# RESP Education Fund Mistake



## Cpt. Fantastic (Feb 3, 2012)

My sister decided to sign her daughter up for an RESP Education Fund from Heritage Education Funds (without consulting me). This was done back in 2008. My neice is now 4 years old.

I'm wondering if it makes sense to pull the funds out of this education fund and throw it into a self directed RESP account. I'd like to put it in a TD E-Series Mutual Fund account and use couch potato strategy.

Here is the "fine print" on the contract she signed.

- Membership Fee ($100 per unit)
- Depository Charge ($3.50 + GST for lump sum plan, $6.50 + GST for annual plan, $10.00 + GST for montly per year, per contract)
- Administration Fee (1/2 of 1% of principal and interest on contributions and CESG and interest, annually)
- Portfolio Management Fee (0.08% of the avergage market value of asset in the plans)
*- Members Termination Rights: Under 60 days, a return of all contributions less insurance premiums. After 60 Days, return of all contributions exclusive of interest, less membership fees, depository charges and if applicable, insurance premiums. CESG is returned to the government.*

With my niece being 4 years old, although it there will be a hit to the portfolio, I think putting it into a low MER fund with personal management would make better sense in the next 13-14 years.

Any advice would be most welcome


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## GoldStone (Mar 6, 2011)

I don't have any specific advice for you other than to say, review this document carefully before you decide what to do:

Review of Registered Education Savings Plan Industry Practices. Report prepared for Human Resources and Social Development Canada

Pay special attention to section "Scholarships" on Page 19.



> *Scholarships*
> 
> The basic thrust of group scholarship plans is to concentrate benefits on a subset of plans that reach maturity and whose beneficiaries engage full-time in study programs of longer duration. A scholarship generally is significantly larger than the investment income earned on contributions in the plan of the qualifying beneficiary. Part of this “enhancement” of scholarships consists of investment income from plans that do not reach maturity and plans that do not result in full or partial scholarship payments.
> 
> ...


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## humble_pie (Jun 7, 2009)

yikes. We've seen hyper-controlling husbands, fiancés, grandsons & at least one daughter-in-law on here.

apart from the DIL i've never seen any other hyper-controlling women.

you, sir, are our 1st h-c brother.


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## MoneyGal (Apr 24, 2009)

But...those group plans totally suck. Is one "hyper-controlling" if one wishes to point this out to a family member? Or are we to leave all family members to their Investors Group RRSPs and Group RESP plans etc.?


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## GoldStone (Mar 6, 2011)

MoneyGal said:


> But...those group plans totally suck.


Yes they do suck big time, but...

A quote from the linked report:



> The basic thrust of group scholarship plans is to concentrate benefits on a subset of plans that reach maturity and whose beneficiaries engage full-time in study programs of longer duration. A scholarship generally *is significantly larger* than the investment income earned on contributions in the plan of the qualifying beneficiary. Part of this “enhancement” of scholarships consists of investment income from plans that do not reach maturity and plans that do not result in full or partial scholarship payments.


If OP's family has a very strong academic background (_everyone is a Ph.D!!!_), chances are the niece will follow in the footsteps. She might end up qualifying for an outsized scholarship, subsidized by the unlucky members who drop out or don't qualify for a full payout.

If, on the hand, she opts for a 2-year college program... the OP will have an opportunity to perform "I told you so" dance at a family gathering.


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## MoneyGal (Apr 24, 2009)

ha! I dislike the plans on principle. I recognize that the kids who benefit from them benefit in a big way. :chuncky:


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## humble_pie (Jun 7, 2009)

MoneyGal said:


> But...those group plans totally suck. Is one "hyper-controlling" if one wishes to point this out to a family member? Or are we to leave all family members to their Investors Group RRSPs and Group RESP plans etc.?



it's the language, not so much the plan reversal itself.

sister dared to act "without consulting me."

undoing the plan is all first-person-singular. The letter "I." "I'd like to put it in ..." 

