Advice for New Parents: ABCs and RESPs
When I first became a dad in 2011, my family and friends gave me two pieces of advice about kids that have proven true;
- Life comes in balance – the good and the bad – it will even out over time.
- Invest early in an RESP.
While the first item is a bit more philosophical, I can say with confidence that setting up a Registered Education Savings Plan (RESP) was a smart move.
An RESP is a long-term financial plan to pay for all or a portion of your child’s university, college, or trade school. To set one up you need a SIN for the newest member of your family, a financial institution where you plan to set up the fund, and a minimum deposit (which can vary, although it’s typically not that high).
It’s a longstanding tradition in my family to give new parents a little money ‘for the baby’- a toonie, a five, or a little more. When our son was born, we took the money we’d received from family and friends on his behalf and used it for the initial RESP deposit. Not a princely sum, but a good start.
HERE’S THE GOOD PART. There are two federal grants an RESP can benefit from:
- The Canada Education Savings Grant (CESG) – You qualify for this grant regardless of family income which can add 20-40% to your yearly contribution depending on your income.
- The Canada Learning Bond, for lower-income Canadians, provides an initial $500 RESP contribution and additional yearly contributions for up to 15 years.
Let’s say around the time your child is six-months old, you’ve met with your bank or credit union, have a SIN ready, and have made an initial deposit of $100 into a middle-low risk mutual fund. You plan to continue depositing $25 a month.
On your initial deposit, the CESG matches with an additional $20, and then another $5 per month to match your regular deposits. In 12 months, that’s $480 saved, in addition to any ROI on the fund itself.
For a lower-income family, that amount could be up to $1,020 when you factor in the Canada Learning Bond and a higher CESG rate.
Over time, an RESP can really snowball. After just nine years of steady contributions, my wife and I are well on-track to covering a significant portion, if not all, of our son’s potential tuition fees for a basic bachelor’s degree by the time he’s of college age.
Not bad, considering we started with a little jar of loonies, toonies, and fives.