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So in an article from May 2005, I described how I allocate my 3 daughters their weekly allowances.

The simple explanation is that I took advantage of the free transfers between accounts that I had signing authority to transfer the money directly to their accounts. At the time, this was new and exciting. This can be done now using Interac transfers, so your kids don’t even need to be at the same bank.

What I have learned now from running this experiment for over an extended period:

Advantages:

  1. I don’t forget to give them their allowances, which was the major problem I had.
  2. The girls learn how direct withdrawal works
  3. Some fiscal concepts like saving become obvious, which is good. I can also transfer baby sitting payments to my oldest, easily as well.
  4. They are using their money to buy things like gifts for friends and their own clothes, which was not the plan, but I applaud every time they do it.

Disadvantages

  1. Kids don’t see the money, so forget that they have it.
  2. They have not picked up the “checking your monthly balance statements” the way I hoped, they rely on me telling them how much money they have.
  3. Money seems to be invisible to at least one of the children.
  4. The cafeteria at the high school takes direct withdrawal, so they use their allowances to buy lunch a little too often (IMHO).

All in all, I think the experiment is working. I need to sit down with the girls and discuss a few of the finer points I’d like to see, but I think it is working.

I am now searching for any other interesting experiments like this to teach my kids more about money. No, I am not giving them access to their RESPs. That is not going to happen until they need it!

Addendum Allowances

I have restarted this with my son. I am not sure how it will work with him, but the methodology is still sound. He still is working on what money really means, but he is slowly learning.

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RESP: Free Money Folks

Found this classic from many years back (2006). Added a bit of spit and polish and updated the data as well. To get more information and more about how I used the RESP Program, see my RESP page.

For those of you who don’t know about the RESP program (and are Canadian of course) you need to learn about it. It is for folks with kids under the ages of 17. This program is free money from the government for your kids to go to post secondary training program. It is not just University programs, college programs and post secondary technical programs also fit into this. As always, do the research about the programs covered.

The CESG

For up to $2500 you put in every year the government will kick in a percentage of their own depending on how much money you make in the year:

  • If your family income is greater than $98,040 or so, you get a 20% one time kick in from the government. This means if you put in $2500, it turns into $500.00 within 3 months
  • If you make less than $98,040, there is even up to $550 to be had in CESG (Canada Education Savings Grant)
  • If you make less than $49,020, there is $600 available

The maximum CESG for each individual in the plan is $7200.

The Canada Learning Bond (CLB)

…provides an additional incentive of up to $2,000 to help modest-income families start saving early for their child’s education after high school (post-secondary education)

Canada Learning Bond (CLB)

The CLB is available for children from low-income families born in 2004 or later and provide an initial $500 for the first year the child is eligible, up to age 15, plus $100 for each additional year of eligibility, up to 15 years for a maximum of $2,000.

RESP is After Tax Money

So the catch is that an RESP is not like an RRSP, in that the money put in is treated as after tax money. You don’t get to write it off your taxes, like an RRSP. Your kids also have to go into a recognized post secondary training program, or you lose the one time grants as well. However, these things are TRANSFERABLE to other children and even spouses, but they do have a set time period as well (but don’t take my word on this, READ first).

On the positive side, the program pays out in your child’s hands, so taxed at a lower rate (hopefully). The kids pay tax on any growth in the fund, the grants and the bonds added.

Go To a Bank and Open an RESP ?

Bank RESPs, will mean you put your money in Bank Mutual Funds exclusively. I did this, with Canada Trust, in 1992, but I wasn’t as sophisticated back then. My CT Mutual Funds, turned into TD I-Series Funds. These funds have MER’s of around 2%, yearly. I then learned about the TD E-series funds from the Canadian Capitalist. I transferred to those funds, and set up a good portfolio for each RESP.

You might do better setting up an RESP with TD Direct Line, Questrade or similar trading sites. You can then purchase whatever Index Fund or ETF you wish.

Even More on RESPs

Remember I have an entire page dedicated to the Registered Education Savings Plan.

Yeh, That is me, talking about RESPs and Free Money

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Why an RESP for a Disabled Child ?

I have set up an RESP for my son. For those who don’t remember my son is on the Autism Spectrum, so why would I not put money into this RDSP, instead of an RESP? There are a few reasons for an RESP for a disabled child.

RESP for a disabled child


There can be many reasons that an RESP is still a viable savings plan for parents of disabled children, and here are a few to consider.

Child Can Attend Post-Secondary Programs

If your child is not mentally disabled, or can cope with a post-secondary program, then an RESP is a good way to plan for their post-secondary education. In our case my son may be able to go to College, University or other training programs. Having an RESP is simply a good plan for his future.

CESG Can Pay Well

As my son’s RDSP Disability Savings Bond is calculated against my family income, currently the DSB payment is quite low. When my son reaches his 18th birthday the DSB will be calculated against his income, so the pay out for money deposited into his RDSP will be higher.

While the CESG portion of the RESP is also calculated based on my family income, it still pays well. I get 20% pay back up to $2500, so $500 every year is pretty good payback for an investment.

RESP Can Be Rolled into RDSP

There is a way to transfer money from an unused RESP to an RDSP. Is this the best thing to do with the RESP if it is unused is an open question. My RDSP expert said it would be better to collapse the RESP, pay back all grants and pay tax on any growth, and then add the remaining moneys into an RDSP. I will investigate that concept some more as my son gets closer to University age.