OP's other message deals with the same atrocity committed by his sister 4 years ago without consulting him. O the shocking audacity.

the child's father ? evidently some nebbische who doesn't make much money, but other than that his opinion is not mentioned ...

the way i see it, functional families might try to persuade each other, but they respect individuation. This brother is sounding like he holds a tutorship or curatorship over his sister's financial independence.

it's a theme that echoes unpleasantly, now & then, in cmf forum. Goes like this: so-and-so relative is a twerp about money; but i know ever so much better; so i want C.O.N.T.R.O.L.


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## Cpt. Fantastic (Feb 3, 2012)

Thanks all for the replies.

Goldstone, I'll read the link in depth, thanks!

MG: Thanks for chiming in, you were the original person that I saw mention that these plans in principal can be pretty horrible.

Humble_Pie: You're right, I do come off as hyper controlling. I don't intend to, but I left out family history that leads me to sound that way. But you're right, I shouldn't use that tone. My apologies. I'm here to learn, I don't want to come off as a know it all or controlling. At the end of the day, I want to try and help my family make wiser financial decisions. Thanks for the feedback.


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## stardancer (Apr 26, 2009)

Don't know what these plans are like these days, but back in the days I used a RESP for my 2 daughters, I was very happy with the payout- one went to university and got $3000 times 3 years, the other to college and got $3000 x 2 years. That's $15,000 on top of the principal payback for a lump sum investment of $16,000. (No government matching back then)


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## GoldStone (Mar 6, 2011)

stardancer said:


> That's $15,000 on top of the principal payback for a lump sum investment of $16,000.


Input: 16K
End value: 31K
Unknown time frame but let's assume 18 years
Rate of return: 3.74%

Need to know start and end dates to benchmark the return. Otherwise... it's impossible to tell whether it's good or not.


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## stardancer (Apr 26, 2009)

Start date when the kids were 12 and 10 in 1988, as I came into some money; the money was divided into 2 deposits- 9000 for the older one (shorter time) and 7000 for the younger one. Back then, self-directed RESPs were not available. The first year for each child was a return of principal minus the fees; can't remember but the fees totalled less than $1000 each. They started paying out in the second year for each. 7 years later for the older one and 9 years later for the second one.

First child- original deposit = 9000; end result = 9000 - 1000 +9000 = 17000; growth over 7 years about 11%/year
Second child- original deposit = 7000; end result = 7000 - 1000 + 6000 = 12000; growth over 9 years about 7%/year
(I am really not good at math, so correct me if that's wrong)


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## GoldStone (Mar 6, 2011)

stardancer, I calculated returns using XIRR function in Excel.

*First child*


```
01/01/1988   -9000
01/01/1995   17000
   Return:   9.50%              
Benchmark:   10.55%      *** All Canadian Bonds index
```
*Second child*


```
01/01/1988   -7000
01/01/1997   12000
   Return:   6.2%
Benchmark:   11.8%       *** All Canadian Bonds index
```
Pooled RESPs are typically 100% fixed income. Therefore, I picked All Canadian Bonds index as a benchmark.

I calculated benchmark returns here:
http://www.ndir.com/cgi-bin/downside_adv.cgi

First child did well compared to benchmark. Second child... less so. It's possible that she got penalized for picking a 2-year college program. It's a common feature in the pooled RESPs.


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## stardancer (Apr 26, 2009)

Thanks. According to the rules back then, she did get penalized because she only took a 3 year program, rather than a 4 year.

(I don't even know what the XIRR function is)


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## MoneyGal (Apr 24, 2009)

XIRR = internal rate of return, allowing for cash flows in and out of the portfolio. 

Detailed explanation here: http://www.financialwebring.org/gummy-stuff/xirr.htm


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## CanadianCapitalist (Mar 31, 2009)

I dislike these plans too. These days, one can set up a self-directed RESP that provides much more flexibility and earn returns comparable to group RESPs by investing in low-cost products.

