Still No RESPs? Really?
Posted by Gail | Filed under Kids & Money, Saving
Why are there still so many people who aren’t using an RESP to save for their children’s future education? Only about 35% of eligible kids receive the Canada Education Savings Grant (CESG). That’s the money the Federal government is giving you to put away for your kids. Really? The Feds want to GIVE you money and you don’t want to take it?
If at the beginning of this school year you want to do one thing different so your kids don’t have to graduate from university or college with a hippo of debt on their back, open up an RESP for you child. It doesn’t matter how little you put in, just get started.
Most people’s first response to, “Why aren’t you saving?” is, “I don’t have any money to save.” Did you know that the Canada Learning Bond provides $500 for low-income families to establish a RESP account and allows for an annual contribution of $100? And yet the program only has about an 8% participation rate.
If you haven’t been contributing to an RESP for your kids, it’s not too late to catch up on the whopping grant money gift. As of 1998, the CESG accumulates every year for a child until December of the year she turns 17.
There is no maximum for what you can put into an RESP each year, but there is a lifetime limit of $50,000. But since the maximum CESG a child can receive in a calendar year is $1,000, provided grant room is available, don’t be tempted to catch up too much at once. Each year you can catch up for roughly one year of missed contributions if you want to make the most of the CESG.
There are three types of RESPs available in the marketplace: individual plans, family plans and group plans. Stay the hell away from Group RESPs – typically called Scholarship Trusts. A study prepared for the federal government found that group plans have a number of drawbacks including enrolment fees and preset contributions, forfeiture of enrolment fees and the inability to transfer plans, no entitlement to investment income if the plan is cancelled, and high fees.
The next time The Grandparents, Aunty Sally or your best friend want to know what to get Darling Daughter and Sweet Son as a birthday gift, a toy and a small contribution to an RESP will keep them happy on their special day and give them options in the future.
September 11, 2012 at 7:09 am
I love the RESP tool! When I married my husband, his children were 18, 18 and 14. It was too late for the boys who were on their way out the door so we opened an account for his daughter.
We knew we could never make up enough contributions to foot the whole bill of her education but we felt any amount, plug the government contribution and a few years of growth would be better than a kick in the pants.
One boy decided against post-seconday schooling for now and entered the workforce. The other one racked up much student debt ($14K for the first year alone!) and found school wasn’t a good fit for him. He took time off and worked, repaid the loans, tried school on a part-time basis which his mother helped fund and now he’s decided to take care of himself and work full time. No more school. We learned a lot from that experience!
As for his daughter, she just started her senior year of high school and had her first job this past summer. She got a full time position for 2 months and earned a decent wage. At her request, she kept half her earnings for her own spending and has given us the other half to add to her RESP.
It’s been a lot easier to sleep at night knowing we can make a difference for this child and we’ve looked at ways to help out the older two now that they’re on their own.
If we had babies, we’d be opening accounts now and making the contributions. Once we automated the payments, we adjusted the budget and we haven’t looked back! This was too important NOT to find the savings.
September 11, 2012 at 7:21 am
Very good article Gail! When both our daughters were born, this was one of the first things we did. Very easy to start up! When we started getting the Universal Child Payment (here in Canada, with kids under 6 you are given $100 a month to use towards childcare) it went into the RESP. The other “family allowance” as it used to be called, now the Child Tax Benefit, also goes into the RESP automatically. So every month, we have money coming in from the gov’t, going right back out into an RESP, and getting another grant from the gov’t. What a win-win situation!!!
September 11, 2012 at 8:20 am
We were tickled pink to find out that the government would contribute 20% of our contributions to the RESP. We set one up for our grandkids and it is amazing how it grows with the help of the suits in Ottawa.
September 11, 2012 at 8:33 am
Good article! I used to work for a company that sold RESPs and I was shocked by how much FREE money you got! Recently The Star had an article about a family whose young daughter died and they had a Group RESP and lost everything to fees. People assume all RESPs are like that but they are NOT. like any product, you have to do your research
September 11, 2012 at 9:01 am
I’d like to take this opportunity to plug “The RESP book” by Mike Holman (another Canadian blogger).
It has all the information you would need and more to get an RESP started the right way and answers all the tough questions. RESPs are actually quite complicated and I think that’s probably a reason why many people don’t start them.
After reading his book, I started one up for my 2 year old daughter right away. The book is particularly useful for those who might be starting late because it gives you all the details on how you can catch up quickly and get the maximum goverment grants with the amount of time you have left.
I’ve been meaning to write a review of the book on my own site, but I saw this post in my rss feed and thought it would be a great opportunity to tell others about it. Have you read it Gail?
