In my latest podcast episode, I delve deep into the wonderful world of Education Savings Plans (ESPs) and how they can pave the way for your child’s bright future. 🌟 Here I’ll share my top 3 takeaways, including …
🌟 Benefit Bonanza: The myriad benefits and growth potential an RESP brings to the table. It’s not just about saving for your child’s education; it’s about nurturing their dreams and potential.
🗣️ Communication is Key: But remember, it’s not just about the money; it’s also about the relationships! Clear communication within the family is key. Allowing the child’s parents to manage the RESP can prevent potential conflicts and ensure that everyone’s on the same page.
💰 Balancing Act: And speaking of pages, we can’t forget about the importance of maintaining financial stability. I encourage responsible contributions to the RESP without overextending your own finances. After all, it’s about striking that perfect balance.
So, if you’re thinking about securing your child’s educational journey while maintaining financial harmony within your family, give our latest episode a listen.
🎧 You won’t want to miss this wealth of information!
➡️ Discover smart ways to secure your family’s future with education savings.
Hey there, welcome back to another episode.
This is episode 106. Today is inspired by a few conversations I’ve had with clients. It has also been something swirling around in my head for way down the road, personally, it’s been something on my own mind. And I’m talking about saving for my future, not born yet and not anytime soon, grandchildren.
I know crazy, but being a financial planner, you can imagine what I do for a living. Of course, my brain starts to think about those things going down the road. And my clients are having the same conversations about this. This topic has come to the table quite a bit. So I think it’s something I should share with you today.
What are the options out there, and what do I personally recommend for saving for the future cost of children’s education? If you have a little baby, grandbaby on the way, or you’ve got a little person in your life, in your family, this is something that also might be going through your own brain.
Saving inside a registered education savings plan is the way to go. So within that bucket, you can have anything you like: investments, cash you name it, but the bucket itself is called a registered education savings plan. And we call this RESP for short, different than an RSP, which is what you put in for your own retirement savings. The RESP is an educational one. So there’s an E in there. It’s called RESP.
This account will provide a government matching grant of up to 20 percent of what you put in with a maximum yearly grant of 500 a year. So what that means is if you put in more than 2, 500 a year into this RESP, you’re not going to get any more grants. The most you’ll get is that 500 a year and that’s per child. So The purpose of this account is to provide compound and growth and provide some free money from the government. And when that child reaches 18, it can be withdrawn, including the growth and grants if the student attends a post-secondary school.
So that can be trade school, massage school, beauty school, you name it. There’s a large list of approved institutions that qualify. So it’s quite flexible. It’s opened up quite a bit and they’re allowing more and more different programs to be used under that qualifying.
I have one adult just finishing up university and it’s pretty darn pricey. Boy, I’m going to date myself here. I Think I remember my first university class was around $99.00, I think, if I’m correct. Now that’s, dating myself into the nineties. I am positive that the tuition that my eldest pays, I think it’s close to a thousand dollars a class. So you can imagine this tuition increase each year is just silly, stupid, and it’s going to continue to rise.
So it has me thinking about these future grandbabies in my own family and thinking about the cost way down the road and how my adult daughter is going to be able to afford to say with babies, blah, blah, blah, you name it… inspires out of control in my head because of the nature of what I do, strategic financial planning.
So it is something that’s coming up more and more is that the grandparents are wanting to help because we know how much it’s going to cost. And there’s that fear that I’m sure my grandparents had when they saw how much things cost and it just continues.
But. My personal value system is part of this thinking, and it’s because I hold education as a priority, and I want to help out the best I can. Now that is not right, nor is it wrong, and everybody has their own value system. And, mine comes with its own drawbacks and its own negative pieces, meaning, okay, now kids are going to take for granted their education.
If they don’t have any skin in the game – they’re going to, it’s not going to have the same meaning. I totally get it. I agree. And so this is a journey that each individual family has to go through. And so I never assume that this is for everybody. That is one of the conversations in digging with financial planning is, what is your value system?
Is this important? There’s no right or wrong. On the flip side, there’s the idea of adult children need to earn that education and they can make it work. And if it’s important there are scholarships, bursaries, you name it.
This shouldn’t be something handed on a silver platter. So I understand all that, but you just want to see where you stand in your own personal value system. And for me, it’s a little bit of fear, about how they’re going to afford everything in an expensive world. And I want to be able to help out a little bit because my value system holds that education piece.
