Ep. 33 | RESPs: Free Money for Your Kid’s Future (If You Use It Right)

Most Canadian parents know about RESPs, but few use them to their full potential. In this episode, Tré exposes the common RESP mistakes that cost families thousands and shows you how to actually make the most of this powerful tool.

You’ll learn how to maximize government grants, why timing matters more than you think, and how RESP investing can be a stealthy tax strategy. Plus, Tré explains why helping your kids should never come at the cost of your own retirement.

What you’ll learn:

• How RESP grant matching actually works (and how to catch up if you fall behind)
• Why “superfunding” your RESP may not be optimal
• The best RESP strategy based on your expected investment return
• What happens if your kid doesn’t go to school
• How to use RESPs for income splitting and tax planning

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🔗 https://trebynoe.ca/podcast

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Transcript

Tre 0:00

Hello and welcome to the Plain English Finance Podcast, the podcast dedicated to helping you make smart financial decisions. I'm your host, Tre Bynoe, certified financial planner and charter investment manager. I'm a financial planner with TCU Wealth Management and Aviso Wealth. For more details or to send in your questions, check out the show notes at trebynoe.ca/podcast. And if you want to learn more about me, start with episodes one and two. This episode is on RESPs. Yes. What does it stand for?

Sierra 0:28

Registered Education Savings Plan.

Tre 0:32

Yeah. there you go..

Sierra 0:33

Educational something. Yeah.

Tre 0:36

Um. A lot of people get really bogged down with individual rules and stuff like that. Just look online. End of episode. Okay.

Sierra 0:47

The end.

Tre 0:47

The end. Um, okay. There's lots, there's lots of,

Sierra 0:50

I was going to say, yeah, like, no. Who wants to read the rules? You know, when you play a board game that you've never

Tre 0:56

You have to read the rules, otherwise you end up, you end up in Monopoly where people make up random rules, like when you... stop on free parking and you get all the money. It's like that is not how it works.

Sierra 1:12

I was just going to say, it's like there are people who like reading the rules and then explaining it. I think. I think I would be okay reading the rules, but hearing people explain things. Okay, so when you go this way and then this happens, and I'm just like, my brain has shut off. I hate it.

Tre 1:32

Most people need to do to learn. But

Sierra 1:34

Yeah, for sure. So in other words, you just have to open an RESP and learn that way.

Tre 1:42

Okay, sure.

Sierra 1:42

End of episode. Yeah,

Tre 1:44

pretty much. Um, okay. So I'm just going to go through some really, really basic facts about it. There's more to it, but really these are the big things. And then I'm going to talk about accumulation phase and deaccumulation phase because these are often misunderstood, of how to do it properly. Okay? So basic facts. You can put in$50,000 as an individual into an RESP for a person, for your child, grandchild. It has to be opened with, to get grant money, it has to be opened with your primary caregiver's consent. So typically that's the person opening it, but grandparents can open it, but their primary caregiver just has to sign off on it.

Sierra 2:26

Okay? Hmm. I did not know that.

Tre 2:28

And there's grant money, so there's$7,200 in grant money that the government will give you. There's also Canada Learning Bond money, extra money, but for most people that listen to this they probably wouldn't qualify for that.

Sierra 2:44

Mm-hmm.

Tre 2:44

It's income tested, but so we're going to talk about the grant money that everybody qualifies for$7,200. That's why most people put money into RESPs to get that money.

Sierra 2:54

Yeah.

Tre 2:54

Okay. You can get up to, you earn$500 a year of grant money.

Sierra 3:01

Okay?

Tre 3:01

So you have to put in$2,500 a year. To get that$500.

Sierra 3:07

Okay. Yeah.

Tre 3:07

Okay. So they'll match. They'll give you 20% of whatever you put in.

Sierra 3:11

Okay.

Tre 3:11

Up to a thousand dollars. So you can, so you earn$500 a year of grant money.

Sierra 3:17

Yeah.

Tre 3:17

Whether you put money in or not. But you can only claim that with the contribution. So I'm one years old.

Sierra 3:25

Yeah.