Your Situation May Vary

Depending on the situation, what is working for me (in my opinion), may not work as well for your family. I would do the research and look at the arithmetic about whether it is worthwhile setting up both an RDSP and an RESP for your disabled child. If you can only afford 1 savings plan, make sure the RDSP is dealt with first. If your income is low, remember the Canada Learning Bond might be available to your kid’s RESP, and that pays if you put in minimal amounts.

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My 5 Best Investments

I have written previously about my 4 best investments, but I feel it is important to update and follow up on that statement. I now feel I have 5 best investments that I can boast about. No, this is not another 5 best stocks to invest in right now article. Plenty of other places to find that information.

5 Best Investments

In 2018 one of my daughters graduated as a Chiropractor, so now my 5 best investments are

The last 2 investments I didn’t actually spend that much on. The previous three investments I feel were mostly my investments. I did have a rule that I pay for the 1st degree (and if I pay for a degree I don’t pay for a wedding). As with all rules they have not been adhered to verbatim.

My parents invested in my education, and for that I am eternally grateful. I have had folks comment that if a child pays for their own education, they are more invested in the process. In my case, letting my parents down was actually a strong motivating factor. That makes it a wash in terms of arguments.

I like the fact that it wasn’t a foreign investment either. I don’t think I could have afforded sending my kids outside of the country. It was expensive enough out of the city.  If you are planning on helping your kids, an RESP is where you should start with your plan, and then look into CO-OP programs, OSAP and the Scholarships out there (and there are many).

Regrets?

My guess is if I hadn’t put the money away that I used to help my kids’ educations I would have blown it on something stupid, so I am glad I can point to something tangible for where the money went. It has also been pointed out that I didn’t do any of the work (aside from repairing a few computers). Why is this a good investment? I have always relied on the good works of others.

Guess the title is a bit of clickbait, but at least it wasn’t 5 best stocks to invest in right now.

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RESPs and High Fee Mutual Funds

RESPs and high fee mutual funds seem to go hand-in-hand in Canada. Most RESPs, are set up with an “adviser” of sorts (usually at a bank), who makes helpful suggestions as to where your money should go. The question to ask, who profits from this advice? Sometimes both adviser and investor, but always the adviser.

Mutual Fund companies want you to buy high MER funds for 18 years, so they can profit from you. This does not mean RESPs and high fee mutual funds are inevitable.

High Fee Mutual Funds

Whether your investment goals succeed is not their goal. Their goal is to extricate as much money from you in fees and increase their profits. Mutual Funds are businesses, sometimes with shareholders, and employees who want bonuses, remember that and you will be fine. Who and how are profits made, is always the question to be answered.

I have friends ask me about RESPs, as they are aware that my kids have graduated from University, so they ask if I used the  program. My answer is yes, but  I start with warning them that when I set up these accounts they were Canada Trust Mutual Fund accounts. The CT Mutual Funds turned into TD Mutual Funds, but it was not until later that I learned about the TD E-series funds I should have used (and the bear trap in using them).

The typical answers or comments that I get (that really cause my gears to grind) are:

  • I talked to my Manulife One guy and he helped set up the account for us.
  • While I was at the bank, I saw an adviser who set up some RESPs.
  • My insurance broker said they had a really good product for RESPs so I had her set it up for
  • Someone told me about these great Group RESPs, sounds like a great idea I usually go for a beer after hearing this stuff, and sometimes I just weep.

Let’s unwrap these malodorous gifts, first, your Manulife One guy is going to put you into Manulife Mutual Funds because that is where he (or she) makes their money. These funds have MERs that are far too high for a shorter term savings program like the RESP.

The same is true for your local bank. I once mentioned the TD E-series funds to my Bank’s “TD Mutual Fund Expert”, she looked them up and said that she couldn’t  actually  sell me those  funds. I asked why, the  answer, “they don’t let me”. So TD doesn’t allow their “Mutual Fund Expert” sell some  of their Mutual Funds? In fact you can buy only their I-series in your account, you cannot access their E-series, D-Series, O-series or any other unless you have a TD Trading Account).

Your insurance company’s RESP is going to be closed and the only thing you can buy is their High MER funds. I hope you are noticing a great deal of repetitiveness here.

The Group RESP thing, I had to go look up and then almost cracked a tooth while clenching my teeth. Group Scholarship trusts are throwbacks to before the day of the  RESP. They can work for folks, and their forced savings is a good thing for many folks, but read all the rules very carefully. What are the penalties if you take money out quickly (or early)? Are there penalties if your child doesn’t go to post­ secondary school? What are the rules about what is a post-secondary education.

If I could just hand someone a simple outline like say this article, this article or this article, I would, but I guess no one writes about RESPs much? Yes, that is sarcasm, why do people spend more time worrying about what organically grown kale they want to  buy, than this important  investment?  Rhetorical  question, don’t  answer that.

Are RESPs a Good Idea ?

An RESP is a great idea for your kids’ education, but don’t jump at the first one you see. Do some research; know what you are buying and how much it is going to  cost you. Mutual Funds and other associated firms are hoping you get confused in terms of how much you pay in management fees. It can get confusing especially with the grant money going into the account which can muddle your figures. Your goal is trying to pay the least in fees, and maximize your growth and grants received.

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