With a recent survey indicating that the drop out rate has declined dramatically (especially for those aged 16-24), young people today are realizing that without at least a high school diploma, job prospects are slim to nil. Additionally, the federal government has acknowledged that market awareness of educational support programs (such as the RESP) is low, especially with low income families. It is with these points in mind, that the timing could not be better for the launch of Mike Holman’s new easy to read, RESP guide.
- The RESP Book: Mike Holeman
This comprehensive RESP book is made up of 12 relatively short chapters: ideal for time-constrained readers and today’s short attention span. Each chapter provides it’s own summary page as a quick checklist.
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First, lets consider the strengths of this valuable reference guide:
Anytime one hears the term ‘government program’, you can rest assured that there will be both complexity and misunderstanding to challenge even the most informed consumer. Holman does a fine job of providing all related details on how the RESP program works along with all the rules (and, like the RRSP, there are plenty).
He begins his review within the context of total financial plan: first, why you should start an RESP and then, why you should not start one. In other words, like so many other financial planning factors, it depends. This simply reinforces the value of having a financial planner to discuss the REPS plans with.
Holman also considers the impact of the new TFSA and its ramifications for adult students.
Within the body of some of the chapters, the author incorporates the utilization of logical Q&A format and strives to ensure that each point is further clarified. He also injects some clever tips to ensure that the reader considers all the options related to a specific topic.
Financial planners know that many of their clients are generally uncomfortable with number crunching. With this in mind, for example, Holman provides a detailed rundown on contributions to maximize the CESG (Canadian Education Savings Grant), one of the few government gifts with a substantial ROI for the investor. The book features plenty of detailed number crunching that is aimed at reinforcing key points within the text. An excellent example is the calculation of Contribution Room Carry Over found on pages 29/30. Some of the charts in the book could (should) but cut and pasted to the government’s RESP site. I especially liked the one section where he used the lead in: “What This Means”, followed by “Just to Clarify”. For the reader, it’s not a ‘dumbing down’ exercise– his clarification process is both valuable and refreshing.
Holman does fine job of dealing with the What If scenarios (and there are always plenty with govt programs). Adding to that, he also highlights any associated penalties with the goal being to minimize any surprises for the RESP plan holder, while maximizing the opportunities available from this changing program.
Like the RRSP, making withdrawals from the RESP requires careful consideration by the subscriber (the plan holder). Holman explains the two types of withdrawals and how best to manage them.
The reader will probably be surprised to learn that it makes good sense to get the money out as fast as possible if a child is thinking of dropping out of school. Yes, just like the RRSP, subscribers always need to focus on the tax implications of any withdrawal strategy.
One chapter is dedicated to the understanding of investments, and what would be most appropriate given the specific objectives of an RESP. For example, with the student requiring the funds in no more than 18 years, the author recommends both short and longer term strategies. Given the pain of watching equity investments evaporate during the recent financial crisis, RESP holders can follow a very logical process, recognizing the need for the protection of capital.
Finally, Holman provides a one-page checklist of steps to be taken, in setting up an RESP.
The one chapter that I believe is especially valuable, (as highlighted above) covers low to mid income families and the reasons to embrace both the RESP and the Canada Learning Bond.
Just to be a tad picky, there are a very few things he could change for the next edition.
One, eliminate the chapter summary where the chapter itself is barely 1-2 pages long: put a section of chapter summaries at the back of the book. Two, provide some added details on the Group Plans available. These plans make up about 1/3 of the RESP market, and, like mutual funds, are usually sold rather than purchased. Although these programs eliminate the need to make investment decisions, Holman knows these are not the best choices for people, so even more detail would help the unsuspecting (and ignorant) client. Three, it would be worthwhile to provide an analysis of why it might be beneficial to make a one time contribution of a substantial amount (ie: the $50,000 limit), given that some readers may be recipients of sizable inheritances or, well, rich !
This RESP guide should be available in most public libraries where it can be accessed by cash-strapped, low income families. The question is, how to reach these people to make them aware of the resource. It’s a tragedy that a high-potential performer from a low income family would miss out due to a parent’s lack of awareness (and understanding) of the available programs.
This book is highly recommended.
Let’s hope the government maintains a consistent program, to ensure the information doesn’t become dated too quickly. Sure, you can spend countless hours using web searches to locate a lot of this material, but you simply won’t get the clarity and conciseness that Holman’s process offers.
The key question relates to the implementation of the RESP. As with so many other investment strategies, the ‘sooner the better’ logic applies. What role can the government and the public/private school systems do to get the message out to parents at the earliest possible moment ?
Holman’s book is a valuable tool in this process.
About the author
Mike Holman has worked in the Canadian financial industry for almost two decades. He lives in Toronto with his wife and two young children.
He is the author of the Money Smarts Blog. (www.moneysmartsblog.com)
Win a Copy of The RESP Book! Tell us how much you think you’ll need for your child/children’s tuition. You can leave a comment here and/or Facebook Page, for each comment you get one entry (valid email address needed). We’ll announce a winner on November 18th.
Article by Alan McLachlan
Alan is a retired business manager with the Canadian Subsidiary of a Fortune 500 Company. He graduated from Ivey Business School at the University of Western Ontario and has completed four CFP courses. He has actively managed his personal portfolio for 20 years.
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