Tre 3:25

No, that wouldn't work. I am zero months old,

Sierra 3:29

zero months old in a

Tre 3:30

zero year. So I'm six months old. Okay. I have$500. I can contribute, I can get, sorry,$500 I can get in grant money.

Sierra 3:38

Okay. So

Tre 3:38

if I put in$2,500, government will give me$500.

Sierra 3:42

Yep.

Tre 3:43

If I don't put in that$2,500 when I am one years old. So in the second year. Then I can put in$5,000 and the government will give me a thousand dollars of grant money. Okay. A grant money for when I was zero years old and one years old.

Sierra 3:59

Yeah.

Tre 3:59

Okay.

Sierra 4:00

Makes sense.

Tre 4:00

That's the way that the grants work.

Sierra 4:02

So if you didn't put any money in for years,

Tre 4:05

you can catch up.

Sierra 4:06

You can. Okay.

Tre 4:07

Yeah, you can catch up.

Sierra 4:09

Okay.

Tre 4:10

Uh, when you come to take it out, it is split into two groups of money. There's what you put in. You can take that out with zero tax consequence or anything like that. And then there is the grant money and any growth in the account, that portion of the money called EAP payments, Education Assistance Payment or something like that doesn't really matter, but that portion of the money is taxable in the beneficiary's hands.

Sierra 4:41

Okay.

Tre 4:41

But they have to qualify by going to a proper school to get it, but then it is taxable in the hands

Sierra 4:49

so when they're withdrawing for education, it's going to be taxed on them?

Tre 4:55

Yeah.

Sierra 4:55

Okay.

Tre 4:56

Their income.

Sierra 4:56

Well that's not bad because they're probably not earning.

Tre 4:59

Exactly.

Sierra 4:59

Yeah.

Tre 5:00

Okay.

Sierra 5:00

Because they're in school.

Tre 5:02

Yeah. Okay. Let's move on. Accumulation phase. So remember I said there was a$50,000 limit that you can put in for the child.

Sierra 5:12

Mm-hmm.

Tre 5:13

So there is a very common process that we often call it supercharging, the RESP. Basically, you can put in$14,000 up front, and then you put in another$2,500 a year to maximize the grant. Okay. And that means that you'll end up putting in your$50,000 plus getting all the grant contribution room. If you have the money available and you want to put as much, towards your kids' education as possible, that's the way you would do it. Yeah. Okay. Uh, that is wrong.

Sierra 5:50

Wait, what?

Tre 5:50

So remember, yeah. So remember I said we, in a previous episode, I spoke about making assumptions about rate returns and not being

Sierra 5:59

Oh, yes. The 4% fallacy.

Tre 6:01

Yeah. Not being, uh, honest.'cause it leads, it can lead to not optimal advice.

Sierra 6:09

Yeah.

Tre 6:09

And this is one of those places. So there is a, his name is Aaron Hector, who's a financial planner I respect a lot, learned a bunch from. But he's the president of the Institute of Advanced Financial Planners in Canada.

Sierra 6:22

Hmm.

Tre 6:22

Anyway, he did a big write up on it or whatever, and crunching numbers and showed kinda like what the optimal was, depending on the rate of return that you would be expecting. And rate of return matters a ton in this situation because if you're going to forego grants room that you could put in$50,000 on the day that they're born, and that's you maxed out your RESP, you'd get$500 a grant. But the idea is that you would have 18 years for that to grow. So what's the, what's the best option? Is it worth me waiting and getting the grant, but then I can invest later? There's a lot of nuances about it, but it all comes down to expected return. Okay, so if you had$50,000 up front to invest.$50,000 in a non-registered account, like, I have$50,000, I want to put it towards Ariyah, how do I put that money in? Do I put it all in at once or do I spread it out? Do I supercharge? What are the options?

Sierra 7:17

So supercharging is just putting it all in at once.

Tre 7:20

Putting$14,000 up front and then$2,500 in every year.

Sierra 7:24

Okay.

Tre 7:25

To maximize the grant.

Sierra 7:26

Okay.

