Are women getting the right advice about RESPs?
When my first child was born in early 2011, I wanted to set up a registered education savings plan (RESP) as soon as possible. My husband didn’t have any student debt of his own, but I’d left university with over $40,000 owing on a line of credit—a huge number that I carried into our marriage a year later.
Knowing firsthand what an emotional and financial burden student debt can be, I was determined to give my kids a better post-secondary experience and a solid foundation for their adult lives.
A little over a month after our daughter’s birth, my husband and I headed to our bank with the baby nestled against my body in a fabric wrap. We opened the RESP together, setting up regular contributions from our joint bank account, and felt good about the investment we were making in our child’s future.
Years later, we have two teenagers and a family RESP with a healthy balance, but I have regrets—and zero access to those funds. Here’s why, plus everything you should know before setting up an RESP for your child.
RESPs 101
If you’re thinking about opening an RESP for your child (or children), there are a few important things to know. The terminology is unique and can be confusing, so let’s break it down:
- Subscriber: The person (or people) who open the RESP, make financial contributions and determine the type of investments within the account, as well as the level of risk tolerance. The subscriber(s) are commonly the child’s parent(s), but other adult family members can also open RESPs.
- Primary caregiver: The person who receives the Canada Child Benefit (CCB) and is considered primarily responsible for the child’s care and education. This is typically the mother and defaults as such, though you can file paperwork to amend this.
- Beneficiary: The child (or children) who will eventually receive funds from the RESP if all legal requirements, such as proof of enrollment in a qualifying post-secondary institution, are met.
- Promoter: The financial institution involved (your bank, a credit union, or an investment firm).
If this seems complicated, it’s because it is. “They use all this jargon,” says Liz Schieck, an educator and certified financial planner (CFP) with The New School of Finance in Toronto.
Schieck notes that in order to open an RESP for a child, you must have the child’s social insurance number (SIN). If multiple RESPs are opened for the same child, the primary caregiver designation remains the same across all accounts. This is because the Canada Education Savings Grant (CESG) is connected to the primary caregiver rather than the subscriber, and there is a lifetime limit on grant contributions per child that does not grow exponentially when multiple accounts are opened.
Translation: If you open an RESP for your child and so does a grandparent and a generous uncle, the maximum government grant amount stays the same rather than tripling.
The risks of misinformation (or bad advice)
When my husband and I set up our kids’ RESP, we were blissfully unaware of how many options we had. After politely declining to work with an RESP firm that contacted us days after our daughter’s birth, we made an appointment with our bank, a major financial institution that already held our savings and RRSPs.
We asked questions during the appointment, heeded the advice we were given, and set up the account with my husband listed as a subscriber and me listed as the primary caregiver. It wasn’t until later that I realized how different those roles are and what I’d agreed to as a sleep-deprived new mom.
During the appointment with our bank, we were told that one parent would take on the role of subscriber (a term that was new to us) and the other would be listed as the primary caregiver. When we asked if both of us could be listed as subscribers, we were told no. The primary caregiver role defaulted to me—the parent receiving the Canada Child Benefit due to its maternal presumption policy—and my husband was the higher income earner at the time, so it seemed logical that he would fill the role of subscriber. Because the money was being invested for our children and my name was on the account as their primary caregiver, I still felt like we held the RESP jointly—an assumption that seems naive in retrospect.
As the primary caregiver on my children’s RESP, I have no control of or access to the funds in the account. I can’t check the balance of our kids’ RESP or make contributions. I have no say over how the money is invested, when it’s withdrawn, and how it will eventually be distributed.
Fortunately, I’m still happily married to my husband—but if that were ever to change, he’d have control of over $100k in invested funds that we built together.
How do RESPs work?
Learn what they are and how to fund them
“When you set up an RESP with your partner, you aren’t necessarily examining the difference in power between the two roles,” Schieck says, who has seen scenarios like mine before. “But both partners should have the ability to make decisions around that account, including the money going in and the types of investments.”
