Financial expert Jamie Golombek emphasizes that timing is essential when it comes to Registered Education Savings Plans (RESPs). According to Golombek, parents and guardians should prioritize making contributions to these education savings vehicles as early as possible to maximize the benefits of compound investing.
RESPs have become a cornerstone of education funding for many Canadian families, offering tax-advantaged growth and government grants that boost savings potential. However, the full power of these accounts is only realized when contributions begin early and continue consistently.
The Compound Advantage
The primary advantage of early RESP contributions lies in compound investing—the process where investment returns generate their own returns over time. This snowball effect can significantly increase the total value of an education fund over the typical 18-year investment horizon before a child enters post-secondary education.
For example, a $2,500 annual contribution that begins at a child’s birth rather than at age 10 could result in tens of thousands of dollars in additional education funding, assuming average market returns. This difference can cover a substantial portion of tuition costs at many institutions.
“Contributing to an RESP as soon as possible is critical due to the benefits of compound investing,” Golombek states, highlighting that even small early contributions can outperform larger contributions made later in a child’s life.
Government Grants Enhance Returns
Beyond the mathematical advantage of compound growth, early RESP contributions also maximize government incentives. The Canada Education Savings Grant (CESG) matches 20% of annual contributions up to $500 per year, with a lifetime maximum of $7,200 per beneficiary.
Starting contributions early ensures families can claim the full grant amount over time. Additional provincial incentives may also be available depending on location and income levels.
Financial advisors note that families who wait too long to start an RESP may never be able to collect the full government grant amount, as there are annual contribution limits for grant eligibility.
Strategic Contribution Approaches
While Golombek stresses the importance of early contributions, he also acknowledges that strategic planning remains important. Families should consider:
- Setting up automatic monthly contributions to maintain consistency
- Increasing contribution amounts after major life events like salary increases
- Inviting grandparents and extended family to contribute to the RESP for birthdays and holidays
- Adjusting investment risk levels as the child approaches college age
For families with limited resources, financial experts recommend starting with whatever amount is feasible rather than delaying contributions altogether. Even $25-50 monthly contributions can grow substantially over 18 years and will attract some government grants.
The investment strategy within an RESP should typically become more conservative as the beneficiary approaches school age, shifting from growth-oriented investments to more stable options that protect accumulated gains.
With education costs continuing to rise faster than inflation at many institutions, the message from financial experts like Golombek is clear: when it comes to education savings, time in the market is one of the most powerful advantages families can leverage.