Tre 7:26

Okay. That's super charging.

Sierra 7:27

Oh, that's maximizing the grant. But you can still, the$50,000 you can just put in there if you want. Yeah.

Tre 7:33

You can make whatever choice you want, but you only get grant on that five on$5,000 or$2,500 a year.

Sierra 7:40

So you're still, but you still get that grant money if you're

Tre 7:43

No,'cause you would, you would've used your full$50,000.

Sierra 7:47

Oh, so don't do that.

Tre 7:49

Well, it depends. Right? Oh, so your, your, your foregoing grant money by doing that.

Sierra 7:54

Yeah.

Tre 7:54

Right. So why would you do that? Well, because remember that it's taxed, the income is taxed in your child's hands. So any growth is on them. It's not on you.

Sierra 8:06

Okay.

Tre 8:07

So you can use it almost like an income splitting thing to do.

Sierra 8:12

Okay.

Tre 8:13

But anyway,

Sierra 8:13

So if you're investing, sorry, maybe I'm jumping ahead. If you're investing that$50,000 straight away, you have time.

Tre 8:20

Mm-hmm.

Sierra 8:21

And so it's likely, depending on what the numbers say, that you're going to make more over that time.

Tre 8:30

That's the trade off, right? That's exact... I probably shouldn't have jumped, assuming that people understood that's what I was talking about. That's exactly, that is the core of the issue is that your time in the markets, as we talked about, is very powerful. So your foregoing a lot by not maximizing that$50,000, you could put it all in and it's all in your child's name. Anyway, what I'm trying to show is, if you had$50,000 up front to invest, assuming the other 50 is in a non-registered account, because you don't have TFSAs and things like that available and you expected a 7% rate of return. The optimal way to do it would actually to put$40,000 up front.

Sierra 9:18

Okay.

Tre 9:18

And$2,500 a year for the next four years after that. So you are foregoing a bunch of your grant, but the time makes up for it.

Sierra 9:29

Yeah, because that, oh, that's kind of interesting actually.'cause you're not foregoing the entirety of the grant.

Tre 9:37

Mm-hmm.

Sierra 9:38

But you are getting like a huge chunk put in. Mm-hmm. Early. I wouldn't have guessed.

Tre 9:46

No,

Sierra 9:46

Thanks Aaron. Is that what you said his name is? So interesting.

Tre 9:51

Yeah. Okay. But then if we, but that's expecting a 7% rate of return. So equity, like a 100% equity portfolio type.

Sierra 9:58

Well, yeah, because you can't touch it.

Tre 10:00

It's more than that. Yeah.

Sierra 10:00

Can you not touch it?

Tre 10:02

Well, we'll get to deaccumulation part, but... no. You should, you should act as if you can't. Yeah,

Sierra 10:09

Yeah,

Tre 10:09

correct.

Sierra 10:09

Okay.

Tre 10:10

But that completely changes, if you have a 3% rate of return, then the grants pay a much, much larger role.

Sierra 10:18

Mm.

Tre 10:18

So the grants are more important than the growth, and you would want to follow the traditional advice. So$14,000 in the first year, and then$2,500 each year after that.

Sierra 10:29

Hmm.

Tre 10:30

So you'll notice that a lot of the traditional advice that is given, not just on RESPs, but on a lot of things that just get floated around that is, uh, given by advisors, is geared towards low risk individuals.

Sierra 10:45

That is like with, uh, volatility and stuff because, yeah.'cause realistically it's not it's just investing either in equity or a balanced fund or low risk bonds or whatever.

Tre 11:00

Yeah.

Sierra 11:02

Were you proud of any of that? I'm just checking.

Tre 11:04

I think you feel like you just threw out words. Hope that some of them made sense to you. I was,

Sierra 11:08

I thought it all made sense. No?

Tre 11:10

Yeah, it did. Yeah, yeah, yeah. But it doesn't causation and

Sierra 11:14

No, I know what I'm talking about now.

Tre 11:16

Hmm.

Sierra 11:17

Anyways, I was going to say, um, the, oh, sorry, I lost it. I'm sorry. Sorry, keep going.