Thanks for the info on past returns stardancer. The returns for your first child was 8.2% ($9K initial contribution in 1988, $8K withdrawal in 1995 and three $3K EAPs in 1996-98). The returns for your second child was 5.7% ($7K initial contribution in 1998, $6K withdrawal in 1997 and two $3K EAPs in 1998 and 1999).

The first child had the best outcome but if you compare it to the alternative of just investing in a bond index fund on your own, the returns aren't all that great. I did the same thing as Goldstone and compared the returns to that of the All Canadian bonds index, less a 0.3% fee. To make an apples-to-apples comparison, I assumed that the cash flows are exactly the same for both the group RESP and an imaginary self-directed RESP. When you do that, it turns out the first child would still have $4,500 left in the RESP at the end of the 4 year program. That's a substantial difference especially when you consider that a portion of the EAPs in a Group RESP program comes from the earnings of parents who did not continue.


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## kcowan (Jul 1, 2010)

I don't know anything about group plans but it seems that the cheapest way forward would be to freeze future contributions and start up a self-directed RESP. Does that trigger any forfeiture? Is there any capability to rollover the balance to another plan or is it 100% locked-in?


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## MoneyGal (Apr 24, 2009)

The issue with the group plans is that all the fees (and they are monumental) are front-loaded. For the first few years, only a very small fraction of your payments go into the actual plan; the vast majority are paying off the fees associated with the plan (in one plan I looked at, 94% of contributions in the first year went to fees. This is not uncommon). So you can't really "freeze" contributions because (in essence) you haven't made any yet (depending on where you are in the contract cycle). 

Some plans let you transfer out whatever your actual contributions are to a non-group plan. This will be detailed in the group plan prospectus. Another criticism of these group plans is that they tend to have incredibly dense and long prospectuses, i.e., 200 pages of detail.


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## Four Pillars (Apr 5, 2009)

kcowan said:


> I don't know anything about group plans but it seems that the cheapest way forward would be to freeze future contributions and start up a self-directed RESP. Does that trigger any forfeiture? Is there any capability to rollover the balance to another plan or is it 100% locked-in?


Part of the deal with these plans is that you can't lower or stop your contributions without big penalties.


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## kcowan (Jul 1, 2010)

I bet the salesmen make big commissions. Wow locking someone in for 18 years of contributions.


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## HaroldCrump (Jun 10, 2009)

GoldStone said:


> She might end up qualifying for an outsized scholarship, subsidized by the unlucky members who drop out or don't qualify for a full payout.


That is because of tontine-like features of these group RESP plans.
While it _sounds_ like a compelling proposition for the survivors in the plan that hang in there for 17 years, the question is whether you could have done better yourself completely outside of this scheme.
That is becoming more and more possible during the last 10 years or so.
I understand back in the 1980s such DIY options were not available to parents like Stardancer, but that is no longer the case.


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## Four Pillars (Apr 5, 2009)

In very general terms, I think the fees on these plans are more or less similar to a regular retail RESP (ie high priced mutual funds), the big difference is the lack of flexibility and the penalties if things don't quite go according to plan when it comes time to attend post-secondary school.

Yes - there are benefits for the "surviviors" who make their planned withdrawals, but I don't think these pluses outweigh the risk of the extra restrictions.

Here is an article I did on the differences between group plans and self-directed plans:

http://www.moneysmartsblog.com/group-pooled-scholarship-resp-plans-differences/


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## Cpt. Fantastic (Feb 3, 2012)

MoneyGal said:


> The issue with the group plans is that all the fees (and they are monumental) are front-loaded. For the first few years, only a very small fraction of your payments go into the actual plan; the vast majority are paying off the fees associated with the plan (in one plan I looked at, 94% of contributions in the first year went to fees. This is not uncommon). So you can't really "freeze" contributions because (in essence) you haven't made any yet (depending on where you are in the contract cycle).
> 
> Some plans let you transfer out whatever your actual contributions are to a non-group plan. This will be detailed in the group plan prospectus. Another criticism of these group plans is that they tend to have incredibly dense and long prospectuses, i.e., 200 pages of detail.


