in the next 10-20 years.
More than anything, education is one of the most incredible opportunities we have to help grow the generations to come. Let’s make sure we ring everything we can from it.
As always, if you have any questions or feedback, we would love to hear from you: brittany.pilgrim@raymondjames.ca & chris.raper@raymondjames.ca.
Thank you to Nathan Clark for composing our podcast music! He can be reached at nathancaclark@gmail.com.
Episode:
Chris: [00:00:00] When young people go out and acquire skills that the marketplace needs… I think that's fantastic regardless of how it gets funded.
Brittany: Welcome to From Generation to Generation, where me, a Gen Z daughter, questions her financial advisor, Boomer Dad, for financial guidance that can help families today. Say hi, Dad.
Chris: Hello. Hi, I'm Chris, obviously the boomer dad. I'm a wealth advisor with Aspira Wealth of Raymond James Limited.
Brittany: And I'm Brittany, the daughter. I'm not a financial advisor, but I am trying to do money well. So today we are discussing post-secondary education and how to pay for that.
Chris: If this is your first time listening we think about the transfer of wealth with three distinct aspects - character, intellect, and finally, the money.And our belief is if we don't pass character and intellect from one generation to the next, we have no [00:01:00] hope of passing the actual money from one generation to the next.
Brittany: So, having said that, our focus is always going to be on families. If you have grandkids, this is for you. If you're parents, this is for you. If you're a student, have been a student, looking to be a student…
Chris: All three generations have something to glean from this episode.
Brittany: Yeah, let's get into it.
Chris: First question, Brittany.
Brittany: Okay, starting off, let's talk about the cost. From your perspective, being someone who watches these sectors very closely, do you think that tuition is going to get any cheaper for the generations to come?
Chris: I think your real question is: is the cost of post secondary education. going to go down? I don't believe that's the case. Most of our post-secondary education are quasi-government institutions. Every year the bureaucracy tends to grow. That means the cost of that bureaucracy tends to grow. So, the only way I really see that happening is if we have a [00:02:00] strong growth in for- profit education,
Brittany: Is that like private education?
Chris: Private universities, private technical colleges. I mean, there's a number of them in Canada today, but if that sector really got ramped up and growing, I could see that at least decreasing the relative costs - relative to inflation. Other than that, like the standard public universities, public colleges, I see those continuing to ramp at above inflation in terms of cost.
Brittany: So, I guess with that in mind, we have to discuss some ways to try to pay for education. Before we get into specific examples of how to do that, I feel like we should discuss if there's anything we should keep in mind before putting ourselves in the position of paying, sometimes a very high tuition for a post-secondary education… because I don't think that's changing. There's not going to be an expectation that you don't go to post-secondary anytime soon, but I do also feel like the options are changing. I think I [00:03:00] was at the tail end of “university was the only way”, right?
Chris: And I remember even in my generation, like from the time I can remember as a child I was going to university. Anything less than university wasn't an option.
Brittany: Yeah, like the minimum is a bachelor's degree.
Chris: I think that's changed and it's changed for the better. So, if you come from a well to do family and they are prepared to support you in an education for education's sake. And there's nothing wrong with this. Then that's your reality.
If that's not your situation and you're going to have to fund the education yourself, then I think you have to be much more aware of whether or not the skills that you're going to learn, the intellect, is applicable to the marketplace.
Brittany: Right. And I think sometimes this can be a difficult problem to discuss rationally when you're 19 and it's time to make a decision of where to go to school.
Chris: Brittany, can you just take a minute and tell the audience [00:04:00] your experience? So, Brittany, you went to NYU in New York City and you took an acting degree. Some people might argue that that's education for education's sake. But what I'm really curious about is how you saw it at nineteen years old going into that experience and how you see it, you know, what, five years after, coming out of that experience.