Tre 11:29

Okay. That being said, the difference between the optimal one and just using the superfunding was only$9,000. I say only$9,000. The account got to$185,000 and the other one got to$176,000. So,

Sierra 11:50

Okay.

Tre 11:51

A difference. Yes, A difference that I would be concerned about if it was me.'cause planning for myself even I would pick whatever made sense on paper. That's just who I am. Yeah. But the difference wasn't big enough for me to say that you'd be upset by always superfunding it. So I think that if you're in a position to, superfund the RESP. There's very little reason that you'd want more in income in your name. If you're in a position to superfund it, it's likely that you have other assets.

Sierra 12:26

Yeah, yeah. If you have money

Tre 12:27

Just a way to income split.

Sierra 12:28

just sitting there, you might as well put it in under somebody else's name. Exactly. Tax bracket.

Tre 12:33

Yeah. So I would say as a general rule that you should superfund it, but just know in the back of your mind, the more aggressive you are as an investor, the more you're willing to leave it, the higher portion of equity you're willing to leave it in, just know that it might make sense and you should explore the, the trade off for putting as much in as as possible.

Sierra 12:58

Mm-hmm.

Tre 12:58

Right off the bat.

Sierra 12:59

Yep.

Tre 13:00

Okay. Another thing that I really needed to make sure I mention here is. Do not prioritize saving for your child's education over your own financial stability in retirement.

Sierra 13:14

Mm.

Tre 13:16

It may make you feel better being able to pay for your kids' education. But ultimately, if you do not pay for your own retirement, your kids will have to pay for your retirement.

Sierra 13:27

Yeah.

Tre 13:27

Very likely. So you might be thinking to yourself, this is, I'm doing such a nice thing for my kid. But if you are not in a position then to be able to look after yourself through retirement because you chose to save so much for your children when they... there are student loans for a reason and if you, there are career paths that taking student loans pays off. So as long as they pick good career paths, take the student loans, they have an entire career ahead of them to pay them off. You cannot borrow to fund your retirement.

Sierra 14:02

Yeah.

Tre 14:02

So. And

Sierra 14:04

Yeah, the, maybe they're thinking, oh, if I put this money aside for my kids to get a good education, then they will take care of me in retirement because they'll,

Tre 14:16

Yeah. I have an issue with that, but

Sierra 14:17

I know, I know I, and I understand that kind of thought process, but you should definitely be helping yourself first

Tre 14:26

Carry your own load. Yeah.

Sierra 14:28

Put your, what is it again? On the airplane?

Tre 14:29

You put your mask on first.

Sierra 14:30

Yeah.

Tre 14:31

That's what you're told to do.

Sierra 14:32

Oxygen mask. Yeah.

Tre 14:33

You can't help somebody else properly if you have not looked after yourself, right? Yeah. Yeah. But so yeah, don't, don't prioritize your children's education over your own financial stability. There are so many ways for children to get help when it comes to

Sierra 14:48

They can get scholarships

Tre 14:49

education.

Sierra 14:50

The world could be completely different by then.

Tre 14:52

Who knows? It's just, yeah,

Sierra 14:53

there's lots of options.

Tre 14:54

You should make sure you have a stable, your finances in a stable place as well. Although I would say even people that like their love of their children is almost like there are plenty of people that they have more in our RESPs for their kids than they do in retirement savings for themselves.

Sierra 15:14

Yeah.

Tre 15:15

Which is like an astonishing thought to think of. I mean, I guess it's just love for your kids, right?

Sierra 15:20

Yeah. They're trying to, they're trying to do the right thing, maybe in a misguided way.

Tre 15:25

Yeah.

Sierra 15:26

But

Tre 15:27

Yeah.

Sierra 15:27

Yeah.

Tre 15:28

But, anyway.. Deaccumulation phase. So first off, if you do not use it for kids' education, since there's a common concern, there are things that happen. So first off. You are not taxed on the amount that you contributed. You get that back. Don't have to worry about that. But you do pay taxes on any money that it's earned.