That's where I'm stuck. The damage seems to have been done, a lot of the money that has been given covered mostly fees, etc. So I'm wondering, since the damage has been done, would it make sense to move the money out into a self directed RESP? I haven't yet fully read the PDF that GoldStone has provided, but based on what was quoted, my sister and her husband are low income earners, with no post secondary education, no savings and growing debt. Which from my reading so far seems to be exactly who these RESP group/scholarship plans go after. What would you all do in this situation?


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## Cpt. Fantastic (Feb 3, 2012)

Four Pillars said:


> In very general terms, I think the fees on these plans are more or less similar to a regular retail RESP (ie high priced mutual funds), the big difference is the lack of flexibility and the penalties if things don't quite go according to plan when it comes time to attend post-secondary school.
> 
> Yes - there are benefits for the "surviviors" who make their planned withdrawals, but I don't think these pluses outweigh the risk of the extra restrictions.
> 
> ...


Thanks Mike, I'll give it a read!


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## Four Pillars (Apr 5, 2009)

Cpt. Fantastic said:


> What would you all do in this situation?


I'd be inclined to leave it alone.

One the plan has been active long enough - at that point you might as well just move forward with it. If the child goes to school when they are supposed to then the parents will likely be quite happy with the RESP.

I don't know the length of time that is the "turning point" for this decision. Four years is probably in the grey zone where they could probably cancel and then do better on their own for a small positive result. If it was only a year or two and they were keen on diy investing, then I would say canceling might make sense.

For all the bad press these plans get (or more accurately - their salespersons), most of the people who use them are quite happy with them. The plans themselves are not a scam. I don't recommend them, but most people who have signed up for them should probably just stay in them.

That said - most if not all these plans have a 60 cooling off period - if you know someone who has signed up within that time frame, they should consider cancelling.


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## Cpt. Fantastic (Feb 3, 2012)

Four Pillars said:


> I'd be inclined to leave it alone.
> 
> One the plan has been active long enough - at that point you might as well just move forward with it. If the child goes to school when they are supposed to then the parents will likely be quite happy with the RESP.
> 
> ...


Thanks Mike and everyone else for the great advice.


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## HaroldCrump (Jun 10, 2009)

Cpt. Fantastic said:


> What would you all do in this situation?


You could, of course, open an RESP account for your niece at an institutution of your choice, and contribute to it.
There is nothing stopping you from doing that, unless your sister has already maxed out the $50K limit.
That way you get the best of both worlds.


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## Cpt. Fantastic (Feb 3, 2012)

HaroldCrump said:


> You could, of course, open an RESP account for your niece at an institutution of your choice, and contribute to it.
> There is nothing stopping you from doing that, unless your sister has already maxed out the $50K limit.
> That way you get the best of both worlds.


Ya, while doing lots of reading the last few days, I realized that was an option. Thanks


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## MoneyGal (Apr 24, 2009)

FWIW, I think there's a huge element of survivor bias in evaluating these plans from the POV of someone for whom the plan "worked." Is this not similar to the thread in which SquareRoot is putting forward the position that bank stocks are great investments, and others are pointing out that this is the classic definition of "survivor bias?"

For a group RESP plan to work for some, it must (by definition, given how these plans are structured), have NOT have worked for many others. 

So it is difficult for me to say that these plans are "not bad" whether we are comparing them to non-group RESPs populated with high-fee MFs or not. 

I despise the way these plans are structured and how apparently vulnerable parents are hooked into participating. From a classic microeconomic standpoint (which I realize! no one here may give two hoots about!) whether or not the OP's sister should continue to participate is a "sunk costs" problem: the contributions made to date are likely lost. Should the sister continue to participate in the program with the hope (not guarantee) her child will be one of the "winners" for whom the program works? A rational microeconomist would say no: the impact of past decisions should not flow over to future dollars, and each future dollar spent must be evaluated on its own merits. 

