Discussing RESP strategies with kids is a way to teach them about compound growth, government incentives and budgeting.Aleksei Naumov/iStockPhoto / Getty Images
Students returning to school in Ontario this month will face a new financial challenge. The province has added a financial literacy test for Grade 10 students as part of a career studies course, with elements built into the math curriculum from grades 1 to 9.
The financial literacy program is intended to teach students about saving, investing and setting long-term financial goals, ideally leading to better financial decisions.
But while Ontario students will now get some financial education in the classroom (Saskatchewan introduced a similar program two years ago), there’s still work to be done at home. And back-to-school season, with its focus on budgeting, planning and registered education savings plans (RESPs), is a great time for advisors to get involved.
A recent online survey from Vanguard Canada (conducted by Angus Reid in March) found that financially stressed parents who try to hide money worries from their kids aren’t doing them any favours: kids are absorbing that stress anyway and feeling anxious. Children in households where money is discussed regularly, the survey found, have a much better understanding of basic concepts such as banking and credit.
One entry point for such discussions, particularly in September, is RESPs. A conversation about a child’s educational goals can include basic information about the efforts to finance those goals.
As Daniel Reale-Chin reported this week, RESP account statements – with their breakdown into contributions, government grants and accumulated income – can teach teenagers about compound growth and government incentives.
The plans can also be used as a budgeting device, putting students in control of withdrawn funds and making sure the money lasts for the whole school year – provided they’re ready for this.
For advisors, explaining the RESP basics to high school students or providing more thorough financial coaching to post-secondary students is a great way to build a relationship with the next generation. And it may even help them pass that new financial literacy test.
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Keeping RESPs simple: We asked three investment experts for their top RESP ETF picks for children in their early, middle and final years before needing the money for post-secondary school.
DIY danger: Self-directed investing can be a good way to pass the time in retirement, and many seniors enjoy researching companies and following the markets. But there are also risks, including the tax treatment of different accounts, emotional buy-and-sell decisions and cognitive issues that could lead to investment mistakes.
Tracking performance: As more advisors consider private market funds for clients’ portfolios, data providers are offering new ways to benchmark the performance of these alternative assets. However, matching the transparency of public market indexes is still a ways off.
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