RESPs are too Hard for Mommies

This is what I keep seeing and reading, and it makes me (as a Father of 3 smart sophisticated young ladies, and a wife who is much smarter than me) absolutely irate. The dumbing down of most things (OK everything) is annoying enough, but the portrayal that Mothers and Parents (in general) can’t understand a simple financial idea like an RESP is insulting.

The case in point I am displeased with is Giraffe and Friends RESP, which is an insurance company that is offering a Guaranteed Growth RESP (and also insurance for children). This company has been getting a lot of Mainstream Media play and many financial bloggers seem to think that it is a godsend for families.

Giraffe

What’s an RESP?
Photo Courtesy kraifreedom at FreeDigitalPhotos.net

Let me be clear, “Giraffe Feces“.

They are simply selling an RESP Bond Fund, with insurance thrown in, which most families can easily set up themselves.

When did RESPs get complicated? You get a Social Insurance Number for your child, and you set up the RESP with your favorite financial institution, you do a little research, beforehand and there you have it. Evidently it is much more complicated than that, as the Giraffe and Friends site explains:

We use direct, simple language. We take the worry out of big decisions by giving you all the information like our frequently asked questions you need to make the right choice for your family. We want you to understand how your savings work so you can feel confident, not confused. giraffe & friends is online, and our mission is to be so easy that you can set up your child’s RESP during a single naptime.

Is it just me, or is this someone being condescending  to the consumer? When I read simple language, I get the feeling someone is calling me Simple (but then again, I am also known for being a hot-head).

Another question that arose after seeing this was when did RESPs become risky? The site makes the statement:

A giraffe & friends RESP is for parents who don’t want to take chances with their children’s education savings. There’s enough uncertainty in the world.

  • Your personal savings are 100% guaranteed to grow, no matter what happens out there in the stock market jungle.
  • We go a step further by offering insurance for YOU, the parents. So if the unthinkable happens like a death or permanent disability, and you can’t make your RESP contributions, giraffe & friends will still meet your RESP goal.

What kind of growth are we talking about here? I couldn’t really find a lot of information about what growth meant, but the guarantee seems to be a 2% growth per annum, but given the government kicks in 20% every year in CESG, for your first $2500 deposited each year (more possible depending on your income), is this on top of the kick in? (I hope so).

To those folks out there clutching their stuffed animals reading this, you do realize you can buy GICs, or set up a savings account type RESP that will never lose money as well, right? The FAQ on the site says they invest your money in Bonds mostly, ” We back your RESP with dependable Canadian government and corporate bonds as well as a small percentage of equities.“, you know you can buy Canada Savings Bonds in an RESP too?

The really telling part of the web site is in the Terms and Conditions page, which states:

Except for on-line applications, the Website is provided for informational purposes only, and is not guaranteed to be accurate, complete, or timely. You should obtain appropriate, qualified professional advice before acting or omitting to act based upon any information provided on or though the Website.

It is also important to read the Exclusion of Liability section very carefully as well (as you should with all similar products).

Am I missing something here, is the concept of an RESP something that is causing parents to stay up late at night worrying that they don’t know what to do? I must also give Mrs. C8j her “props” on this, as this article was her idea, and, yes, she does feel insulted by the tone of the service.

Maybe I need to start the Friendly Big Cajun Man RESP fund, and I could get Jerome the Giraffe and Rusty the Rooster to help explain things to folks?

Look up… waaaay up… and now let’s talk about RESPs….

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TD E-Series RESP Beartrap

Just when I thought I couldn’t possibly find anything more to write about with my kids’ RESP account, TD puts a beartrap in the process and I end up with yet another article to write.

I can already hear my regular readers muttering, that I am not going to rehash another visit to my local TD Branch, am I? Yes, and no (after a fashion).

Let us rewind to about 4 months ago, when I changed all of my TD Mutual Fund savings vehicles, into accounts that allow for the purchase of the TD E-series Index Funds. Remember I did outline in Quicken and transferring E-series Index Funds, how to change from the I-series funds to the E-series versions (which have lower MER fees), little did I know that with that change, I set the beartrap, that I stepped on Friday evening.

E-series bear trap

It snapped shut tight

I went to my local branch of TD Friday because my youngest daughter’s tuition fees were due, so I made my appointment at my local branch last week, to extract the money I need to pay for this term, because, as we know, you must go in to a local branch to prove your child is in a reputable program (for an RESP), before you can have the RESP funds. I had my letter, I knew what part of the portfolio I wanted to liquidate, so what could go wrong?

I arrived at the branch, and I was dealing with a polite young man, that I had dealt with previously, I explained quickly what I wanted, and he logged in and started clicking and typing. Time passed, screens seem to fly by and then return and I started to wonder, “What is wrong?”.

After about 10 minutes the gentleman turned to me and said, “We have a problem here”. At that moment, the bear trap snapped shut on my ankle.