Well, anyways; I have to make dinner, because even rational microeconomists (as well as those who portray them on internet message boards) must eat.


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## Four Pillars (Apr 5, 2009)

MoneyGal said:


> FWIW, I think there's a huge element of survivor bias in evaluating these plans from the POV of someone for whom the plan "worked." Is this not similar to the thread in which SquareRoot is putting forward the position that bank stocks are great investments, and others are pointing out that this is the classic definition of "survivor bias?"
> 
> For a group RESP plan to work for some, it must (by definition, given how these plans are structured), have NOT have worked for many others.


No. By success, I mean someone who makes all their contributions and gets out most if not all of the scheduled withdrawals.

By that definition, even if there are no losers, all the survivors can still "win". It's not like all the payments to the winners come from the losers' losses.

For the record - what big Canadian banks have failed in the last 20 years?



MoneyGal said:


> So it is difficult for me to say that these plans are "not bad" whether we are comparing them to non-group RESPs populated with high-fee MFs or not.


For someone who is not yet enrolled in an RESP plan, it's an easy choice to choose the non-group RESP. They are superior by a long shot. 

However, for someone who is already in a group plan - from that point forward, the difference isn't as significant, especially if they have been enrolled for a number of years. This is the scenario put forth by the OP.




MoneyGal said:


> I despise the way these plans are structured and how apparently vulnerable parents are hooked into participating.


I think they should be banned. There is no reason for them.



MoneyGal said:


> From a classic microeconomic standpoint (which I realize! no one here may give two hoots about!) whether or not the OP's sister should continue to participate is a "sunk costs" problem: the contributions made to date are likely lost. Should the sister continue to participate in the program with the hope (not guarantee) her child will be one of the "winners" for whom the program works? A rational microeconomist would say no: the impact of past decisions should not flow over to future dollars, and each future dollar spent must be evaluated on its own merits.


The problem is that not all the costs are completely sunk. The absolute value of the initiation fee should be returned to the owner if things go well. Of course, after inflation - the real value of this amount will be less than when it was paid - so there is some guaranteed sunk cost, but not all.

The other thing is the earnings + grants in the account. They will be forfeited if the plan is cancelled. This is also not a sunk cost.

The longer a group plan has been active, the less sense it makes to cancel it. After four years, normally I would advise to cancel it, but that would be in the case where the parents are angry about the plan and want to diy.

In this case, I'm saying leave it alone, mainly because from the description - it sounds like the parents are not very financially aware. 

If they did cancel the plan, the question would be - what do they do next? Will the OP run the account? Can they understand why they would get such a small amount after four years of contributions? 

The math might easily support cancelling the account, but there are plenty of potential problems if they do.


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## GoldStone (Mar 6, 2011)

The OP mentioned the parents have a growing debt problem. We don't know what kind of debt it is.

If the interest on the growing debt is reasonable (e.g. HELOC at prime), you can make a case they should stay enrolled.

If it's bad debt (read: credit cards), what then? Can you justify staying in the plan?


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## MoneyGal (Apr 24, 2009)

FP - I just meant that, like in the argument about bank stocks that "they will be great going forward (and I don't know why anyone would consider anything else), because they've done well for me in the past" making the argument that "my kids had a group RESP and it was good for them - those plans are fine" [note: I know no one has said precisely this here, but I've heard this argument before], just because something has worked for someone in the past doesn't mean it will work for you in the future. 

"Survivor bias" is when you look at the results that only include "winners" or survivors and conclude something works because it produces winners; without considering the experience of "losers." My point was supposed to just be that this is another example where survivor bias can, well, bias the results and peoples' evaluation of the merits of a group RESP.


