Personal Finance essays, stories, case studies and how to articles with a distinctly Canadian Point of View, from the Chief Kibitzer of Personal Finance. Paying it forward as best I can.
The Debt doesn’t matter crowd seems to think that due to low interest rates, debt is an afterthought. Unless the entire economy changes, Debt is going to comeback big time.
These days it is reminiscent of the hay days of the Internet Bubble. Back then the statement was:
Profits don’t matter. It’s eyeballs!
90’s Internet Bubble Investing Credo
That drove the 90’s Internet bubble. When you read that I am sure you smirked or laughed how insane that reads, but it was the gospel of investing in the 90’s. We saw the explosion of that bubble, and the associated side effects (i.e. loss in wealth for day to day investors).
One More
I like my women, like I like my coffee. Respected in the workplace and compensated at an equitable and fair level.
Big Cajun Man 2020
Same Topic
I wrote an article in 2005 about Experts? It’s your decision where Harry S. Dent Jr., back in 2000 advised how great the Internet was as an investment. This was written as the Bubble Exploded.
Index Investors, who purchase Canadian Indexes need to remember they are Highly Exposed on Banks. Banks hold a high portion of most major Canadian Indexes.
You need Two Key Investment Strategies, if you plan on investing for the long term. The first is easy, when to buy, but what might be the second?
Slowly we attempt to return to a semblance of normalcy, in our new COVID19 dominated world. In Ottawa, most businesses are “open” but under strict rules about distancing and masks are to be used pretty much everywhere.
Don’t expect Interest rates to go up any time soon.
The Bank is also continuing its quantitative easing (QE) program, with large-scale asset purchases of at least $5 billion per week of Government of Canada bonds.
They are ready to react if Inflation occurs, but it sounds like they are not expecting that any time soon. Cheap credit continues on.
Not sure about the whole kerfuffle about wearing a mask. I wear it to protect my family and to protect the folks I interact with. Why folks are yelling at minimum wage employees of firms, is beyond understanding.
Can we nominate Dr. Fauci for President? Asking for a friend. Border being closed is good for Canada overall, but bad for tourism and those towns that rely on our American visitors.
On the topic of masking, my battle against unwanted email continues. I have not slain the dragon but it is wounded and my influx of spam has slowed.
There are more Seniors than Young Folk and it is only going to increase in the future.
Of those old folks most of them are Baby Boomers too. Stats Can’s definition of a Boomer is born between 1946 to 1965. That is interesting because for the longest time I wasn’t a boomer, but now I am included in them. I don’t know if that is a good thing or not?
Thanks to a bad tooth infection I have been distracted with other things. It is slowly being repaired, but I will hopefully have an implant to replace the missing teeth soon.
Is the RESP Only For the Rich ? That is what Stats Canada is stating, and I am not surprised. So few banks want the business of lower income Canadians in this area. How could this be fixed? More incentives for Lower Income Canadians, and maybe some for banks to help them open accounts?
While businesses slowly reopen, can they survive in this environment? That remains to be seen. Real Estate, however, continues to defy logic, in terms of market elasticity.
A friend sold his house about 3 weeks ago. He already had purchased his new home, did some work on his home, and then put his house up for sale. The sale, turned into a bidding war, which meant the house sold for $90K more than asking price. The purchasers had lost 3 previous bidding wars, and were determined to win. Evidently houses are now being sold before they reach the market, agents simply put up a “Coming Soon” sign on the front lawn, and the houses are selling privately. This is a very odd world we are living in.
Think Twice Before Taking a 5-Year Closed Mortgage is Michael James giving you some solid advice, it is up to you whether you follow it or not. As usual the system is rigged to stop you from paying things off quickly, look very closely at the penalties involved.
TL:DR : Rich folk are using RESPs much more than the poor, which is counter to whom it was supposed to help.
Stats Canada came out with a very telling survey titled, Why are Lower-income Parents Less Likely to Open an RESP Account? by Aneta Bonikowska and Marc Frenette. The findings are worrisome in that it points to the fact that the RESP seems to be a program mostly used by the rich(er) parents.
A telling quote from the Executive summary.
The results suggest that differences in wealth remain the single most important factor behind the gap in RESP participation by family income, even after accounting for differences in parental education and literacy, numeracy and financial literacy.