Brittany: At nineteen, I thought that going to a big university would guarantee me career success. It seemed very formulaic. You get a degree, you get your career, you find your success. And then the reality after you graduate it's very challenging to find a career specifically in an arts field, but specifically with acting. I knew that going into it, but I was a different person. I was 19, I thought I had all the energy and resilience in the world. I’m 27 now it's not quite the case!
Chris: Okay, so…
Brittany: So, then there [00:05:00] was a transition of… There is a mourning period that comes to kind of accepting that the thing that you studied isn't maybe going to be your career right now.
But I think what came to my mind was there was other things I wanted to do in life. Like it wasn't just about being an actor. So, finding jobs that kind of allowed me to use my creative side. And also started opening up doors for me to learn more about other skill sets I have.
Chris: So, what you're describing there Britt to me is… None of this was a wasted effort. One thing I have learned over the years is, particularly in the performing arts, the work ethic that you need…
Brittany: To survive?
Chris: Just to survive the program, but you not only survived, you came out, you launched your own production company in New York City… And then COVID happened. I mean, who could have dreamed up that one ahead of time?
Brittany: Yeah, that was never the plan.
Chris: And so [00:06:00] there's a resilience to that education.
Brittany: Yeah. And I think that's true of other, you know, degrees.
Chris: Well, you're sitting here talking to a wealth advisor dad that took a degree in agriculture.
Brittany: I think when you're in your 20s and you're trying to make your degree your career, it can be really hard to navigate and there's a lot of pressure to make it happen. Especially if your parents paid for your education - or I mean both ways - or if you took out a bunch of student loans and you're trying to make it work. Maybe we can have more of a generational perspective that here you are 30 years later doing just fine. And you're very happy doing what you're doing.
Chris: Oh yeah, I love what I do.
Brittany: Yeah.
Chris: So, if you find yourself graduating with a Bachelor of Arts and recognizing that, okay, maybe this wasn't the best choice.
Brittany: Sometimes it's just the first step. It's not a waste of time.
Chris: It's not a waste of time. It's water under the bridge. You can't undo that So start thinking about how to apply what you [00:07:00] did learn. You can always take on additional skills We're never done learning
Brittany: And you can do that in the marketplace. Like, you didn't go technically back to school to be a financial advisor. You had to do some additional courses, obviously.
Chris: I've been studying for the last 30, 40 years.
Brittany: Yeah, but you didn't have to go back to university.
Chris: No, I never ever went back to a university course.
So, we're moving to financing the education.
Brittany: Okay, let's talk about four ways to finance an education working kind of from the bottom to the top… your fourth option out of the four, probably your last option, would be to take out student loans.
Chris: Sure.
Brittany: This is the one we're trying to avoid the most.
Chris: Avoid or minimize at least.
Brittany: Yes.
Chris: And, and this is the one, if this is your situation, this is the one that I really counsel people to make sure you're embarking on an education that has marketable skills when you're done.
And just [00:08:00] because the university tells you this is the way to milk and honey… Verify it independently. Follow the money. They have every incentive to make you want to come to their university.
Brittany: So instead of trusting the university website, you should be verifying that knowledge with people in the industry.
Chris: Yeah. You're potential employers.
Brittany: I mean, this kind of also relates to the good debt versus the bad debt. Bad debt, that we talked about in our last episode… it is good debt, it's a good investment if it's going to make you more money in the future. So, this is the, this is the kind of barometer that you have to look at when you're choosing which education, right?
Chris: That's certainly my view.
Brittany: Yeah.
Chris: When young people go out and acquire skills that the marketplace needs. I think that's fantastic regardless of how it gets funded because it's going to pave the way for them to have a wealthier lifestyle, [00:09:00] honestly.
Brittany: And it takes care of their community.
Chris: Yeah, it's going to allow them to be generous in the future. They're going to pay a lot more tax in the future, which, you know, we need the tax revenue for the programs that we have in this country.
It's going to allow them to care for their families, buy houses and save for their own kid’s education. And be generous towards others.