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## Square Root (Jan 30, 2010)

Again to be clear, survivor bias is usually cited a a problem when looking at past performance for certain indexes or asset managers. Often index results will be bonused by the fact that companies that no longer exist are excluded from all index history. Asset managers will find ways to exclude poor performance from their historical results by conveniently " cherry picking" good results while "forgetting" results that are not so good. Survivor bias can be defined in very broad ways to virtually exclude any discussion of historical results. Ie you can't tell me the banks have performed well because trust companies or fund companies or US banks did not. I don't think this is the best way to look at historical results but I do acknowledge that people have a natural tendency to talk more about their winners than their losers.
I don't know if bank stocks will perform well in the future and past performance may not predict the future. But you have to admit they have had a long run and seem to have adapted better than many businesses.


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## dave2012 (Feb 17, 2012)

I got conned into setting up an RESP for my son with one of these companies.

Turns out the first 1.5 years of monthly contributions went to pay the sales persons commission!

My son still hasn't enrolled in a program yet, its been 20 years since I started the RESP paying into it for 18 years. If he doesn't go to school, I'll get back all my contribitutions less the commission.

The sales commissions amounted to a whooping 10.7% of my total contributions!

Not so confident my son will be going to school so after 20 years of investing in his RESP I'll get back 89% of the money we contributed.

If you cancelled at this point, you'd probably loose the commission which is probably a significant portion of your current contributions, something in the ball park of 25-30%?


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## Four Pillars (Apr 5, 2009)

GoldStone said:


> The OP mentioned the parents have a growing debt problem. We don't know what kind of debt it is.
> 
> If the interest on the growing debt is reasonable (e.g. HELOC at prime), you can make a case they should stay enrolled.
> 
> If it's bad debt (read: credit cards), what then? Can you justify staying in the plan?


I missed that part. Poor finances on the part of the contributors is definitely a negative indicator for their ability to continue the payments. But without a crystal ball, it's hard to evaluate this factor.


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## Four Pillars (Apr 5, 2009)

MoneyGal said:


> FP - I just meant that, like in the argument about bank stocks that "they will be great going forward (and I don't know why anyone would consider anything else), because they've done well for me in the past" making the argument that "my kids had a group RESP and it was good for them - those plans are fine" [note: I know no one has said precisely this here, but I've heard this argument before], just because something has worked for someone in the past doesn't mean it will work for you in the future.
> 
> "Survivor bias" is when you look at the results that only include "winners" or survivors and conclude something works because it produces winners; without considering the experience of "losers." My point was supposed to just be that this is another example where survivor bias can, well, bias the results and peoples' evaluation of the merits of a group RESP.


All I said was that "most people are happy with them". You are reading way too much into that statement.

The reason I tend to soft-pedal on this topic is because most of the people I deal with who have problems with their plans are in a no-win situation. They might not be happy with the plan, but they are in too deep to get out. Telling them that they have at least a reasonable chance of success with the plan might make them feel better about remaining in the plan and not doing something dumb like cancelling the plan after 10 years.


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## MoneyGal (Apr 24, 2009)

Well, I'm apparently not making anything clearer with my posts on this topic. 

My intention was to point out a potential bias in the argument *for* these plans; and if the survivor bias argument is brought forward in one current thread, why would the same arguments not be brought forward in another thread (this one)? 

Survivor bias is not just a finance term - it is used a lot in medicine, for example (where it has a fairly literal aspect!). 

I understand that "most people who use them are happy with them." I understand the desire to soft-pedal the arguments against these things. However, if you are considering these things *before you get into them* wouldn't you want to know all the drawbacks? Dave2012 says "I got my contributions back." That's the same as taking the actual dollars and sticking them under the mattress - there is NO investment growth. This is a really sub-par outcome. 

I realize it is different once you are already *in* the plan. However, I went back and re-read the whole thread. For a couple with "low income, no savings and growing debt," they should probably just get out now.


