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Is it worth it to have RESP?

Saving plan to cover post education costs

Today I will give the answer for the question that probably lots of parents are asking themselves. Is it worth it to have RESP? Yes, of course it is. It’s always worth it to save money, get extra benefits from government to be prepare for our kid’s education costs. Let me explain why. But from the beginning…
Lack of information
I am financial professional helping people to understand how money system works in Canada. I came to Canada in 2005 and I was shocked with the lack of easily available information about personal finance such as, savings, investments, retirement planning, insurance etc. I did not have any idea where to go to get this information either. Nobody that I spoke to at the time seem to know anything about financial planning and as a newcomer to Canada, it took me many years to get this information, everybody was saying about how great it is to have real estate, no one said nothing about retirement’s plans. Fortunately, I met a financial professional who gave me some information about children education saving plan (RESP). I decided to start a RESP for my son when he was 12 years old.
The earlier the better
I wish I learned about it earlier. Unfortunately, I still did not know how important it is to have education plan and how it actually works. Few years after I became financial professional with financial licences in both investments and insurances. Ever since then, I decided I will be that person who will educate and provide information that is not easy to find. Now I understand how important it is to start very early financial planning. Coming back to the subject if it’s worth it to have RESP. I will explain how RESP works which stands for Registered Education Saving Plan.
Who can open RESP?
Anyone can open an RESP account for a child who has SIN, such as parents, guardians, grandparents, other relatives or friends. While you can open a plan for a child, you can also name yourself or another adult as the beneficiary. An RESP allows adults to earn interest on their RESP tax-free only when contribution is invested properly to get some interest, not on regular saving account or group plans.
What is the lifetime limit?
You can open an RESP without having a bank account. There is lifetime limit of how much you can contribute but no limit for how much money will grow. The lifetime limit is $50,000. I know from my own experience that this amount is not enough for education costs on average Ontario University (only would be enough for College). My son is now applying for different universities and I am familiar with the costs. 50,000 would be enough most likely for the first couple years which would include tuition, campus, food and other expenses. This is the reason why I encourage all parents and grandparents to start saving so early for children education. Please take it seriously and have control of these plans, check how your money is invested and if you qualify for government grants.
What is government benefit?
The grants includes Canada Education Savings Grant (CESG) and Canada Learning Bond (CLB). You are able to check if you get or qualify for full government’s extras. RESP can be invested in many different ways, for example in Mutual Funds or stock market depends on investor risk tolerance and preference.
Individual/Family – not group plans.
I strongly advise against working with companies that call themselves “Scholarship companies” because they have group RESP plans. However, since many people are contributing to these group plans, the beneficiary shares the pooled earnings of investors with children of the same age. Group plans tend to have more restrictions and rules than other plans. Usually there are some extra charges in a group plan such as deposit fees, insurance, and charges for units. Consequently, this means that not all contributions may be invested and there is no guarantee how much your child will receive when tuition fees need to be paid. Individuals or family plans are pretty straightforward, there must be only one active beneficiary at all times in individuals or siblings in family plans.
Be informed
If you already have an RESP plan it is very important to have a review and get a second opinion of how your child future education money has been invested. From my experience most people open account with no knowledge of how their investment is doing and, in most cases, they find out when it is too late. They don’t know how much they should contribute to maximize Government’s Grands; they don’t know how much actually they will need, and that there are some restrictions.
More you ask the more you know
Nobody ever actually explains them with easy-to-understand details how RESP works. We are scare to ask questions about finance. Why? I don’t know. We just take what someone said. My recommendation is that when it comes to your finances it is very important to have regular review at least once or twice a year, with financial professional who has your best interest as their number one priority. That way there is always time to make some changes if it’s needed, which is always possible. Remember you are the person who should have control of your finance and last word is up to you but only when you have enough knowledge. If you have any questions, please call the Polonez office. In each edition of the Polonez, I will explain and dispel doubts and misconceptions related to finances.

Beata Cieślak-Szewczyk