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How to Prepare for Maternity/Parental Leave Part 3: RESP Planning

This is part 3 of a 4 part series that you can read on your own or attend an Online 1 hour Workshop with similar information. Email ruthysiemens@gmail.com to register for the next monthly workshop!




If you haven't gotten a chance to read the other related blogposts, check them out here:


I have a blogpost pertaining to calculating how much Post Secondary Education is going to potentially cost for your child, so check it out first- 4 Steps to Start Your RESP- some of these numbers are from 2021 and are a bit outdated now so just increase those numbers to account for inflation.


To give you can idea of the approximate current cost:


$125,000 for a 4 year program in Post Secondary Education, living away from home and attending a non-private school

or

Living at Home: $40K


To building upon this previous blogpost.

Here are a couple of other resources:


You can look at your total RESP contributions per child and how much you have received in Canada Education Savings (CESG) and Canada Learning Bonds (CLB) grants by phoning Canada Education Savings hotline at 1-888-276-3624 and they will send you an email via Canada Post. It may be a bit difficult to open this information but stick with it and you will have your information and it will look like this.



DIY Index Investing with Justin Bender: How to Invest Your RESP is a great youtube video that breaks down how to separate your children's RESPs and keep track of their investments using a Simpsons type of example.





$7200 CESG grant
+ $2500 (contributions) x 18 years
Total = $52,200 not counting Interest Earned

Our family foolishly invested our children's RESP through a group RESP provider 16 years ago because we didn't do the proper research.

By the time, 2021 rolled around and we started DIY Index investing, it was too late and we were in too deep. However, we did start our own RESP investments via Questrade with the same monthly amount and these low cost Index ETFs have provided great investment growth compared to our group RESPs. This is why I can speak from experience by saying that these providers might not be the best option for your family.


Avoid Group RESP providers:

Canadian Scholarship Trust Foundation

Universitas Financial

Heritage Education Funds

Knowledge First Financial now called Embark

Children’s Education Funds Inc.


Now the reason that I feel a bit passionate about parents avoiding these group RESPs, is because I feel that it is a bit predatorial to advertise in maternity clothing stores and to prey on parents when they are sleep deprived.

However, don't take my word for it, do your own due diligence and research before your child is born. I say this again because we made the mistake of signing up with CST for both of our children and are we are too far-gone and stuck with them now. If you look at the bottom of this information page, you will see the Net Plan Return is 3.5% which is lower than inflation!




Why avoid them?

  • You are locked in-penalties if you cannot pay and sometimes stuff happens in life (illness, injury, job loss) and you are unable to contribute towards an RESP.


  • High Fees at the beginning. If you stick with it all the way through, then you don't end up paying all of the administrative costs.


  • Strict contribution and withdrawal rules: not flexible


  • No Exceptions for missed payments: penalities for missed payments


  • Payouts are based on how many graduates there are that year


Most are in high fee mutual funds and the portfolio has a very poor Return on Investment (ROI) because it is very heavily invested in Fixed income (60%) as you can see from my CST report above.


Questions to ask Advisors/Banks/Group RESPs:

  • Fees for opening an RESP

  • Fees for withdrawing money from a RESP

  • Fees for managing the RESP

  • Fees for services and commissions

  • What happens if you can’t make regular payments

  • What happens if your child doesn’t continue his or her education

  • If you have to close the account early, do you have to pay fees and penalties; do you get back the money you contributed; do you lose interest and can you transfer the money to another RESP or different account type?


Beware of Financial MLMS:

Just google "Financial MLMs Company Reddit" and you will see many listed.

A great podcast to listen to regarding these financial MLMs is Money Feels Podcast Episode #27 (at the 34 minute mark)


Trying to recruit you to become a financial advisor/agent too and you haven't even applied for a job? (Red Flag: don't be flattered, be suspicious!)
No upfront mention of any fees...there are always fees!

Instead:

  1. Open an RESP family plan at your bank or low cost brokerage

  2. Contribute as you can afford to, but try to max out the contribution limits especially in the early years. (You only have 18 years to contribute)

  3. Invest in Low-Cost Index Funds and file your taxes.  They might tell you that they don't have any but don't take no for an answer. They don't make any commission on these funds so they avoid selling these funds. Either that or their knowledge is limited about Index ETFs and in that case, they don't know what they are doing.

  4. Automatically receive your CESG money plus an other additional grants based on your income.

  5. Watch your money grow via compound interest

  6. Receive the contributions, grant money and interest when your child graduates and use it for their future purposes.

Now Go and Be Intentional about Setting up an RESP!


The Next Major cost is Childcare which is part 4 in this series!

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