The “Advisor” then explained that the in-branch Financial Advisor/Mutual Fund persons are not allowed to touch E-series funds. I believe my response was a confused but polite, “I beg your pardon?”. The young man went on to explain that he could only trade the I series funds, but that the E-series funds were out of his “jurisdiction”.

At that moment I almost asked, “So I have a Save only account?” (i.e. I am allowed to put money in, but not allowed to take any money out). Luckily that is not quite the case, however, there is yet another convoluted methodology that I must follow to extricate funds from my daughter’s RESP. Let’s just wander through the steps:

  1. Get a proof of enrollment letter from the post secondary school she is attending. Luckily I already had that from September
  2. Make an appointment with the local branch to do an RESP withdrawal. This is so someone trusted at TD can attest to the letter that you got in the first place (hint for TD, maybe I could have the letter sent to YOU or faxed?).
  3. NEW: Go on-line to my TD Mutual Fund account, and move the funds I want, into a TD Money Market account. This is a fund that the Mutual Fund expert or Financial Advisor can do something with. Do this at least 2 days before you go to the branch (to allow the transaction to go through).
  4. Go into the branch and spend 1/2 an hour answering questions, and possibly having to review your investing profile, but eventually put through the transactions to cash in the funds you want.
  5. Wait for the funds to arrive on-line

I would have thought (if you have wandered through my RESP page) there was no other way for this to become a more complicated methodology, unfortunately, I was wrong.

As an epilogue to Friday, I also asked what would happen if my RESP was with TD Waterhouse (in hindsight what I should have done in the first place)? It becomes more complicated, and at the end of your visit to the local branch, you must then wait for TD Waterhouse to release the funds to you (so you need to wait longer for it).

I must now return this Wednesday to attempt the same thing I attempted back on Friday.

 

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RESP from Start to Spend

I supply the following scenario as a simple example to show how RESPs can work, and include some advice from my experiences using the program.

Registered Education Savings Plan (RESP)

So, now you have had a baby, and you are sure that your child will be a Doctor one day, or an Engineer, or maybe a Plumber? If you are thinking this, and you want to help them meet this goal, by helping financially, you might want to start working on saving money, and luckily (in Canada) the Government is kind enough to have set up the Registered Education Savings Plan (RESP).

What is your first step? Get your child a Social Insurance Number (the day after they are born, would be a useful time to apply, given how busy you will be in the days after that).  Get that done, right away, or you will have to start waiting, and time is your friend at the beginning of this process, but don’t procrastinate, you are wasting valuable doubling time, if you do.

Next step, go set up an RESP with whomever you feel comfortable dealing with, or whomever gives you the best deal (Shop Around, don’t just use your bank because it is convenient). Check the RESP page for my experiences, and I would recommend try to stay away from Bank Mutual Fund accounts, give yourself enough freedom to use some simple Couch Potato Portfolios to invest your funds (remembering you have a relatively short period, and shouldn’t be too risky either, as you don’t have a lot of recovery time in your investment plan).

Now we have reached the part where you make your money start working. I am assuming that currently your family income is over $87,123 and that you can invest somewhere that will give you an average of about 4% growth per year. The big assumption is that you contribute the current maximum every year to the RESP $2500. What does this look like? Funny you should ask, I have a table right here for you:

Year Principal Contribution CESG Growth Year End Total
1 $0.00 $2,500.00 $500.00 $0.00 $3,000.00
2 $3,000.00 $2,500.00 $500.00 $120.00 $6,120.00
3 $6,120.00 $2,500.00 $500.00 $244.80 $9,364.80
4 $9,364.80 $2,500.00 $500.00 $374.59 $12,739.39
5 $12,739.39 $2,500.00 $500.00 $509.58 $16,248.97
6 $16,248.97 $2,500.00 $500.00 $649.96 $19,898.93
7 $19,898.93 $2,500.00 $500.00 $795.96 $23,694.88
8 $23,694.88 $2,500.00 $500.00 $947.80 $27,642.68
9 $27,642.68 $2,500.00 $500.00 $1,105.71 $31,748.39
10 $31,748.39 $2,500.00 $500.00 $1,269.94 $36,018.32
11 $36,018.32 $2,500.00 $500.00 $1,440.73 $40,459.05
12 $40,459.05 $2,500.00 $500.00 $1,618.36 $45,077.42
13 $45,077.42 $2,500.00 $500.00 $1,803.10 $49,880.51
14 $49,880.51 $2,500.00 $500.00 $1,995.22 $54,875.73
15 $54,875.73 $2,500.00 $200.00 $2,195.03 $59,770.76
16 $59,770.76 $2,500.00 $0.00 $2,390.83 $64,661.59
17 $64,661.59 $2,500.00 $0.00 $2,586.46 $69,748.06
18 $69,748.06 $2,500.00 $0.00 $2,789.92 $75,037.98
Totals $45,000.00 $7,200.00 $22,837.98
Assuming 4% Growth
Assuming family income over $87,123

Amazing watching money grow like that isn’t it? Did you look closely at the table? Did you notice that the current CESG max for you is $7200, so once you reach that maximum, you won’t get any more CESG kick ins (for now, given time, all these max values for contributing and CESG may change). Also remember that once your child turns 18, you would get no more CESG kick in either.