Brittany: I think there's also a reminder here, it's not like this terrible detrimental thing to take out a student loan. Like if that's what you need to do to accomplish all those things that you just mentioned, then that's a good thing, you know, but you just have to do it with care.
Chris: Absolutely.
Brittany: Some technical things before we move on…
This is something we talked about because… so I don't have student loans, but my husband does and so I kind of inherited student loans. So in that I've been talking to you about how to go about repaying those [00:10:00] loans.
And the question I had… because when I saw this big number my immediate reaction was like pay off as much as we can right now. And so, I was like looking to take money out of my portfolio because I didn't want the interest to accumulate. I didn't want to pay the interest if we didn't have to, but you actually advised me differently. So, can you explain how you advised me?
Chris: So, part of the situation I saw was, that the interest rate was exceptionally low.
Brittany: it's about two or 3 percent
Chris: And not only is it low, but it's tax deductible. Here's a good example. Let's drill down on this. Would I sooner pay off tax deductible debt at say, 3% where my effective rate is 2% after tax? Because I'm getting to deduct it.
Should I do that or should I take the money I was going to use to pay down that loan and put it in a tax free savings account, which I'm confident I can grow at 5% plus, tax [00:11:00] free. Well to me that's easy math. Essentially you could make more by holding on to the money you normally would have repaid the loan with, defer the payment as much as possible…
Brittany: Obviously, pay the minimum,
Chris: Pay the minimum, but with capital that cheap, put it to work. That's the situation today Now, three years from today that might be different, but…
Brittany: But that, so that investment is going to grow faster and at a higher rate than any interest you would pay.
Chris: Correct.
Brittany: Okay. So, moving on if you're not doing student loans the next option would be if you just have cold hard cash.
Chris: Yeah, like who does that?
Brittany: Yeah, which is pretty rare and we're actually not trying to do this, right?
Chris: For example, if grandparents are dishing out cold, hard cash…
Brittany: Yeah.
Chris: To help their grandchildren, nothing wrong with that. And I encourage that amongst our client base - I would sooner see grandparents do that than leave an inheritance. At least they get to [00:12:00] enjoy the benefit of seeing the their grandchildren go off to higher education, but it speaks to a lack of planning at the front end. Yeah. When it comes to scholarships, that is an often overlooked source of capital to finance an education.
Brittany: Yeah
Chris: But it does require a lot of effort.
Brittany: So, this is the third way to pay for an education is with scholarships.
Chris: Yeah, acquiring those scholarships is a way better spend then taking on student debt. They don't have to be paid back. Yes, not difficult math.
Brittany: Yeah. And then the fourth way to pay for an education and the main way that we're going to talk about today, which is the one that involves some planning, is the RESP in Canada.
Chris: Registered Education Savings Plan.
Brittany: Yeah. Okay. How does an RESP work?
Chris: So, the minute that we can get a child a social insurance number, which is shortly after they're [00:13:00] born… Ideally, that's when the first dollar goes in.
Brittany: Right. So, this is where you've broken down... There's three different pools of money within an RESP. There's what you contribute.
Chris: Yes.
Brittany: And then there's the grants.
Chris: Yes - the federal government offers through the RESP program a 20 percent grant for every dollar invested to a maximum of $2,500 in any one year.
Brittany: So, the government is matching at 20%. Yes. Maximum of 500. Right. And then there's the growth, right? So, over the time of 18 years presumably... This money will grow.
Chris: Because if you think this through, if you add money every year for 18 years, you're really dollar cost averaging. And the beauty of dollar cost averaging is that when things are high, you buy less. When things are low, you buy more. So, you get less than an average price.
Brittany: Right.
Chris: Over the course of [00:14:00] that investment.
Brittany: And we broke down dollar cost averaging in more detail in our last episode if you need that.
Chris: Right. So, following on that track, recognize that for every $2, 500 per child, that goes in in any one year. The government offers a 20 percent grant.