September 11, 2012 at 9:03 am
As my friend put it, where else do you a get a guaranteed 20% return? (As in the 20% grant money the government gives for your contributions). Like Brenda, we put our Universal Child Care Benefit into the RESP every month since we started getting it, and add any monetary gifts for birthdays/Christmas etc. to bump up the contributions. When my husband’s business takes off (literally any day-just waiting for a couple of big POs
), my goal is to contribute enough to get the maximum grant per year, but at least for now, at 13 months old, my son already has about $2000 sitting there growing for the next 17 years 
September 11, 2012 at 9:11 am
This post is very helpful. Our little one is six weeks old, and we have been approached by a few RESP Group Representatives. We almost signed with one, but held back to do more resarch. Thanks SavingMentor. I will check out that book.
Is there any online information that compare RESP products?
September 11, 2012 at 9:35 am
This is a really good article, thinking about how to save for my child/children (when they come lol) for their education. I rather them to go to school and focus only on lectures and studying (yup and the fun ofcourse) and not rack up thousands of dollars of debt. I dont want them to have the same situation i had personally where i had to struggle to finish school financially.
September 11, 2012 at 10:12 am
Brenda, great advice. That is exactly what we do also! My son is less than a year old and his RESP is already set up. We actually just got a statement in the mail yesterday advising us of the $500 of Grant money had been deposited. I’m truly amazed at how much of his education the government will end up paying just by us being smart about it
September 11, 2012 at 10:18 am
We didn’t set up an RESP for our kid, now 15. When he was born, we looked into it, but didn’t find flexible plans — perhaps they weren’t available, or we were bad with our research. When he hit grade 1, we changed houses…..and all funds went to the mortgage (I know, people say put something in savings, but we put EVERYTHING against the mortgage). When that got paid off, we looked into RESPs again (he was 13), and a financial planner told us that we could contribute, but the govt has some sort of loophole that if you start late the govt won’t put in the 20%….at that point the most we would get was $400.
So, we’re just putting the money aside ourselves, now that we don’t need to throw it at the mortgage. And we have the choices in investment vehicles, unlike when he was born. At least now, people have much better choices.
September 11, 2012 at 11:09 am
@Dee,
I would definitely avoid a lot of the group plans solely because they have some very hefty fees that are hidden deep and you can get really shafted if you have something unexpected happen and don’t keep the money there for the full duration until your child goes to school.
You can open an RESP with most regular financial institutions or direct it yourself and they would just have the normal fees you’d be accustomed to paying with your other investments. My RESP is personally self directed with Questrade (online brokerage).
September 11, 2012 at 11:20 am
When the gov’t grant came into effect, our son (now 30+) was too old to take advantage of it, but my daughter still had a couple of years left so we opened an RESP for her at the financial institution we dealt with. Getting that gov’t grant for 2 years was great (free money!). We’d already been saving money for both of them (and, even moreso, one set of grandparents had contributed from birth to age 6–that money grew so much in the 80s and 90s!) and both kids graduated free of debt (they actually both had money in their bank accounts partly because they worked full-time during their summers and part-time through the year and our son did a co-op programme at university).
Now that we have grandchildren, we’re contributing yearly to their RESPs. I hope that helps keep them out of debt.
September 11, 2012 at 11:25 am
Our baby is one month old and we’ve already started an RESP for her. As someone who came out of university with a debt load, my husband and I want to do everything we can to help our children avoid school debt. I am shocked by how many people don’t put money away for their children. Every little bit helps so even low income families can and should be participating in some sort of plan for their children.
September 11, 2012 at 12:18 pm
I finally convinced my sister to open one for my nieces this year. I had been nagging her for years.
There is over $2000 in the account now which is way more then the $200 I had saved for them (while I was going to school myself).
Unfortunately my other niece and nephews live in the UK and USA and are unable to have the RESP since I believe you have to be a resident of Canada not just a citizen.
September 11, 2012 at 2:19 pm
We didn’t have the cash for resp when our son was born…we barely had enough for a small life insurance policy so he’d have something if orphaned. Now, a few years later…still no resp however I am saving like a fiend for him in a RDSP (registered disability savings plan). My understanding is that he can use this money for anything…school or otherwise so I’d rather put what I can there as he won’t likely be able to get life insurance and/or travel insurance etc. as an independent adult later in life. I jumped all over it asap as it also gets grant money…provided we contribute enough on a yearly basis.
September 11, 2012 at 5:02 pm
I have a group RESP for two daughters started at birth. I also have begun one at my bank because I finally saw through the fees issue with the original company. I have an 18 year auto withdrawl set up on the group plans. Am I better to let it ride ($800 a year) or is there a way I can get out of these plans with losing everything I have put in. The remainer of RESP room goes to the bank RESP’s. I would appreciate your advice. Also an opinion on the insurance option group RESP’s offer.
