Group RESPs: How They’re Aligning With Millennial Values  

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With more than 7.3 million millennials living in Canada, it’s no surprise your generation makes up an increasingly large part of the workforce. Many of you are now starting families, if you have not already done so. And many of you are now adjusting to the new task of balancing work and family responsibilities.  All this while working to meet long-term financial goals, like retirement planning and education savings.   

There is also no denying that your generation is highly educated. The 2016 Census recorded more than 3.5 million Canadians between the ages of 20 and 34 have some form of post-secondary education, including bachelor degrees and postgraduate certificates and diplomas.

The value of attaining higher education, however, is often challenged with long-term debt repayment and interest expenses. Canada has an average non-mortgage debt load of $20,000, and you’re among those shouldering the burden.

With all the prevalent money challenges your generation experiences, you do a lot better with saving and investing than you get credit for. Not only are 63% of you saving, but 54% are budgeting and 57% have a savings goal. Retirement is also a big focus: your RRSP holdings jumped 87% from 2016 levels.

That is a big indicator that you recognize the need to prepare for the future. It also suggests that you and your peers might be well-served by looking into other long-term savings vehicles. An important one to consider is the Registered Education Savings Plan (RESP). This is a great savings tool for you if you have started a family as it allows you to save for your child’s post- secondary education.

RESPs are an attractive investment for a maturing demographic like yours as they sit where two of your keenest interests intersect: The importance of education and your ability to help the families you are starting afford a post-secondary education in the future.

RESPs are savings vehicles specifically designed to help Canadian families save for their children’s post-secondary education. RESPs provide tax-shelter investment growth until your child or the beneficiary, enrolls in college or university and tuition must be paid. But, it’s not your RESP contributions alone that help you pay for your child’s post-secondary education but also the investment earnings that you accumulated over the years. Another source of funds is the government’s Canada Education Savings Grant.

There are three basic types of RESPs – individual, family and group. All three have merit and align with the value your age group puts on education. 

But, group RESPs in particular may fit best with your investment goals — here’s how.

Lower Risk and Professionally Managed

It’s not just your shared practice of shying away from investing in stocks to minimize the risk of savings losses. For many of you, professionally managed accounts like group RESPs fit better in your investment comfort zone.

In a group RESP, your money is in investments that are designed to protect your savings, while earning positive returns.  More specifically, your principal (contributions less fees) and any government grants are invested in fixed income securities like government and corporate debt securities. Investment income earned by your RESP, meanwhile, can be invested in equity securities including exchange-traded equity securities, in addition to the fixed income securities already mentioned.  Each provider may have different investment strategies, so it’s very important to read their prospectus in detail and understand how your money is being invested.

These group, or “pooled” RESPs combine the contributions of many investors, who have purchased units in the plan. Contributions are made according to a set schedule. Each plan has a maturity date based on your beneficiary’s age.

This pooled approach means group RESPs as a whole benefits from a large number of contributions that are being regularly added; in addition, a pooled approach means you can benefit from professional investment management services affordably.

Flexibility

Group RESPs require you to contribute to the plan on a regular schedule but may offer flexibility in certain situations.    Financial situations can change and some providers like CST Consultants Inc. offer the option to change the frequency of contributions, as well as to add or reduce plan units.  You may even be able to transfer to a different type of plan, If you decide to pursue this option, your contributions less any sales charges, in addition to government grants and investment income, would be transferred to either your new individual or family RESP. Some providers may not transfer the income on principal  (contributions less sales charges) from a group plan to another plan.  Know that there may be a charge or loss to the funds in the plan if changes are being made. The nature of the charge or losses will depend on the provider chosen.

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