Beyonce’s vegan pregnancy. Self-driving strollers. Swaddling techniques that can turn your baby into a living burrito. There are a lot of controversial ideas about parenting, but one idea remains pretty universal: the desire to give your child the best possible educational opportunities.
If you’re pregnant or have a young child, you’ve probably already been told about a Registered Education Savings Plan, or RESP. An RESP is a type of investment account that allows you to earn tax-sheltered investment returns plus Education Savings Grants (ESGs) to be used for a child’s post-secondary education at just about any college or university.
The government grants are what make RESPs a brilliant idea. For every dollar you contribute, the government contributes 20 cents up to a maximum of $500 per year and $7,200 over the life of your plan. That’s like earning a government-guaranteed 20% return. Add that to the growth of your investments, and you can end up with a lot of money put away by the time junior turns 18.
When Gen X kids were born, group RESP plans were the only game in town. They were sold directly by private companies that were known for visiting customers at the kitchen table. These plans had the same basic features as modern plans, but also some serious drawbacks, including high fees, low investment returns, and steep penalties for families that missed a payment or whose kids did not continue past high school.
Millennials grew up with some better options, including individual and family RESP plans offered by banks and financial advisors. These newer schemes offered more investment flexibility and a more forgiving approach when things didn’t go according to plan. However, they still tended to feature high-fee mutual funds. And, because they were not very profitable for the people who sold them, RESPs weren’t always easy to find, and sometimes came with steep administrative fees.
RESPs are just one of many areas of personal finance undergoing major changes right now. We live in a time when technology, talent, and a desire to simply make things more open and fair for consumers is radically changing the playing field. At Planswell, we believe retirement and post-secondary education should be attainable goals for as many families as possible, and we’re committed to helping you get there. You can have an RESP strategy that dovetails with your overall financial plan, so kiddo’s quest to become a radiologist doesn’t come at the expense of your retirement.
Here’s a quick recap of your options:
Having a child is expensive, we know. But somewhere in your budget, between the custom nursery wall mural and the off-road-ready stroller, an RESP makes a whole lot of sense. Ready to see how it can work for you? Take a few minutes now to create your free financial plan.