Remember that the Growth and CESG funds, will be taxed, in your child’s name, (from the example $7200 + $22838)  so figure out how you wish to extract money from the account once your child goes to Trade School, University, College or any of the other Ministry Approved post secondary programs, to minimize any tax impacts on your child. This can get tricky if your child is lucky enough to work in a CO-OP Program.

You should also realize, that if your child leaves home, this will only really cover tuition and fees.

 

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RESP : What does $350 Look like ?

Continuing on with my discussions about the relative cost of school and such, I have found another interesting example for all of those parents out there that are wondering, “Should I start saving for my child’s post-secondary education ?”. I have already scratch this topic a little with, So That is What $50,000 looks Like, but read on, it will be entertaining.

University Costs for RESP

Those Two Books Cost $350.00
(the computer is not included in that price)

First, a question: What does $350 look like at University (or to a parent of a child who is at College/University) ? Look at the picture on the right hand side of this, those two books. Those two books represent $350 or so in costs (the computer on top of the books is a lot more).

Big deal, says you? Yes, maybe that isn’t that expensive, except those two books are for only 1 course, and in some programs like Engineering or Computer Science there can be many courses with many very high-priced texts. A good number to remember is typically programs have at least 5 courses per term, with two terms a year and a four-year program, you have about 40 course sections that could have some expensive books to buy (or even more interesting expensive lab fees).

More numbers for thought would be that the Basic CESG (grant for your RESP) for a year is $500 (if you have max’ed out your deposits to your child’s RESP), so these two books pretty much almost ate that whole grant.

Do you still think an RESP is something that can wait for when your child gets older?

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RESPs Another Year and More Fun

Every year, as my children pass through the post secondary system, I withdraw moneys that we have put into our TD Mutual Fund RESP system. If you look at the RESP Menu item, you will see my long record of interesting occurances, putting money into and then attempting to take funds out of the TD RESP Mutual Fund system.

Previously I have had issues with changes in the RESP rules causing me to be unable to easily take money out (without entering a TD Branch), and as each year passes, more interesting things seem to happen, and this year is no exception.

The Circle of Savings in Canada

The Circle of Savings in Canada

This year, I only needed to worry about a single RESP, the one for my youngest daughter. I was quite chuffed, because I was able to navigate the Trent University web site and order a letter stating that my daughter was a full time student (it is not as easy as it sounds, but this letter is crucial to withdrawing RESP moneys from an RESP (allegedly you can use a Tuition receipt, but that strikes me as less likely to work)), but as usual things did not go as smoothly as I would have hoped.

As all I wanted to do was take out money, I had the letter, and had no other requests, I thought I could easily deal with any of the “Mutual Fund Experts” at my local branch (or so I thought).

After having to make an appointment (for a day after I was ready to do my task), I showed up and all seemed to start just fine. The young man I dealt with was polite, if not a little overly nosy (in my opinion), but I noticed that he seemed to be running from a script, which made me very wary.

I had all the relative information I thought I needed, however, a few wrinkles appeared in this “interview” that caused me to get a little confused. First the amount quoted as being the CESG moneys (Government Grant) seemed very high in comparison to what I remembered. Given the grant amount is 20% of up to $2500 per year, it could have been $500 per year, but I was sure I had cashed out some of the grants already, but it seemed like 80% of the remaining moneys was grant money?

I decided to cash out more of the Grant Money this time, however, that is where things got more confusing. The moneys that were not CESG or growth, showed up in my bank account on Saturday (I did this on a Friday), however, the CESG portion which was supposed to show up in my daughter’s account, but it has not shown up as of Monday night. I am hoping that this is just the need to inform the CRA and such, but the fact that moneys showed up in two parts worrie(s|d) me.

The other “grind point” for me was as we went through the steps to get the money, I kept getting sales pitches asking had I spoken to one of their “Investment Specialists”. I really don’t like being upsold services in any situation, and in this situation, I almost got rude, but decided to ignore the statements. I did (however) point out that I own TD E-series index funds, and was not interested in any Balanced Funds or direct stock trading, I thought that warned off my interrogator, however, he did come back again at the end of the interview suggesting I chat with someone about investing, this time I replied a more firm “No!”.

So now I sit and wait hoping for the second portion of my moneys to appear in my Daughter’s Saving Account, or for a call explaining how things may have gone a little wrong (I hope not)?

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