Why are Lower-income Parents Less Likely to Open an RESP Account? The Roles of Literacy, Education and Wealth
Many lower income families are unaware that even if the put no money into the program, it can grow with the Canada Learning Bond. This can add up to almost $2000 (over the life of the RESP).
The claim that this is a Financial Literacy issue is a bit of a stretch, but possible. I think it is that Lower Income families are not aware of the CLB and other benefits (which I suppose is Financial Literacy). My guess is tellers at banks will not offer to set up an RESP for a “No Star” customer. The Up Sell would be reserved for “good” customers.
A Graphic from Stats Canada Report about RESP and Lower Income Families
Conclusion
I guess the question is simple, if Canadian Parents are barely making ends meet, will they put money aside for their kids’ post-secondary education? This report concludes, No.
I think I agree, but I’d really like to know how to change that.
Ways to Fix This?
Banks need to market this program to lower income families, and point out that there is Free money to be had. The Canada Learning Bond is that free money. I really doubt many banks will do this, unless they could make money doing it.
It is Canada’s Birthday, but it is an odd one with the COVID19 Pandemic going on. I live in Ottawa, but there are no outdoor celebrations here for the first time I can recall. Canada Day 2020 falling on a Wednesday makes for an odd work week as well. Is it two 2-day weeks? I 2-day week and a 5 day weekend? Chacun va choisir.
I continue to see the majority of folks I see “outside” not wearing masks, and many ignoring distancing as well. Let’s hope Canada does not follow the US model of simply assuming it is all OK and life has returned to normal ? I wear mine for everyone I love that I don’t want to infect, why aren’t you wearing one?
The new Ontario Math curriculum for Grades 1-8 is interesting. I think it is a good idea, but I am also a Math Graduate. The subject matter is fine, but they need to find more ways to make Math (and STEM in general) more inclusive. I would love to see program information on how the system teaches the subject. Far too many kids are “turned off” or “left out” on the subject, I want to see more fresh faces in the world of math. If you saw my graduating class in 1986 you would understand what I meant.
Evidently Financial Literacy is also being included in this program, which is important, but again, hopefully it will be taught in a way to be inclusive. Me standing in front of a bunch of 8 year olds teaching them about Bond Yields, would be less than ideal (as an example of how NOT to teach Financial Literacy).
I tip my cap to celebrate 100th Anniversary of the Negro Leagues #tipyourcap2020. The “Negro League” (apologies for using the historic term) was where segregated black players could play baseball before Jackie Robinson broke the ceiling and joined the Major Leagues (in Montreal).
My battle against unwanted email continues, it is manageable, but I am finding that many subscriptions seem to be like herpes, they never really go away.
I seem to find my writing muse last week and there were a bunch of articles written. The backlog of stories, dropped, a little.
Not Asking is Rejection by Default is very true. I have written about this previously, but it is still very true. You need to stand up for your self (while not being rude or mean either (which is the Canadian way)).
MER : A Worm in the RESP Money Tree has been a theme I have written about many times. The Registered Education Savings Plan (RESP) is a shorter term savings plan, so a high Management Cost in your account is taking a big bite out of your growth.
Banking Malware Be Aware is from my technical blogging and security blog, but very financially relevant. Do not click on anything sent to you from anyone, without being positive it is what you think it is.
RDSP : Quick Points started out as my notes for an interview I did with Tom Drake on the Registered Disability Savings Plan. The interview link is there as well, and it went well.
There may not be a lot of fireworks and celebrating together, but still some great Canadian financial perspectives on Financial Literacy, and money.
Will the Supreme Court Decision against Uber change the Gigg Economy? I don’t think as much as folks hope, but any movement towards making folks actual employees is a good thing. It is a fairly narrow decision, but maybe it is a small step forward.
The Globe had a round up article last week, that had a section on someone asking, “What to with an RESP for $500,000“? Kind of gives you a good perspective on who reads the Globe, don’t it?
For those unaware Kerry from Squawkfox (a friend of this site) has been in the battle of her life, read more about it here, This could save someone’s life
Michael James reviews yet another books for those who have issues dealing with money, Talk Money to Me, is a good book if you really do need help.
Mark from the Blunt Bean Counter sums up my current views about working at home nicely in, Working from Home – Get Me Out of Here! I must admit that I am getting a little house happy these days, as well.
Tweets of the Week
First, a great public health message from a person of whom I am not very fond.
I keep having deep thoughts these COVIDy days. The thoughts can’t be turned into an actual article, but they fit a tweet well.