So this is a little bit of insight into the workings of why I’m already thinking of these savings. It’s crazy. I didn’t think I’d ever be in this place where I’m thinking about these unborn babies. Now you can’t save in an RESP until a baby is actually born and there is a social insurance number. You can do that online (SIN).
Some grandparents once that baby is born, or it doesn’t have to be a grandbaby, maybe there’s a niece or a nephew, somebody that’s important to you. Some people want to set up the Registered Education Savings Plan themselves.
But I recommend that you let the child’s parents do that. You can then contribute monthly automatically from your own bank account. Any amount you’d like. It can be monthly or one time. And there’s a few reasons why it’s best to go this route. The main one is for an estate purpose.
I’m not in any way suggesting that you’re going to kick the bucket, but I’ll be honest, we’re older than our own children, or generally, we’re older than the parents of the children that need this education savings plan. So just do the math. Probably there is an estate conversation that needs to happen and also for the nature of what I do for a living, a little bit of Debbie Downer, plan for the what ifs.
It gets a little bit complicated. Of course, it works, but there are a lot of steps in between. If you own as a grandparent, the education savings plan and you pass away owning it- most of the time it goes through the estate because you haven’t taken care of all the checkboxes and all the steps that usually get missed. There might be a hidden layer without getting technical into the weeds.
So this is why, if there is a good relationship, let the parents own the RESP. That is the best-case scenario, and that’s through, many years of experience in our office. Now, the odd time, it is best for a grandparent to own it. That is a circumstance as well, but in general conversation, if there is a good relationship just let the parents own the Education Savings Plan (RESP).
A few things around this conversation: Beneficiary control. The person who opens up the education savings plan is typically the one with control over the investments and the disbursements. So if grandparents open the education savings plan, they have more control over the funds than the parents.
And this can lead to conflicts or misunderstandings as the parents might want more say. Another layer of complexity is throwing in the layer of in-laws. There may be a different value system and different personalities. In dealing with in-laws and other sets of families, sometimes there are misunderstandings. So, just know that whoever owns it (RESP) is the one that actually has the control over the investments and disbursements. If you’re a grandparent adding monthly you don’t really have say in how it gets paid out.
Another thing to think about: clarity of purpose. The Education Savings Plan rules are designed to help save for post-secondary education and if there isn’t a purpose and it’s not clear, there could be disagreements about its use.
I say this because you have access to the contributions and the RESP, even if a student doesn’t go on to post-secondary. For example, adult child is in their late twenties, finally they turn 30 and they’re like, Hey, it doesn’t look like I am ever going to use this RESP for education – You actually have access to that money.
The third thing I just want to mention again is the family dynamics.
Family relationships can be complex and financial arrangements like RESPs can sometimes complicate those. So it’s important to have that open, honest communication. Sometimes it’s just by giving monthly and letting the parents have control and relinquishing some of that control. Just know, hey, I’m at least putting into an account.
Contributing is helping in that compounding over time and it can be phenomenal. It’s going to grow and the student is going to benefit when they need it. In most cases, grandparents choose to contribute to a parent-owned RESP. You can have more than one Education Savings Plan, that RESP, but I really suggest for consolidation, to keep things simple and have only one. It just alleviates some of the potential complications.
So think about these things as well. Remember, it has to fit within your cash flow. You do not want to hinder or put yourself into some sort of tight bind because you want to put a hundred a month away into a grandchild’s education savings plan.
If you need the money and you haven’t done your cash flow – Do not put yourself at risk. Contribute only if it is something that works within your own personal circumstance.
I also realize that there is a saying that my kids grew up saying to me: Fair is fair. What they meant was that, what you do for one you must do for the other. I always think about, okay, what is the consequence of starting something. For example, here is a scenario: let’s say you are going to max out contributions because you want 100% of the gov’t grant. Approximately $210 a month will do that for a student.
And that’s pretty darn good for a child. If you do that for one, what happens when and if another grandbaby comes and then another grandbaby, and you can imagine if you have a bigger family and you’ve got all these grandbabies and you’ve just extended yourself financially? What you do for one, remember the potential you need to do for others.
So be very mindful and make sure you take care of yourself first. Take care of your own financial house. That’s it. Any questions or comments, send me a note [email protected] Thanks.