Giving RESPs as Baby Gifts

Giving RESPs as Baby Gifts

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Giving RESPs as Baby Gifts is a great way to start off someone's education fund.

As my buddy put it the other day, “My Facebook newsfeed now consists entirely of wedding/engagement announcements and baby pictures.”

Getting older kinda sucks Gen Y, what can we say.

Friends having babies means friends inviting you to their infant children’s birthday parties.  I have found that the best case scenario for these parties is that grandma/grandma/aunty/uncle takes the 1-4 year old and occupies them while everyone else takes the increasingly-rare opportunity to have a few adult beverages (especially the young parents, who always seem to have a dazed look on their faces – “You really should have kids though”).  The worst-case scenario is that the infant-to-grandparent ratio becomes too much to control and it suddenly becomes a tsunami of crying, dirty diapers, and overall destruction instead of an excuse to have adult beverages.

What to Get for the Kid That Has Everything?

I always find the idea of giving a two-year old a gift a little confusing.  I mean, twenty people get together and buy the kid way too many stuffed animals and cute outfits that will officially be too small in 3.42 days.  Inevitably, no matter how much thought the real “gift givers” (you know the type – the ones that always search for hours to get that perfect Christmas gift for everyone) put into their selections, the kid is always most excited about the ribbon, box, or bubble wrap.  Hey, I can sympathize – who doesn’t love bubble wrap?

I’m not a big gift guy to begin with (the Big Bang episode where Sheldon explains his anxiety around the whole tradition of exchanging gifts fits me perfectly) so it shouldn’t surprise anyone when I say that I may be the most logical and rationale (re: boring) baby gift giver on the planet.  My go to moves are baby books and RESP contributions.  While the kid is never super ecstatic, I find that the parents are just happy that it isn’t another consciousness-crushing noise maker cleverly made to like a fire truck or power tool.

The books thing is pretty self-explanatory.  I’m a humanities teacher who often teaches roomfuls of students who can’t read whole paragraphs.  By putting more books in the hands of parents and infants, I’m protecting my own selfish interests in the long term.

Who Cares About That Money Stuff – *baby voice* Look How Cute You Are… Ya, Aren’t You the Cutest

The RESPs on the other hand, often catch several people by surprise.  The most common comment is, “Why are you giving him RRSPs he/she doesn’t have to worry about retirement yet.

To which my response is often, “On the contrary, looking at the Western World’s deficit issues, I’d say we all should be very worried about his/her  retirement!  That aside, this isn’t the RRSP that your financial advisor tries to sell you in February every year – this is an R.E.S.P, short for registered education savings plan.”

Related: The Low Down on the RESP

I’m often amazed at the number of parents who don’t really understand what an RESP is and why it is so damn useful.  Instead of regurgitating all of this information, I’m simply going to refer you to a podcast I did (yes, we have our own podcast – and we’ve been told it doesn’t suck) with the man who literally wrote the book on RESPs: Mike Holman.  Please, next time you’re doing dishes or commuting to work download this podcast and have a listen.  It explains everything you need to know about registered education savings plans and why they are such a great deal.

Related: The RESP Book: The Complete Guide to RESPs for Canadians

You’ll Thank Me When You Understand What $700 Get You at the Campus Bar

If put 50 dollars a year in the future Einstein’s RESP until the child is 7, that is really like giving $60 a year when you calculate in the CESG (Canada Education Savings Grant) – again, download the podcast if you want to hear all about this.  The CESG could even be more if the family is a low-income household, or if you happen to live in one of the provinces that has their own RESP incentives.  This means at age 7, the child could have around $440 if we assume a 6% ROI (should be able to take a little risk at this point seeing as how they can’t use it for a little while).  Over the next 11 years if we assume a 4% ROI (as we get a little more conservative with our investments) we end up with somewhere around $670 when tomorrow’s Prime Minister is ready to get their law degree.  That’s a pretty nice chunk of change!

On top of those direct monetary benefits, giving babies RESP money basically forces parents to set up an RESP.  While they might hate you briefly for adding something else to their to-do list, they will thank you when their 16-year old is looking at schooling options and won’t be living in their basement until their 30.  You can’t start an RESP account for anyone else but your child (*Editor’s Note: It was pointed out this is actually false.  It is legal to start an RESP for any young Canadian that meets the requirements; however, if more than one account is started for a single child it can make coordinating the contributions and keeping track of CESG payments more complicated so it is still likely easy to ask the parents to open an account and then funnel everything through them.)  I simply write the parents a cheque with “RESP” in the memo, and then run it through them.  The cool thing is that there are grants in place for people of certain income levels and all they have to do to claim them is open an RESP account (even if there is nothing more in there than the $50 cheque you gave them).

Friends Don’t Let Friends’ Kids Become Humanities Students

If you’re worried that since your kid doesn’t come from the best of genetic stock (let’s just be realistic here) that they won’t go to university – have no fear, RESPs can be used to cover the costs of almost any post-secondary endeavor.  That means that if you do your job as a parent and your child steers clear of writing “hipster with a B.A. degree” as their career path, they can still take the money in the account and become something the world currently has a demand for such as an electrician.

Any time I can do something out of laziness (who wants to go shopping and then wrap a gift) and have it be perceived as wise, unique, and helpful (if a little boring) I’m all over that.

2017 Update

When I wrote this article a few years ago, young parents had to go through a bit of a paperwork rigmarole when it came to setting up an RESP for their child.  I was (and continue to be ) fine with being the pain in the butt that prompts my buddies to start RESP accounts for their children, but I feel less likely now when I can recommend easy-to-use online tools like robo advisors to open an RESP.  If friends are put off by the idea of using robo advisors (some people just can’t get past the name) I usually recommend checking out an online-only bank.  Banks like Tangerine don’t invest in equities with an RESP (so it’s not the greatest) ROI, but if you just want to tell people to keep it simple with a basic high-interest savings account within an RESP – there are no better options that online banks.  They make the applications super easy, and everything can be taken care of from your couch – a major plus for young parents from what I understand!

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