On RESPs and a few rambly thoughts about investing in education

by DaniGirl on September 24, 2013 · 1 comment

in Mothering without a licence, Reviews, promotions and giveaways

I‘m in one of those transitional stages in parenting right now. For the first time ever, I have all three boys in school full time, and this is also the last year I’ll have them all in the same school. Next year Tristan is off to middle school, and by the time Simon hits middle school Tristan will be in high school. Then Lucas hits high school and – yikes! – Tristan will be off to university or college. How the hell did THAT happen?

walking to school

Framing it in those terms makes me realize how close we really are to having to consider funding three post-secondary educations. Yikes all over again! But thinking about this always makes me wonder – *should* we be paying for our kids’ education? Way back in the day, my parents covered my first half-year of university tuition, an amount I promptly squandered by flunking out and quitting during the Christmas exams. When I went back to school a few years later, I was already working full time for the government, and they paid for my tuition, so in essence I earned my own tuition through work. Beloved got a few parental loans early on but graduated with debt and piled on more when he went back for a college diploma after graduating university. We didn’t finish paying off his student loans until after Simon was born.

So there’s a part of me that thinks since we mostly made our own way and survived, we should expect the same from the kids. If I had an infinite budget, of course I’d pay rather than watch them struggle, but unless I start getting a LOT more blog sponsors in the next few years, it seems unlikely that we’ll have enough put away to get all three of them through an undergraduate degree each. And impossible though it is to imagine, I’ll actually be eligible for (gulp!) retirement the same year Lucas graduates high school.

So even though I do think there’s a point to be made for letting the boys earn their own way, I’ve been doing what I can to minimize the burden. Although I am ridiculously impractical when it comes to financial matters, one fiscally responsible thing we have done as a family was to establish small but regular contributions to a Registered Education Savings Plan (RESP) for each boy. So when Mom Central Canada offered a sponsored opportunity to blog about RBC’s RESP program, I knew it would make great bloggy fodder and wondered why I hadn’t talked about it before.

Do you know about RESPs? They’re pretty awesome, actually. To steal a few words from RBC’s site, an RESP is “a tax-sheltered plan that can help you save for a child’s post-secondary education. An RESP combines flexibility, tax-deferred investment growth and direct government assistance to help you reach your education savings goals for your children.”

So what does that mean? First, it’s tax sheltered – this means that you don’t have to pay tax on the growth of the income within the RESP. So whatever you earn in interest and capital growth is tax-free while it’s in the plan.

The sweet part is the direct government assistance. Through the Canada Education Savings Grant, you get an additional 20% on up to $2,500 of contributions each year, up to a lifetime maximum of $7,200. Hello, free money from the government! And if you don’t take advantage of the full $500 (20% of the $2500 max) each year, the amount can be carried over to the next year’s contributions.

So what that means for us is that twice a month (on each payday for me) the bank automatically transfers $25 into an RESP for each boy. It’s not a huge amount, but it slowly adds up. And the bonus is that for each $25 deposit, we get an additional additional $5 contribution into the RESP from the Canada Education Savings Grant. If I were a more fiscally prudent person, I’d probably be micromanaging the funds within the RESP to ensure maximum performance and returns, but, well, I’m not. Still, over the five or so years we’ve had the RESP, we’ve accumulated more than $1000 of sheltered growth between the three plans above and beyond what we received from the Canada Education Savings Grant.

Aside from regular payday withdrawls, we have also put a few financial gifts into the boys’ RESPs, and I know in some families it’s a rule that part of each allowance goes in to an RESP. We’ve even collected and rolled pocket change and slipped it into the RESPs. There are a lot of little ways you can easily ferret away a few pennies nickels here and there, and dump them into the plan when you have a few piled up. RBC has a plan called the RESP-Matic – click through and it will show you how your contributions can grow over 10, 15 and 21 years.

So what happens when your child is ready to take advantage of the RESP? Per the RBC RESP FAQs (ha, I feel like I’m typing in code with all those acronyms!):

Once the student is enrolled in a qualifying post-secondary education or training program, the accumulated income, grants and bonds within the RESP can be paid out to the student at the discretion of the subscriber. These payments are called Educational Assistance Payments (EAPs). The beneficiary must claim all EAPs as income on his or her tax return in the year that they are received. Usually, this results in little or no tax since students tend to be in the lowest tax bracket and can claim tax credits for the personal amount and education-related expenses.

So, even if you are laughably inexperienced or merely wildly inattentive in the realm of financial matters *coughlikemecough*, it couldn’t be easier to set up an RESP and start saving for your kids’ educations.

What do you think? Do you feel parents have an obligation to fund at least an undergraduate degree or diploma or do you think it builds character to pass that responsibility on to your kids? Do you have any thoughts or advice to share about setting up an RESP?

Disclosure: I am part of the RBC RESP blogger program with Mom Central Canada and I receive special perks as part of my affiliation with this group. The opinions I express are my own and do not necessarily reflect those of my employer or anyone else with whom I may be affiliated.


{ 1 comment… read it below or add one }

1 Marie October 3, 2013 at 6:38 pm

Thanks for blogging about a very important element of parenting. You have done so in a thoughtful and non- judgmental way. And kudos to you for putting aside $150/month toward your sons’ future post secondary pursuits. I see many people driving nice cars and having everything today but they scoff at the idea of RESPs for their kids. I think that no amount is too small and, if a family is able, they should set something aside. My sister and I were both given one four-year degree. We did not squander our opportunity. We appreciated how hard our parents worked to save that money. We both earned degrees we could gain employment with and neither of us has ever looked back. It was such a wonderful gift and I will be forever grateful to my Mom and Dad (who drove second hand cars and didn’t wear expensive clothes while we were growing up) for giving us an amazing start financially. It is my dream to give this same gift to my children. As I watch my neighbours in their leased Audis and $800 Canada Goose jackets, I wonder to myself “Are they contributing to RESPs?” I truly hope so.

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