September 11, 2012 at 7:55 pm
I love the idea of telling your friends and family to get your child an RESP contribution, that’s a wonderful idea especially since these days everyone has way too much “stuff”
September 11, 2012 at 8:31 pm
We started our girls’ RESP’s at 3 months of age and have slipped our baby bonus into it monthly ($250 a month split equally). I also opened an account my niece at $25 a month. We have a good chunk of money in these accounts now, but unfortunately we didn’t know of all these negatives experiences with “Scholarship Trust” accounts when we opened the plans and would lose too much if we changed now so hopefully everything works out for us.
September 11, 2012 at 11:57 pm
I feel like crying, reading this. We were on welfare for three years, and for the past 9 years I’ve been self-employed and struggling. Why didn’t the government tell us there was money for us, back when she was young enough (18 and graduating now)?
September 12, 2012 at 8:50 am
I second telling your friends and family you’ve set up an RRSP for your children
This proud aunt is only to happy to contribute to her nephew’s RESP for his birthday and Christmas. The little guy already has so much stuff, and I like that I can make a meaningful contribution to his future.
Originally I wanted to start up investments for my nieces and nephews (I know there will be more!) so I could hand over a cheque when they graduated high school, but right not the government grant through the RESP has a better return than any investment vehicle I can find!
September 12, 2012 at 9:28 am
I’ll second the recommendation of ‘The RESP Book’ by Mike Holman. It’s exactly what you need to get you started figuring this stuff out. Easy to read and covers all the important details.
September 12, 2012 at 11:08 am
One other thing to remember: Group RESPs (Scholarship Trust, Heritage etc) are not the same as RESPs in general – in the same way that all hamburgers are not Big Macs. I personally don’t trust group resps and use a self-directed resps instead – it’s a lot easier than it looks. If you can pay a bill online, you can setup a self-directed resp, and there’s lots of guidelines you can follow.
@ Hollie – you did the best you could. The government tries but could do a better job of sharing information.
September 12, 2012 at 12:08 pm
My main reason for not opening an account yet is finding where to open one. If I make the wrong choice it’ll likely cost me over $100 to move it. I wish ING had RESPs, but I guess I’ll have to open a discount brokerage account.
September 12, 2012 at 12:16 pm
@ Kenny – try TD Canada Trust. Google “canadian capitalist resp td” for a primer on what I did. No fees (outside of very tiny MER fees for e series index funds) and no need to open a chequing account with TD either if you have one with another big 5.
September 12, 2012 at 1:41 pm
Can only a parent set up an RESP for a child? If I wanted to begin saving for my neices and nephews, is an RESP an option? Anyone know?
September 12, 2012 at 4:24 pm
I know, you do need the childs SIN and maybe a birth certificate.
September 12, 2012 at 4:26 pm
Just checked the Canada Gov site and all you need is the childs SIN and it says family can set it up.
http://www.hrsdc.gc.ca/eng/learning/education_savings/public/resp.shtml
September 12, 2012 at 9:47 pm
@ Jasehoek – Yes you can but they need a SIN number and some banks will only let you set up certain kinds of RESP’s (so you have to talk with the bank)
Also for all those people with older kids I just read The Wealthy Barber, it was written back in 1989 and he talks about RESP’s back then and they were much different than they are now.
September 13, 2012 at 5:49 pm
I am worried now too. I have both my son’s resp’s with Heritage. My eldest is almost 5 and we started it when he was 1 and my other son is 2.5 and we started it when he was around 10 months. Should I just leave the money in there and not risk losing everything and open another resp through my bank as well??
September 14, 2012 at 5:01 am
[...] Saving for your children’s education is so important, which is why Gail Vaz-Oxlade wrote a post about Still No RESPs? Really? [...]
September 14, 2012 at 10:20 am
@ Michelle – google canadiancapitalist, there’s lots of comments on that blog. I think the general advice is to investigate your options. IF at all possible to suspend your contributions without triggering a nasty penalty, I think most people do that and go to a bank for the rest. If not, decide what to do. Your kids are young and while I hate the idea of paying a penalty, my grandmother used to remind me not to throw good money after bad so I think most people would cancel it, rather than pay a lot in fees for the next 15 years. Note: Fortunately I’m not enrolled in a group resp (I use a simple to use self directed resp at the bank) so I’m not an expert. Main thing is, spend a couple hours at least researching and be sure to look at the total cost (IE yes paying $2000 penalty sucks hard, but do the benefits outweigh it?). Good luck.
September 18, 2012 at 11:38 am
@Savings Mentor & LifeInsuranceCanada.com You guys are too kind.
@Katy – Your financial planner was incorrect. You can still start an RESP account up until the end of the year in which the child turns 15 and be eligible for grants.
If your child turned 15 in 2012, the maximum you can put in would be $5,000 per year which would get you $1,000 in grants per year. You should be able to do this for three years.
If your child is turning 16 this year, then it is too late.