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## Cpt. Fantastic (Feb 3, 2012)

Thank you all for the engaging conversation. The decision on which advice to give my sister is quite complex. In my opinion and what seems to be the prevailing thought in this thread, is that she should get out. My sister and her husband have very little financial background, I've done my best to help them understand basic concepts better but it's been a slow turn around. My sister works as a customer service rep at one of the big 3 cell companies, which is obviously a position that can easily be outsourced (and quite a lot of the work already has), she doesn't have a post secondary education and her job doesn't have any promotional opportunities. Her husband also does not have post secondary education and does some sort of delivery work where he has to use his own vehicle and pay for his own gas and gets paid very little (something like $20k/yr). They had a large amount of high interest credit card debt (over $15k), my parents agreed to put all the debt on their LOC at a lower interest rate and have my sister pay them instead. Since then, they seem to have racked up even more credit card debt. It's a never ending cycle.

As much as I want my niece to have every chance at post secondary education, I really don't think it's wise that my sister and her husband are putting $50 away for that idea when they have so many other financial problems as it is. The other side of it is, having an extra $50 a month is likely not going to go towards bringing down the debt. It will likely go wasted on things they don't need.

The reason why I was sounding very hyper controlling in my earlier posts is because of the stress this is causing on my parents. My dad is 66 and feels like he can't retire because of how much my sister relies on them for financial support. It's sad really, I'm trying my best to help get involved and see if I can make a difference, but it's made little impact so far. For instance, I had my sister over to review their finances (her husband had no interest in coming), they want to move out of their crummy apartment and into a townhouse or something. I explained some of the things they'd have to cut, for instance they spend well over $100 for cable because her husband has to watch all of his sports. They spend well over $100 in cell phones. They go on trips often (to visit his family in the US and Caribbean). But they refuse to cut anything. The best I did was had them switch from $60 internet to $30 internet. That's all I could accomplish so far.

Anyway, thanks again for all the information everyone has provided. Clearly this is more than an RESP Education Fund problem, but I'm trying to tackle one thing at a time.


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## MoneyGal (Apr 24, 2009)

You are a great son.


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## Four Pillars (Apr 5, 2009)

And a great brother.


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## Xoron (Jun 22, 2010)

MoneyGal said:


> You are a great son.


And even better brother :encouragement:

But in all seriousness, if you have the means, setup an RESP for your neice and contribute to it. I did that for a while for my niece (before I was married and had my own rug rats to deal with.) Now it isn't much, but it's a hell of a lot better than nothing


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## Cpt. Fantastic (Feb 3, 2012)

Xoron said:


> And even better brother :encouragement:
> 
> But in all seriousness, if you have the means, setup an RESP for your neice and contribute to it. I did that for a while for my niece (before I was married and had my own rug rats to deal with.) Now it isn't much, but it's a hell of a lot better than nothing


Ya, I'm likely to go that route. I still owe my niece a birthday present and my thought was to start a plan. One thing I'm trying to figure out is, if my sister keeps her plan, will my RESP plan gain any advantage being an RESP? Or am I better served just making an unregistered account and giving her the money when I see fit?


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## Xoron (Jun 22, 2010)

Cpt. Fantastic said:


> One thing I'm trying to figure out is, if my sister keeps her plan, will my RESP plan gain any advantage being an RESP?


Two advantages:
1. RESP grant (assuming it isn't all eaten up when her parents contribute, assuming it continues)
2. Tax free growth, and when withdrawn, taxed in the child's hands. Likely at a MUCH lower tax rate than you'll have.