Sierra 15:51

Okay. Yeah, that makes sense.

Tre 15:52

And you have to give back the grant room.

Sierra 15:55

Oh, the grants

Tre 15:56

that you, not the grant room, the grants that you were given, that you got.

Sierra 16:00

So if you got,

Tre 16:02

so you got your full$7,200 of grants, you now have to give that back to the government from that plan. So that will go back to the government and any growth is taxed in your name plus a penalty tax.

Sierra 16:16

Why?

Tre 16:17

Because you've had the deferral, you haven't paid taxes, as you've went along.

Sierra 16:21

Oh,

Tre 16:21

so there is a 20% penalty tax.

Sierra 16:26

Dang. Get those kids in school. The parents are like..

Tre 16:31

There are some other things that you can do. You can send it to an RRSP and things like that. Um, but ultimately, don't really wanna get into that too much. Just know that if they don't, if, if they don't go to school, you do not have to pay tax on what you put in. You only have to pay tax on the other portion. And it is very fair considering the benefit that you have received by not paying tax as you go. The the way I see it is even if they don't go to school, it's still worth it, you putting it into RESPs. Even if, you probably won't have to pay the penalty tax'cause if you have a planner, they should be making sure you have RSPs and things. There's other options, but

Sierra 17:14

Mm-hmm

Tre 17:15

Even if you did have to pay the penalty tax, it is still worth it.

Sierra 17:19

Because you got that

Tre 17:20

Because you got the deferral for years, right? Yeah. Let's say you put it in that$50,000 and it was deferred for 18 years. That's a lot of growth there that you haven't paid tax on as you go compared to other types of investing. Yep. It's, I think it's a very, people complain about it, but I think I it's actually pretty fair. Okay. Okay.

Sierra 17:40

Alright. Alright. We'll pay the penalty.

Tre 17:43

Okay. So the other thing is that the CESG, the grant, the government grant can be shared with siblings.

Sierra 17:50

Yes. That I did know.

Tre 17:52

Okay.

Sierra 17:53

So if one sibling doesn't go to school, oh, I vaguely, I don't know why I know this. I think I had to do training when I was in banking, because I know a lot about these little rules.

Tre 18:05

Yeah. But it's important to know that the, that child can only still get$7,200.

Sierra 18:11

Yeah.

Tre 18:11

Right. So you can't say we have twins, one twin doesn't use the$7,200, so the other child can now use$14,000.

Sierra 18:21

They, if the one twin doesn't go to school, they have to give back their grant money?

Tre 18:25

Well, no, it would go to the sibling. A sibling can use$7,200 of it. Yeah. Anything in addition to that, there's no other children, would go back to the government.

Sierra 18:34

Yeah, that's what I mean. Yeah. They, they wouldn't get both.

Tre 18:37

No, you don't get both. But you can share between siblings. So it's very common that what you would do is, let's say you had age, age ranges and the first child gets into school, you would use a lot of the grants and stuff like that within the plan to try to get rid of that portion of the RESP that you would pay tax on, or you would have to repay to the government. So, and that goes into taking money out, like the deaccumulation phase.

Sierra 19:07

Mm-hmm.

Tre 19:08

In an ideal world, it's purely a tax bracket game where just like retirement, just like lots of other things, you want to minimize the amount of tax overall that you're paying. So even if you don't really need the funds, you would want to, as long as you can take them out properly. Uh, it has to be for like certain things. It has to be for education, it has to be, but it can be to help pay rent. It can be to,

Sierra 19:40

while in school.

Tre 19:40

While in school. It's not a must be for books type of thing. Must need receipts type of thing. It's a government program to help kids get higher education. Yep. Whatever is required to help them get to that higher education. There's a few things that aren't, but yeah,

Sierra 20:01

Yeah. Makes sense.

Tre 20:02

But the, it, sorry, let me go back. It is a tax bracket game. So you, if your child is going to four years of school and you have$100,000 in the account. Then you would want to try to even out their taxable income during those years.

Sierra 20:20

Mm-hmm.