Money distorts everything — Many
Lack of money distorts your view of your life and others. Having money does not clarify things, and then having an excess of money ( I hear ) does not make your perspective clear either.
I am really not sure of the validity of this set of tweets, however reading the entire set of them is not surprising, more is the pity.
Amid America's #COVID19 disaster, I must come clean about a lie I spread as a health insurance exec: We spent big $$ to push the idea that Canada's single-payer system was awful & the U.S. system much better. It was a lie & the nations' COVID responses prove it. The truth: (1/6)
Think you are an expert about Money Laundering now that you have watched Ozarks, Breaking Bad and Narcos? Not so quick there slick. A real professor does some fact checking on the topic. See, you did learn something from this site.
As most of my readers know I rarely have Guest Posts, but this article is very much in theme for my site. Read about the author at the end of this lengthy tome. Also remember there is lots of info on the Registered Education Savings Plan on this page.
Many parents have concerns about the cost of post-secondary education in Canada. They worry about how they will pay for their child to go to a university or trade school to expand their job opportunities.
This situation leads many families to set up Registered Education Savings Plans (RESPs). These accounts are one of the best ways you can invest in a child’s future. They allow you to make contributions that the government will partially match. And, this money can grow, thanks to interest.
When your child goes off to university, you can request payments from their RESP. These funds will help them pay for their education.
Keep in mind that cashing out an RESP can be tricky. You’ll want to keep tax considerations in mind to maximize the funds your child receives.
This guide will help you understand the tax considerations when withdrawing money from an RESP.
What Is an RESP?
You’ve been making payments to your child’s RESP for quite some time now. But, you might not be familiar with how it works other than that you make regular contributions.
Let’s begin by defining some terminology.
RESPs are accounts set up by subscribers (usually the child’s parents). Subscribers make regular contributions to the account. You can set up an RESP through most financial institutions.
When the child (the beneficiary) goes to college, the subscriber may request RESP payments. The child uses these payments to help fund their post-secondary education.
These conditions are how RESP works in a nutshell. But, it gets a little more complicated. Below, we describe the three major components of all RESP accounts.
Contributions
The subscriber saves money by making regular contributions to the account. Keep in mind that each RESP is different. Some require a minimum deposit. Some require you to deposit specific monthly contributions, whereas others let you make contributions whenever you want.
Currently, there is no annual contribution limit. Over the lifetime of the account, however, the maximum you can contribute is $50,000. Just be mindful of how much you’re contributing to your child versus your own retirement. I love how Bridget Casey from Greedy Rates puts it when she says to “never sacrifice your own long-term financial security when saving for your kids.”
Grants
Grants are one of the significant perks of RESPs. They provide families with money that the recipient does not have to repay.
The Canadian government matches a percentage of your contributions via grants. The Canadian Education Savings Grant (CESG), for instance, will match your contributions (see specifics here).
Additionally, there are other national and provincial grants available. For instance, the Canada Learning Bond (CLB) provides money to low-income families without the need for any contribution.
Income
Income is yet another great perk of RESPs.
RESPs are comparable to investment accounts. The contribution and grant money have the opportunity to grow. You can invest the money in stocks, mutual funds, bonds, etc. to earn extra income.
When you have an RESP, you must determine how you want to invest your contribution and grant money. Some families choose to navigate the investment process themselves. However, a financial advisor is usually the best way to make smart investment decisions.
Important note: RESPs are tax-deferred accounts. The grants and income money are tax-free until withdrawn. This exemption allows it to grow at a much faster rate.
Types of Payments
When you cash out an RESP, you’ll get the money as two separate payments:
Post-Secondary Education (PSE) Withdrawal
PSE payments consist of the contributions the subscriber made.
This stipulation means that when you withdraw PSEs, no one has to pay tax on them. You request for PSE payments to transmit either directly to you or your child. Then, the student will use the money to pay for books, housing, tuition, and other relevant expenses.
There is no limit on when you can request PSEs. You can request however much of your contributions whenever you want.
Educational Assistance Payments (EAPs)
Unlike PSEs, EAPs consist of the money from grants and income. They aren’t your contributions, so they must transmit directly to the beneficiary. The beneficiary will have to report EAPs as taxable income.
In the first year of schooling, there are EAP limits. See here for exact specifications. But generally speaking, students have a limit of $5,000 in EAPs for their first 13 weeks of schooling. After that, there are no EAP limits.
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