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## Plugging Along (Jan 3, 2011)

Cpt. Fantastic said:


> As much as I want my niece to have every chance at post secondary education, I really don't think it's wise that my sister and her husband are putting $50 away for that idea when they have so many other financial problems as it is. The other side of it is, having an extra $50 a month is likely not going to go towards bringing down the debt. It will likely go wasted on things they don't need.
> 
> The reason why I was sounding very hyper controlling in my earlier posts is because of the stress this is causing on my parents. My dad is 66 and feels like he can't retire because of how much my sister relies on them for financial support. It's sad really, I'm trying my best to help get involved and see if I can make a difference, but it's made little impact so far. For instance, I had my sister over to review their finances (her husband had no interest in coming), they want to move out of their crummy apartment and into a townhouse or something. I explained some of the things they'd have to cut, for instance they spend well over $100 for cable because her husband has to watch all of his sports. They spend well over $100 in cell phones. They go on trips often (to visit his family in the US and Caribbean). But they refuse to cut anything. The best I did was had them switch from $60 internet to $30 internet. That's all I could accomplish so far.
> 
> Anyway, thanks again for all the information everyone has provided. Clearly this is more than an RESP Education Fund problem, but I'm trying to tackle one thing at a time.



I am going to throw my 2 cents in. My advise is not based on what the best financial decision, as the other members here are much more astute with that area. I will say based on the family dynamics and over all environment. I would say have your sister stop the RESP through the group plan. This is a liability to her in terms of cashflow, and therefore an additional burden to your parents. I understand they want the best future for your neice, but throwing $50 in to a plan, while they are continually racking up debt is not going to help. I would start cutting out all liabilities as you have already said that you have tried. Forget about the sunk costs, and take what they can. The exception is if there is no penalty or fees to stop the contributions, then just let it sit. Your sister needs to get her current financial house stable, before worrying about future costs. 

If you are in the financialy position, and you want to do so, I would open up a seperate RESP for your neice, and manage it yourself. This is only if you want to, but then you do get to have that control. Having coming from a highly financially literate family, I know when my brothers tried to force change on me and I wasn't ready, it didn't work. They just kept showing me by example, and making suggestings on what I could do differently. Fortunately, it started to stick when I got out of school, but that was because I was ready to learn.


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## Cpt. Fantastic (Feb 3, 2012)

Xoron said:


> Two advantages:
> 1. RESP grant (assuming it isn't all eaten up when her parents contribute, assuming it continues)
> 2. Tax free growth, and when withdrawn, taxed in the child's hands. Likely at a MUCH lower tax rate than you'll have.


Perfect. I was most worried about #1 and had assumed #2. Good points, thanks!


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## Xoron (Jun 22, 2010)

Cpt. Fantastic said:


> Perfect. I was most worried about #1 and had assumed #2. Good points, thanks!


One disadvantage: it'll be slightly more complicated to withdraw the money for her for school. You'll need proof of enrollment and withdrawing the funds should be done in a particular way to take out the RESP grant money first. (I'm no expert, but there are a few good websites out there: http://www.moneysmartsblog.com/resp-reference/)


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## Cpt. Fantastic (Feb 3, 2012)

Plugging Along said:


> I am going to throw my 2 cents in. My advise is not based on what the best financial decision, as the other members here are much more astute with that area. I will say based on the family dynamics and over all environment. I would say have your sister stop the RESP through the group plan. This is a liability to her in terms of cashflow, and therefore an additional burden to your parents. I understand they want the best future for your neice, but throwing $50 in to a plan, while they are continually racking up debt is not going to help. I would start cutting out all liabilities as you have already said that you have tried. Forget about the sunk costs, and take what they can. The exception is if there is no penalty or fees to stop the contributions, then just let it sit. Your sister needs to get her current financial house stable, before worrying about future costs.
> 
> If you are in the financialy position, and you want to do so, I would open up a seperate RESP for your neice, and manage it yourself. This is only if you want to, but then you do get to have that control. Having coming from a highly financially literate family, I know when my brothers tried to force change on me and I wasn't ready, it didn't work. They just kept showing me by example, and making suggestings on what I could do differently. Fortunately, it started to stick when I got out of school, but that was because I was ready to learn.


Thanks, that's likely the route I'm going to take (both accounts, at least advise my sister on #1)


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## Plugging Along (Jan 3, 2011)

Forgot to add, you're a great son, brother, and uncle too.


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