Banks Push RESP to Get you Hooked

You’d think the 2008–2009 debacle would’ve shaken some sense into the country’s money people. You’d think it would’ve forced them to question everything they do. You’d think they’d see that the same old way was clearly not the way.

And you’d think they’d have started with probably the most important issue we ⎯ and they ⎯ face: the long-term financial health of the next generation; y’know, their future customers.

They didn’t do it. They just kept on doing what they’ve always done: create new customers by offering them money and getting them used to living in debt. Because debt is how banks make money.

So they spent tons of money pushing RESPs on young parents and scaring them into thinking their kids need an RESP because of the outrageous future costs of post-secondary education.

Their ads talk about all the free money they’ll get from the government, and how any parent would be a bad parent for not lining up to claim that money.

But here’s what they DON’T tell you about the RESP:

1. It’s not even close to enough

$7,200. That’s the “free money” available from the government. Here’s the thing: the average 4-year degree for someone matriculating in 2035 is estimated to be $152,000. So, yeah, thanks for that $7k, Justin. That’ll come in really handy.

But that’s not even the real thing. The real thing is that by even setting up an RESP, parents are prescribing a future for their kids: “You will go to college or university. We know this because we’re contributing money to it now.”

So when the time comes to go and the kid has maybe 25% of the money they need to go to school, surprise, surprise ⎯ they’ll go to the bank for a loan. And isn’t that just peachy for the bank who, even with preferential student interest rates, will still sign up enough soon-to-be-students to get their entire executive teams new sports cars?

And the students still have a mountain of debt to pay off.

That brings me to the second omission:

2. University is less relevant than ever

The World Economic Forum lists resilience, optimism, empathy, critical thinking and adaptability as the skills and capabilities the next generation will need to be successful in the future. Today’s university environment offers this less and less.

University has a way of putting young people into a bubble that robs them of a truly global perspective. And yes, there’s an argument that university teaches kids how to learn. But we’d argue that you can do a lot more learning getting out into the world and doing something like opening a business or traveling. The fact is, job security is decreasing and it’s becoming increasingly difficult to apply post-secondary schooling to employment. So kids have to do something else. The problem with the RESP as a savings tool is that it’s only available for traditional education. So after all that saving, when a kid wants to take a “non-traditional” route to learning, they’re S.O.L.

But it’s parents who really get the shaft

We read an article on CBC news the other week about a very interesting Angus Reid poll: two-thirds of parents would prefer to give cash rather than have an adult child live with them.

This wouldn’t have even been a question worth asking a generation ago because kids would hit eighteen, go to school and then start their lives.

Now, they come back from school with a mountain of debt and no job prospects. They’re forced to move back into their parents’ houses ⎯ and let’s be real, what parent is going to say no?

So the net-net effect of investing in an outdated financial product like an RESP is exactly the opposite of its intent. It’s supposed to be a step in the right direction. Instead, it just leads to a giant leap backward ⎯ for students, parents and our country’s future.

Are we saying university is bad? No. Are we saying kids shouldn’t go to university? No. Are we saying the RESP isn’t the way to get your kids there? Hell yes.

But until the banks stop offering it as this parental must-have, or until parents start to see the negative chain of events it sets off, it’ll be business as usual, all the way to living in the basement of your mom’s house.

Don’t settle for what the banks tell you. Explore your options at

* This is a blog in the continuing series of financial planning for children. It’s reflective of the general attitude we’ve observed in speaking to hundreds of parents every week.

Sample illustration of Child Plan™ Cash and Insurance Values

Based on a Monthly Deposit of $250 per month

Age Accumulated Cash Value Life Insurance Value
20 $82,568 (Education) $612,728
35 $177,953 (House) $1,115,297
45 $303,299 (Security) $1,115,297
65 $834,276 (Retirement) $1,666,824

Sample illustration is based on a monthly contribution of $8.32 a day/$250 a month for twenty years, starting when the child is less than 1 years old. Cash and life insurance values are based on the current dividend interest rate of 6% from a Canadian life insurance company. This example is strictly for illustrative purposes only, the annual dividend scale is not guaranteed and values may differ.

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*illustrations are reflective of the annual premium amount

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