BMO Nesbitt Burns portfolio manager on how to avoid education saving pitfalls
Advisors can help clients go back to school when it comes to devising an RESP strategy.
David Boyd, portfolio manager at BMO Nesbitt Burns, urged investors to get a budget in place early so your children’s education doesn’t creep up on you. He is also a big advocate of getting your kids involved in the process so they can learn and understand the value of money earned.
He added that in an ideal world, a client’s Registered Education Savings Plan would start as soon as they get a social insurance number.
He said: “If it does creep up on you, what normally happens is people will go take a loan of some type or borrow money for somewhere, which is not a great strategy for the parents or the children to learn from.
“So our strategy at BMO is always to lay it out, talk about it and then create a savings strategy. Include the kids as well, so they start to get a feel for money, for the appreciation of it and what it actually takes to earn that money.”
Boyd said it’s important to be disciplined and maximize your RESP contributions, which has a lifetime cap of $50,000 per child. He added that straight off the bat, clients are entitled to up to $7,200 in educational savings grants.
He said: “Then once [the money] is in the RESP, it’s a matter of sitting down with a financial advisor and going, okay, what is out there? What is my risk tolerance? What are my best options given that you have a relatively long timeline if you start early? And what type of volatility are we comfortable with for our child’s funds for education?”
The classic mistake when it comes to saving for education is constantly putting it off, according to Boyd. A newer issue, he said, is young people’s social media-fuelled fixation on material possessions.
“They get that FOMO going,” he said. “They don’t understand that this is not real or that car is the only one in Canada. Kids lose focus on the reason for saving and get pushed towards material goods because they think everyone has that or all my friends have that.”
Boyd said this issue ties in to the importance of teaching your children about the value of RESP saving and the benefits of a strategy over all the stuff you see on Instagram and Facebook.
He said: “What we always say to people is, talk to your children about the financial situation at home and I don’t mean getting into mortgage payments and cable bills, but more about we’re contributing to this and this is how we do it.
“Also, it’s the simple things. We’re going to have you unload the dishwasher, vacuum and in return we are going to give you $10 a week and of that we are going to take $2 and put it into a savings account for you and here’s why.
“It sounds simple and old school but then children understand that they had to work to make that money and it’s going away into the future.”