The rising cost of living, inflation, and economic uncertainty are putting greater financial pressure on families everywhere. While we can not control the economy, we can take proactive steps to prepare for the future, especially when it comes to our children’s education. That’s where a Registered Education Savings Plan (RESP) comes in.
This article will show you how to safeguard your child’s education savings amid economic challenges by taking full advantage of an RESP and its unique benefits. You will learn what an RESP is, how to invest in it effectively, and smart strategies for building a strong portfolio that sets your child up for success.
Part I: Understanding the RESP
What Is an RESP?
A Registered Education Savings Plan is a tax-free savings account approved by the Canadian government to help families save for their child’s post-secondary education. This includes universities, colleges, trade schools, and apprenticeship programs. Eligible expenses also include books, tools, transportation, and rent.
An RESP is a long-term savings plan, and the goal is to start as early as possible, ideally as soon as possible after birthday. This allows your funds to grow over many years, unlocking the power of compound interest well before your child’s first day of class.
Government Incentives for RESPs
The Canadian government offers several benefits to encourage families to invest in their child’s education.
- Canada Education Savings Grant (CESG): The government matches a portion of your contributions through the CESG. This grant can provide up to $500 annually, which is 20% of the first $2,500 you contribute each year. The grant amount may be higher for families with lower incomes. The lifetime maximum grant per beneficiary is $7,200.
- Canada Learning Bond (CLB): The CLB is a grant designed for low-income families. An eligible child can receive an initial $500 when an RESP is opened and an additional $100 for each subsequent year they are eligible, up to age 15. The lifetime maximum is $2,000.
- Other Benefit: Capital growth & the power of compounding. By investing for the long term, your money not only grows but also compounds, that is earning returns on both your initial investment and the accumulated gains. This creates significantly greater growth potential compared to simply keeping money in cash or a regular checking/savings account.
Not a Resident of Canada
There are still savings opportunities for your child’s education through government schemes, banks, or by creating a personal investing portfolio. For example, in the U.S., a common option is the “529 plan” (a savings plan for college education), while in Nigeria, private banks offer various high-yield savings accounts dedicated to this purpose. If you are not a resident of Canada, you may skip the RESP breakdown and navigate to Part II of this article, which covers the investing side.
How Much Can I Contribute to an RESP?
The Canadian government has a lifetime contribution limit of $50,000 per child. Any amount contributed over this limit is subject to a 1% tax per month.
Since tuition and other costs consistently rise, it’s wise to set a personal contribution goal that aligns with your financial situation. Even small, consistent contributions can make a big difference over time.
For example, if you were to save for a newborn’s education by investing $50 per month from birth to age 18, your total contribution would be:
- Monthly Contribution: $50
- Duration: 216 months (18 years × 12 months/year)
- Total Contribution: $50 × 216 = $10,800
This amount is well below the $50,000 limit and does not account for any capital gains from investments or government grants. A modest monthly contribution of $208.33 ($2,500 annually) allows you to receive the maximum CESG each year.
Note: It’s okay to start with any amount rather than nothing at all. As your financial situation improves, you can add a lump sum, monetary gifts, or simply increase your monthly contribution.
Part II: Managing Your RESP Portfolio
This section is crucial for maximizing your investment returns and making the most of the tax-free status of your capital gains.
How to Invest Using an RESP
There are two primary ways to manage your RESP investments, depending on your experience level:
- Managed for You: For beginners, a managed account is an excellent option. Professionals at traditional banks, investing firms, or robo-advisors (like Wealthsimple or Questrade) handle your investments for you. While this option comes with management fees, it provides peace of mind and helps protect your capital.
- Do It Yourself (DIY): This approach requires you to handle all aspects of your RESP portfolio, from researching and selecting investments to managing them over time. The upside is you get to keep all your returns, but the downside is you risk losing money if you make poor investment decisions.
What Can You Invest in?
RESPs allow a wide range of investment options, including:
Stocks, Exchange-Traded Funds (ETFs), bonds, commodities, cash, Guaranteed Investment Certificates (GICs), and mutual funds.
Building a Resilient Portfolio: A Beginner’s Guide to Building Your First RESP or Investment Account
A well-designed investment portfolio should be diversified and resilient for the long term. For simplicity, we will focus on stocks and ETFs.
- Stocks represent ownership in a company.
- ETFs (Exchange-Traded Funds) are like a container that holds a collection of various assets, such as stocks, bonds, or commodities. Unlike a single stock, an ETF provides instant diversification by owning a basket of assets.
ETFs are available for a wide range of strategies and sectors, from broad market indexes to specific industries like technology or healthcare. The goal is to design a portfolio that requires minimal effort and can be managed on “autopilot” with periodic reviews—perhaps annually—to ensure it aligns with your long-term goals and risk tolerance.
A Sample Starter Portfolio
Ready to start investing? A great way to build a solid foundation is to mix U.S. and Canadian stocks and ETFs. As your portfolio matures, you can add international equities or bonds to further mitigate risk. To learn more about my simple selection criteria that have yielded results for my own investments, please see my other article on How I picked my 2025 Stocks Watchlist
Here are a few examples to consider for a starter portfolio:
Asset Type Examples to Consider
ETFs SPDR S&P 500 ETF Trust (SPY), Invesco QQQ Trust (QQQ), iShares Core S&P 500 ETF (IVV), VanEck Vectors Semiconductor ETF (SMH), iShares Global Comm Services ETF (IXP)
Individual Stocks Apple (AAPL), Microsoft (MSFT), Google (GOOGL), Costco (COST), BlackRock (BLK), Berkshire Hathaway (BRK.B), Oracle (ORCL), NVIDIA (NVDA), Axon Enterprise (AXON), Netflix (NFLX), VISA (V), Shopify (SHOP.TO)
The key to successful investing is starting early, because time is the most powerful tool for unlocking growth potential.
Key Takeaways
Managing a portfolio is a work in progress that requires continuous review to maximize returns. The most important thing is to get started with something, no matter how small the amount. A simple, strategic, and consistent approach is all you need to unlock the power of compounding and achieve significant capital growth over time.
Sources
Employment and Social Development Canada. (2017). About the Canada Education Savings Program. Www.canada.ca. https://www.canada.ca/en/employment-social-development/programs/canada-education-savings.html
Government of Canada. (2014). Education savings. http://www.canada.ca. https://www.canada.ca/en/services/benefits/education/education-savings.html
Service Canada. (2025). Resources for RESP promoters – Canada.ca. Canada.ca. https://www.canada.ca/en/services/benefits/education/education-savings/resp-promoters.html
Questrade Inc. (2025). Registered Education Savings Plans (RESP). Learning. https://www.questrade.com/learning/investment-concepts/resps-101/registered-education-savings-plan-resp
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