I extensively analyzed RESP’s in an earlier post, coming to the conclusion that a person is likely better to wait until the last moment that they are convinced their children will be heading to upper-level education before opening one.
The Globe and Mail is reporting how RESPs are having a rather lacking participation rate and goes into detail why this may be the case. I believe the explanation is simpler than this, and it boils down to two reasons:
1. People do not have disposable income to invest in an RESP, and are choosing to allocate it elsewhere for more immediate priorities;
2. Opening up an RESP leads to potential losses, and people would not want to lose money on their children’s education fund compared to their own investments – ergo, they will be sticking to extremely safe fixed-income products, and given the interest rates available, it is not really worth it at the moment.
There are plenty of scholarship funds out there that try to prey on people that fall under category #2; unfortunately for those that read the fine print, they will likely be throwing away their money on these conceived structured products that are designed to enrich the scholarship fund managers.
The government is trying to promote RESPs to lower income individuals by offering significant incentives to putting money in them. For example, if you earn less than $40,970 in a year, you will qualify for the Canada Learning Bond, which is a “free” $500 plus $100/year that your income is below that level into the RESP. If your income is less than $38,832/year, your contributions will be eligible for a 40% match by the government for the Canada Education Savings Grant, as opposed to the 30% or 20% brackets if you make more income.
Many lower income individuals are usually too busy working to pay attention to any of this and thus will not be taking advantage of money of these benefits. This is even assuming they are not falling under category #1, mainly that they do not have enough disposable income to be thinking about RESPs for their children.