So, in other words, you can only get $500 per year per child out of the government. And recognize that, you know, if you haven't started that or you haven't fully participated and the child is 12 years old… It's not too late! You know, you still got another six or seven years to accumulate this money.
Brittany: And there's still free money available.
Chris: And so, thinking this through. Ideally, you've got the advantage of dollar cost averaging. You've got a 20 percent guaranteed rate of return coming out of the get go. And typically, the grandparents are holding this money in a taxable account [00:15:00] when they could be growing this money tax deferred. And when it comes out for education, when you're taking the money out only the growth is taxed.
Brittany: And it's taxed to the child who is usually not making enough money to be in a taxable bracket anyways, right?
Chris: And versus the grandparent might be at the top right marginal rate where you know, roughly 50 is going to tax. To me, it's you know, when you talk about cross generations, this is a pretty sweet deal that shouldn't be ignored.
Brittany: So yeah, essentially where a grandparent or a parent would have had this in maybe a nonregistered account or something that is being taxed or stashed away in an inheritance somewhere…
Chris: Yeah, I've seen situations where grandparents will put $100 a month into a savings account at the bank, drawing crazy minimal interest, [00:16:00] 0. 1%... and yet not have an RESP for them and the parents don't have an RESP for them. So, I guess, grandparents, if you've had that discussion with the parents, please make sure that they're putting in the twenty five hundred dollars per child per year to at least maximize that government grant.
Brittany: Okay, this kind of gets into… so, if there are grandparents and parents looking to help save and contribute to an RESP for a child…
Chris: right?
Brittany: Should there be two RESPs? Should there be one?
Chris: So, here's my counsel. If grandparents want to help, my recommendation is you give the money to mom and dad and make sure that mom and dad contribute that money to an RESP. I like to leave mom and dad in charge of that. The reason being: One, it's a teaching opportunity across generations. Two, it allows you to be introduced to planning, saving across generations. And three, it's a lot easier to administer should something happen to grandma or grandpa.
You can have a family plan or an individual plan. We encourage family plans. So now the money is in the name of mom and dad, if one of the children don't go to post secondary but there's another sibling. The benefits could all accrue…
Brittany: To that sibling
Chris: To that sibling.
Brittany: I guess so as a grandparent, if you're leaving money for your grandkids in your inheritance for them, and you're not contributing to their RESP, that's a little backwards.
Chris: Seems that way to me. Yeah. Right.
Brittany: Yeah. Cause you have an opportunity to grow the money, basically make it tax free [00:19:00] overall, because if the child is taking it out at 19, they're basically not getting taxed anyways. And you're getting grants from the government as well.
Chris: Right. Yeah. And you have the pleasure of seeing them go off to acquire some great skills.
Brittany: Is it bad to pay for your kid's education? Are there cons to that or is that just a great thing to do? What have you seen? What is your counsel to families in that position?
Chris: Well, I’ve seen a lot. I’ve seen people where they have chosen to 100% finance the child's education or grandchild's education complete with credit card with essentially no spending limit. And I've seen others take the approach, “Well, no, nobody helped me. So, you're on your own.”
I guess I'm philosophically somewhere in the middle. And it's probably more of a model of what I was raised with. I was raised with we will pay for your tuition, but your cost of living is your [00:20:00] responsibility.
Brittany: The other thing I've seen this in some people I went to school with where if the checks are just written for tuition, they'll just keep going to school. Like they'll get their bachelor's and then they'll get their master's and then like they'll just never quite enter the workforce because I think it's comfortable.
Chris: I think there's real risk in that. At some point you got to get out in the marketplace because I think there's a lot of character development that is impossible to make when you're going to school, especially if somebody is writing all the checks.
And I think when we do that, we rob people, who are young adults now, they're in their twenties, maybe even their early thirties, of the character-building experience of having to hold down a job and contribute to an organization. Getting paid, paying your bills, paying your rent. There's a sense of… I'm contributing to the society…
Brittany: There's a responsibility. Yes.