Schieck explains that while the Government of Canada asserts that an RESP can be jointly held by two subscribers, not all financial institutions offer this setup. When I reached out to my financial institution for clarification earlier this month, they responded that you can open a sole-subscriber RESP at any of their bank branches across Canada, but you can only open joint-subscriber RESPs via their direct investing and securities advisors. The latter option wasn’t presented to me at the branch level, nor was it discussed when I asked the bank questions about the RESP last year.
This is a problem, Schieck says. “When you’re choosing a financial institution for your kids’ RESP, I’d recommend asking if they allow joint subscribers before you open the account.”
How to protect yourself while investing in your kids’ future
There is no official explanation for why some institutions only offer sole-subscriber RESPs, or only provide jointly-held RESPs through specific channels, but we can make certain assumptions.
It’s likely easier to open a sole-subscriber account from an administrative standpoint, which may encourage advisors to make recommendations that minimize paperwork.
Furthermore, we can’t ignore the possibility of deeply entrenched, systemic misogyny. “Pratices and processes at financial institutions that have been around for a long time have this kind of thing embedded within them, even if it’s unintentional,” Schieck says. Just like the federal government defaults to listing the mother as a child’s primary caregiver, financial institutions may default to giving the father more financial control. Ideally, both parents should hold equal roles as when they don’t, there’s a power imbalance that can enable financial abuse.
“It’s problematic for a number of reasons. Transparency, ease of access, harmony in the relationship—both parents knowing what’s going on without one person always having to ask—as well as more concerning implications,” Schieck says. If one parent is controlling or dishonest about the RESP, the marriage breaks down or the sole-subscriber parent dies, there can be serious complications. Should the sole-subscriber parent file for bankruptcy, the RESP is not protected.
A sole-subscriber parent can also drain the account and use the funds however they choose, with the minimal consequence of taxation on the investment growth and the loss of all grant-contributed funds. While RESPs are often addressed in separation agreements or divorce proceedings, there are no guarantees that the funds will be used as you’d hoped or intended.
Slow down, ask questions, and take your time
When you’re a new parent who wants to do what’s best for their child, it’s easy to be taken advantage of—something Schieck has concerns about as a financial advisor. An RESP is an excellent tool that’s highly effective in savings for a child’s education (“You can’t beat free money,” Schieck enthuses, referring to CESGs) but they should be set up in a way that allows transparency and equitable access.
“You don’t have to manage all aspects of your finances jointly and collaboratively all the time—that’s not what usually happens,” she says, noting that one partner may manage day-to-day spending while the other makes sure certain bills are paid. “But there’s a difference between being actively involved and having the right to be involved. Having the ability to jump in [and manage an account] is really important.”
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There’s also the question of timing. Hospitals often partner with RESP firms, which is why hours after giving birth, most new mothers are asked to check a box giving consent to share their information. I checked the box, which is why I was contacted by a financial institution in the days after my child’s arrival.
While this practice is common, it’s also problematic—instead of taking time to recover, research and have meaningful discussions with your partner, you may end up opening an RESP without reading (or understanding) the fine print. “Some financial institutions have very restrictive policies,” Schieck says, explaining that you could end up in a contract with a minimum monthly contribution or restrictions around withdrawing the funds, and some RESP firms aren’t insured under the Canadian Investor Protection Fund.
“You do not need to—and probably shouldn’t be—making a decision like this when you’re fresh from having a baby,” Schieck says. Taking a few weeks, months, or even a couple of years to weigh your options is fine; it’s more important that you make an informed choice. This is a decision that deserves careful consideration, not a race. “You want to approach it with a clear head.”
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Read more about RESPs:
- You opened an RESP—now what?
- How do RESPs work, and what’s the best way to fund them?
- Reducing risk in an RESP: How to invest as your kid approaches college or university
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