Tre 20:21

And remember, it's their taxable income because this is just added to their income. So if in the first year they're not going to be working, second year they're going to be working and they're going to earn$20,000, and let's say in both of those years you take out$10,000. Well, in the first year, they're not going to pay any tax on that$10,000. In the second year, their taxable income is going to be that 20 that they plus 10, plus that 10. So they're now going to have a total taxable income of$30,000. Yeah. So you have to keep that in mind. It's not, it is added to their total taxable income. So typically the right thing to do would just be to take it out as early as possible, take out as much income as reasonable, reasonably possible.

Sierra 21:04

In the first year?

Tre 21:06

As quickly as possible. Okay. See the thing, the thing is, is that. A lot of people, they do end up going, they get do end up working or something like that. But even if, let's say you have a total of$20,000 pulled out of your RESPs, so it's$20,000 of income to the child. So they are paying a little bit of taxes. The tax rate that they're paying is so low.

Sierra 21:29

Yeah, that's what I was thinking. I'll

Tre 21:30

trade with them like, are you kidding me? It's going to be their lowest tax years in their entire career.

Sierra 21:37

Yeah,

Tre 21:37

it's okay that they're paying

Sierra 21:40

$2,000 in

Tre 21:42

5% of it in tax. You know, like I know people, you don't want to pay anything. Of course, nobody wants to pay any tax. It is just, you want to pay the minimum amount that you have to pay within reason.

Sierra 21:56

Yeah.

Tre 21:56

So just take the, like... again, I try to get clients up to around at least that$15,000.'cause there's that personal exemption amount that you don't pay any tax on. So, you at least want to take out that much. And, but that's the game. The game is a tax bracket a game you want to take it out in, in a year where their income is very low. So if there is, if you're expecting a big jump in income for some reason

Sierra 22:21

I was thinking like, doctor,

Tre 22:22

you'd turn around that.

Sierra 22:23

I know that's like a big. That's a long time in school and stuff, but I know they have like the residency and then they, their income slowly

Tre 22:30

Actually slavery. It's not even, it's brutal.

Sierra 22:33

I have respect for doctors because

Tre 22:35

People think like, I mean, yes, once you finish all of it, you make decent money for sure. Like good, great money, whatever. I say, great money. There is some really crappy years in, in becoming a doctor. Like you make less than minimum wage for a good chunk of your residency.

Sierra 22:52

That is so, and for doing some, some pretty grim work sometimes, you know?

Tre 22:58

Yeah, yeah. It's,

Sierra 23:00

Like people coughing all over you. Kid throws up on your shirt. Oh, it would just be so bad.

Tre 23:07

You could be a research doctor.

Sierra 23:09

Yeah, that would be fun. But

Tre 23:10

Was it, uh, Ross, on Friends, he was a doctor. Paleontologist.

Sierra 23:14

Paleontologist."That's not a real doctor."

Tre 23:19

Yeah. But tax bracket game whole lot of tax planning is simply a tax, tax bracket game. Okay. So quickly. Investing money for education. It is one of the easiest accounts to invest for because you know exactly when it is... you have the exact timeframe. And you know you're going to use up, if you have one child, you're going to use up, over four years or whatever, you'd use up a quarter of the account every year. It's, you know, roughly what your, what the timeframe is and everything. So invest according to it. It's very sad to see newborn child starting RESP and it sits in a savings account. And really the only benefit of the RESP is that they get a little bit of grant room... That is not the way the RESP is built. It is an incredible tool the longer the time period is. You can build up tons for a child with relatively little put into there if you just invest early enough

Sierra 24:21

Mm-hmm.

Tre 24:21

in time. Right? So

Sierra 24:23

It's always the same thing. The only thing I've, I've under, well, sorry. That's not true...

Tre 24:28

The only thing

Sierra 24:29

The only thing I've understood through this podcast,

Tre 24:31

Episode 30.. 33, holy

Sierra 24:35

Listen, it's late and I'm starting to get sick. I think so my, I'm a little foggy, but. No. Um,

Tre 24:43

Me too. Honestly it's been a long day.