Chris: Yeah, and I think that's really important.
Brittany: Okay to wrap it [00:21:00] up, we wanted to just have a fun quick discussion as someone who loves to talk about sectors, dad, not me…
Chris: We're talking market sectors now?
Brittany: Yeah, so if you're looking at like… what are your projections, you know, and of course, this is all just your opinion, but where do you think there's going to be opportunity for people in the next maybe 20 year projection, I guess.
Chris: I think in this realm, we can go with 20 years. When I look around the world, here's what I see. Our infrastructure, be it civil or even, you know, industrial infrastructure, even our housing infrastructure, there are shortages everywhere.
And to correct that, we need trades people. And not only do we need trades people, but we need, structural engineers and mechanical engineers. There's an awful lot of stuff that needs to be rebuilt. Be it bridges, new housing sewers in [00:22:00] municipalities.
I mean, even the airlines today are massively short of aircrafts and there's huge lineups. Years of waiting to get new aircraft up in the sky. These are not bachelor of arts type of jobs, right? These are skills and they're not dumb person skills. In my day, if you weren't very bright, you kind of went into the trades.
Brittany: Yeah, that's gone.
Chris: Yeah, I would argue the opposite is true – the brightest, hardest working people want to go into the trades.
Brittany: I think trades has changed a lot since you're, you know, like it's so much more specialized. It's so much more technical. I've heard this, that trades is the future and who needs university degrees anymore… I've heard that for years now. So, as we talk about on this podcast, things go in a cycle, right? So where do you think we are in that cycle right now?
Chris: We might be in the third or fourth inning. We're a long way from the ninth inning. You know, now that does [00:23:00] not mean that trades people will not experience financial downturns.
Brittany: Yes.
Chris: That's going to happen just as sure as is going to happen with any job in the private industry group. We're going to go through economic cycles. There's going to be expansions. There's going to be recessions. There's going to be the occasional fire sale. Overall, we are very structurally short of tradespeople. And it's not something we're going to cure in the next decade in my view.
Brittany: Right. Okay.
Chris: It may be a 20- or 30-year thing.
Brittany: Any specific sectors within trade?
Chris: I think they're all great. When I think about where the world is going, one of the areas that I see great opportunity is actually in the generation of electrical power. And here's why. Everybody's heard of AI, artificial intelligence. What most of the general public are slowly awakening to is the tremendous demand for electrical [00:24:00] energy to run all the computers that run AI.
In fact, as Amazon sets up, you know, a new AI factory, and that's what they call them now, they're basically server farms. They have to build their own plants for the power. And you know, grid failures… A lot of people believe they are due to climate change. I have a hard time with that argument.
Most of it is the overwhelming demand that's coming out of the technology sector for electrical power. So, follow the bouncing ball. The grids all need to be rebuilt or adapted to new standards. The power of AI demand is insatiable right now. Now we may make some gains on that. There's going to be a tremendous demand for nuclear energy. The attitude has shifted on that even some environmentalists support that now and it's non carbon producing or certainly the most [00:25:00] minimum carbon producing of all options. You know, anybody that wanted to pursue a career in nuclear energy… I think it has got a very bright future
Brittany: Right. Cool! Okay, well that's our episode for today I hope this was helpful to everyone. We'll see you next time.
Chris: For our audience, feedback is solicited. So, send me an email if you have, be it positive or negative, including any topics you'd like us to cover in the future. And you can connect with us at AspiraWealth.com.
Brittany: And a quick thank you to Nathan Clark for composing our podcast music.
Disclaimer:
This podcast has been prepared by and expressed the opinions of Aspira Wealth of Raymond James Limited and are not necessarily the opinions of Raymond James Limited or Raymond James USA. Statistics, data and other information presented are from sources RJL, RJLU believes to be reliable, but their accuracy cannot be guaranteed.
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