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RESP Only For the Rich ?

TL: DR: Rich folk use RESPs much more than the poor, counter to whom it was supposed to help.

Estimated reading time: 3 minutes

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 used mainly by the wealthy(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 it can grow with the Canada Learning Bond even if they put no money into the program. The CLB can add up to almost $2000 (over the life of the RESP).

They 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
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 like to know how to change that.

Ways to Fix This?

  1. 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.
  2. Expand the Canada Learning Bond, so that there is more money for lower income families.
  3. Maybe a Government run RESP program, that is set up for lower income families?

Read more about RESPs. Click Here! The page is being revamped, so come back soon.

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RESP Sometimes Doesn’t Make Sense

The RESP is a savings program for all income levels. This article was written and forgot to mention the Canada Learning Bond. The CLB is truly free money. If you have a low-income group and open an RESP, you will still receive money into it, even with no contributions. Most banks will not tell low-income folks about the CLB. Even experts don’t talk about this much, but it can help.

RESPs are a great savings tool for parents (or Grandparents) who want to help young folk with the constantly rising costs of post-secondary education. With the government add-ons, the whole system does make sense if you are planning on helping your children out, but I started wondering would there be a time when putting money into an RESP would make no sense?

There are some very obvious scenarios when savings don’t work. If you are carrying credit card debt and are having problems “making ends meet,” then putting money in an RESP might not make much sense. Pay off your debt, then get onto the savings bandwagon with the RESP. However, remember the CLB and see if that might fit.

Another exciting scenario I ran into was, what if you have not paid off your student loans (in Ontario OSAP) by the time your kids are born? Should you put money into an RESP while you are still paying off your student loans? As with all of these questions, the answer seems to be: it depends.

If you have enormous student loans and cannot keep up enough to make the payment plan set up for you, then maybe an RESP is not a great idea. You should also contact the Student Loans folks and point out that you have problems paying your loan off.

Typically Student Loans (from the Government) has a relatively low(er) interest rate. Given the automatic 20% kick-on for an RESP deposit (up to $2500), you need to do the math on whether you want to pay into the RESP or pay down your loan faster. As I do not believe in the concept of Good Debt, I would suggest paying off the Student Loan First and then try to catch up with the RESP (yes, I know the interest on Student Loans is favourable to your taxes, but it is still money spent on money already paid).

RESP
A Building Block to Savings?

If you have a Student Line of Credit with a bank (that you opened while at school) that needs to be paid, I would strongly suggest that you should pay that down before putting money into an RESP for your child. The Banks rates are usually variable in these situations, so a sudden uptick in interest rates could spell disaster in this debt load.

The idea of paying off student loans while putting money into an RESP seems contrary to me, but I am curious to hear what my readers might be thinking in this area?

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Canada Learning Bond (Frustrations)

Written back in 2012, when I thought my son was eligible for the CLB. In the end, he was not.

New programs and ideas from the Government often take a while before they start working smoothly. It happens especially if the banks are involved in the process. I learned this hard with the RDSP (Registered Disability Savings Plan) that I set up for my son at TD. The problems were on all sides, but it still frustrates the heck out of me waiting for systems to start working as advertised. I am now running into the same kind of frustration with the Canada Learning Bond (CLB), which I am attempting to set up for my son. Again I am trying to do with TD as part of my son’s RESP, causing me no end of frustration.

In October, I set up a GIC account, a family RESP account. This account will be where the CLB will end up deposited. The TD rep also told me that they would apply for the bond, and it should magically appear, thus the frustration. It is now January, still no sign of the money, even though I have seen CESG money appear in one of my daughter’s RESP account, but no indication in this lonely GIC account. I realize that I must now go back into the TD branch and harass someone to find out what is going on with the grant money.

My guess of possible outcomes are:

  1. We have been denied the bond due to having too high an income. This is likely but no one has said that to me as of yet.
  2. The application has disappeared into the system and must be dislodged by someone making a phone call.
  3. The magic dancing monkeys in the system are still thinking about the application.

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RESP: Canada Learning Bond

More Money for Families that Qualify

Receive the Canada Child Benefit and have a child born after December 31, 2003. You may have some money available to help with your child’s education, the Canada Learning Bond.

This $500 grant from the government is available to you if you qualify for it. All there is to do is set up an RESP for your child, fill in the forms at the institution you use for your RESP, and the Learning Bond will (eventually) be deposited into the account for your child. Now $500 may not sound like much, but for a child who is four years old, that could be worth about $1500 by the time they get to a post-secondary schooling age (your investment value may vary), so it is nothing to sneeze at either. The government will deposit up to $2000 total for each child with the CLB.

The Government of Canada contributes up to $2,000 to an RESP for an eligible child. This includes:

* $500 for the first year of eligibility

* $100 each year the child continues to be eligible (up to and including the benefit year in which they turn 15)

Apply for the Canada Learning Bond (CLB) – About the Bond

This helpful brochure outlines the steps you need to take and how the program works, but it is pretty straightforward:

  1. You need to be receiving the Canada Child Benefit (if you are ineligible for that, you are most likely ineligible for this as well).
  2. Your child needs to be born after December 31,2003
  3. Get your child a Social Insurance Number (you should do this no matter what)
  4. Go and set up an RESP with a reputable institution of some kind
  5. Fill in forms for the Learning Bond, and wait.

As I have said in my RESP Lessons Learned article, where you put your RESP is essential so do a little research before opening an RESP for your child, and it will save you hours of headaches many years later.

Every little bit helps, and this is another little bit the government is offering, so please go and get it!

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Kids and University: Better use an RESP

So this little piece of information made my day. The Ontario government will allow a 5% increase PER YEAR for the next two years on tuition fees for universities. I should start investing in Universities since their income is increasing better than many High Tech firms.

Tuition brings up the RESP (Registered Education Savings Program) topic, which Canadians can take advantage of. It is not like an RRSP (Registered Retirement Savings Plan), where the money you put in is Tax-free. However, it does have some advantages :

  1. Any money you put in gets a Canada Education Savings grant of 20% (up to $2500 per year) (and a total limit of $7200 of grants for the life of the program). Grants, Bonds and Growth are not taxed either in your hands, but in the hands of the student (usually a much lower tax rate). If the child doesn’t go into a post-secondary program, you must give the grant and bond money back. If it is a Family Plan moneys can be transferred to siblings.
  2. Depending on the family income, there is the Canada Learning Bond, for lower income families as well.

So, just for the 20% “kick up,” you should start one of these things for your kids. Tuition fees are getting out of control, and the more you save now, the less likely you will have to go into further debt if your child decides to go to a post-secondary program! Start Early too!!!!

Have a read of RESP: Free Money Folks for more details.

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