Sierra 24:45

I know. I'm so, I'm starting to lose my voice, maybe. I don't know. Anyway, time under tension. Rule number one. What's it called again? Just time in

Tre 24:56

Time in the markets.

Sierra 24:56

Time in the markets.

Tre 24:57

Yeah.

Sierra 24:58

Time under tension. Everybody. Keep that in mind and

Tre 25:02

Makes a such a huge difference. I really, I wish I could, man. I am. I really wish I could teach people how compound interest works.

Sierra 25:16

I feel like you talk about it a fair amount, like if, if the younger part of my family is listening right now. And friends. Yeah. But they don't,

Tre 25:26

because how long have I told this certain individuals to start opening accounts? And there's always an excuse.

Sierra 25:34

They, they're moving forward, which is good, but Yeah.

Tre 25:37

Only 10 years later.

Sierra 25:39

Not

Tre 25:39

No, it's not 10 years.

Sierra 25:40

Not 10 years,

Tre 25:40

But two, three.

Sierra 25:42

Yeah. They have

Tre 25:43

Yeah.

Sierra 25:43

They push it off. There's resistance.

Tre 25:45

I'm telling you, it makes such a huge difference and it, it works suddenly, right? It's like you don't even, it's not, is it working? Is it working? I don't know if it's working. And then suddenly you realize that, oh yeah, it's working. And now you run the math and you're, okay, yeah, it took me x amount of time to get to$100,000, but now my money's earning on average 7% ish every single year. Well, that's more than I was even putting in sometimes. Oh, and that's going to keep on going and

Sierra 26:17

Yeah,

Tre 26:18

adds up really quickly. So a lot of people will think to themselves, oh, why would I want to invest? And like, I, I, I only live once, spend my money. And it's yeah, I agree with you, and I'm going to be able to spend more because I invested and let the money make money. Right? It's, I totally agree with you. You can't take it with you. So enjoy it. I would like to enjoy more of it. So I make more of it. I don't know. It's just like you

Sierra 26:47

yeah. But that's, the difference is

Tre 26:48

It's delayed gratification is what it is. It's not about

Sierra 26:52

it's time

Tre 26:52

spending the money. It's, yes, I agree with you. Spend whatever you, you don't want to regret not, but it's the delayed gratification. It's waiting to spend it.

Sierra 27:02

Yeah.

Tre 27:03

Not the spending of it.

Sierra 27:05

Yeah.

Tre 27:05

That's the key thing.

Sierra 27:06

And just having the ability to be disciplined.

Tre 27:10

Mm-hmm.

Sierra 27:10

And make decisions saying, I am going to spend this much and enjoy life now because you should.

Tre 27:17

Yeah.

Sierra 27:18

But I'm also not going to spend all of it or have no idea what I'm spending. I'm just spend, spend spending. And then when I'm older, look at others and think, how are they doing all these things?

Tre 27:32

And that's the thing. It doesn't even have to be older. It doesn't have to be like that much older. I'm not talking in your. Eighties when you, I'm saying like you, if you start in your, if you start at 20 years old, you'll notice the difference. By the time you are, you'll notice difference between you and your peers when you're probably 25. And you'll notice a gap when you're 30 and by the time you're 40 you'll be, you'll, you'll, you'll, you'll have a net worth double the amount of most other people your age, and by the time you're 50 it'll be four times. And you know, it just

Sierra 28:07

Like, two to a four, four to an eight

Tre 28:11

Jay-Z. Um, and the same works exactly for RESPs. And even if you don't, so. People might say, well, why would you need to save$180,000 for a kid's education, you don't, but you know what you can do? If you put that$50,000 in there, you can take that$50,000 out, give it to them as a gift for a down payment for a house, and they can go get their education on the other portion. That was growth and grant money, right? It's, it's simply. You just setting yourself up to have opportunity and down the line. Oftentimes what I have done with people is we have contributed to our RESPs and then when it comes time to them to take it out, they take out what they put in. And that's not even for the kids' education. It's for them and they go and add that to their retirement savings or they go on a trip with it, whatever it is, but it's for them. And the kids get the growth and the grants, right?

