Jack is only 3 ½ years old but he has a portfolio. With $1,600 in his RESP (Registered Education Savings Plan), he is starting down a lifelong path of saving and investing.
Since he’s my grandson, my goal is to make sure that his nascent portfolio grows happily and safely until he heads off into the post-secondary world.
With some predicting that the cost of a four year degree will hit $100,000 by the time he is of university age, I’d rather he have a shot at higher learning without being encumbered by a debt that will haunt him well into his 30s.
His parents, Jeff and Claudia (my daughter), have all the usual challenges of young moms and dads from mortgages and car loans to saving for their retirement, not to mention all the wants that assail young homeowners from new carpeting to upgrading their kitchen. It’s tough to find extra dollars for savings. Do they put those scarce funds in a TFSA (tax-free savings account), RRSP, RESP or devote the money to paying down debt?
Every situation is different, but in Jeff and Claudia’s case, I’d rather a bit of money be devoted to Jack’s RESP every month than to their RRSPs, if they have to make the choice.
And that’s because education is a shorter-term obligation. Jack will be heading off to college or university decades before Jeff and Claudia retire.
While RRSPs provide a tax deduction, the CESG (Canada Education Savings Grant), tops up RESP contributions by 20 per cent on the first $2,500 contributed.
Higher income families will get a little less on the first $500 and lower income families more, but the average Canadian can count on that grant annually up to a maximum of $7,200 over the life of the plan.
Once the money is inside an RESP you have to decide what to do with it. I posed this question to Jack as he hammered the siding on my house with his new tools. He didn’t have an answer. Jeff and Claudia don’t have an answer either.
A bank advisor, eager to sell investment products, has already contacted them. Should they go with mutual funds? And if so, which of the 15,000 are their best bet?
Next week I’ll tell you what I told them.