Sierra 29:06

Yeah.

Tre 29:07

Lots of different ways to approach it, but it is a very good program that there is very little reason if you have the funds available, that you wouldn't want to take advantage of it.

Sierra 29:18

Yep.

Tre 29:19

Okay.

Sierra 29:20

Yep. Makes sense. Who doesn't want more money?

Tre 29:28

Okay.

Sierra 29:29

I mean, that's basically what the lesson is. No? RESPs, you want

Tre 29:35

free money.

Sierra 29:36

Yeah.

Tre 29:36

Yeah. I guess who doesn't want free money? Yeah. Uh, what time is it? Okay. I'll really quickly say there are some rules around withdrawing. So if it's a full-time education, then they can only withdraw, of the taxable part,$8,000 in the first 13 weeks and then it opens up, they can take out a lot more. There is no hard and fast limits and rules. It is up to each RESP provider's discretion almost, but they can be audited about the use of the RESP. So it's important that when you are taking money out, that it is for the child's education and you can even to some degree, point to what it was, what that funds were for. So the easy one is obviously tuition, easy rent, pretty easy, but you can, it's to cover living costs and stuff as well. So don't thank that.

Sierra 30:31

Like groceries and,

Tre 30:31

Yeah, groceries, laptops, books,

Sierra 30:35

Car.

Tre 30:37

Car? You could probably make an argument for it.

Sierra 30:39

Because I'm like, if they have to... I guess it depends. If, if you're on campus going to school and then you,

Tre 30:44

Then that's going to be a much harder, yeah, harder argument course. Uh, but the, the point of it is that it's not punitive. They don't try to trip you up. It, it is designed to help kids go and get higher education, but that timeframe is different if you're part-time. If you're part-time, then it's, it's reduced. So it's$4,000 in the first 13 weeks. So both full-time and part-time, you can both get it great for either one. Just play the, play the tax game, get the grants and the income out as reasonably early as possible, and take advantage of the tools that Canada has given us to make life a little easier. All right. Next episode is on.. Oh, I put this one in there. Just getting out of debt. So we're going to review the avalanche method and the snowball method of getting out of debt. And I'm going to give you my thoughts and people will have another reason

Sierra 31:51

Not to get into debt?

Tre 31:52

Not to get into debt. Yeah. Debt works exactly the same way as, as the other side of the coin and creating wealth. It's, uh, it's a

Sierra 32:01

Snowball effect?

Tre 32:03

Snowball. Yeah. That's,

Sierra 32:03

Or an avalanche?

Tre 32:05

No. Snowball effect if you, if you wanted a pun. But it's true. It's just like the positive side of wealth creation compounds, so does the negative side. So, okay. We'll talk about it and I'll go through, probably go through an example to show you the difference, the real difference that it can make over somebody course of somebody's life. Because as I said, delayed gratification is a major thing. And really debt, especially consumer debt, is you just not having the ability to delay gratification. Yeah. Right. If you're going to spend five years or three years, whatever it is to pay off a car, you could have spent the same amount of time before you purchased a car, putting the same amount aside, and you would have more money. Right. Especially if you was investing it as well. If you did a seven year investment of$500 you'd be able to pay, pay for a much nicer car.

Sierra 32:56

Yeah. Totally,

Tre 32:57

The same way

Sierra 32:58

Yeah

Tre 32:58

on the flip side of that coin. But anyway, we'll go through that. Perfect. I need something to eat. I can. You're like crashing so hard right now. Okay. We'll see you in the next one. Bye. Bye. Thanks for listening to this episode of the Plain English Finance Podcast. Tre Bynoe certified Financial Planner. Chartered Investment Manager is a financial planner with TCU Wealth Management and Aviso wealth. You should always consult with your financial, legal, and tax advisors before making changes. This podcast is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell any securities. The views expressed are those of the individual and are not necessarily those of Aviso Financial Inc. Mutual funds and other securities offered through Aviso wealth, a division of Aviso Financial, Inc.