What Are RRSPs, TFSAs, and RESPs Anyway?

The Alphabet Soup of Canadian Finance

One of my biggest pet peeves in the world of Canadian investments is the phrase, “I should really buy some RRSPs this time of the year.” *usually spoken in Jan-March*

Nothing shows our lack of financial literacy better than that sentence!

I mean think about how many things that are wrong with that commonly said statement.

1) RRSPs have no tangible intrinsic value.  They are merely an account.  You can’t buy or sell an RRSP.  It doesn’t pay a dividend.  Opening 97 RRSPs at various financial institutions doesn’t make you any wealthier!  Therefore, you cannot EVER “buy RRSPs”.

2) By stating that you should buy RRSPs you are revealing how little you know about what actually constitutes an investment and what you are allowed to invest in within your RRSP.  This is the type of thinking that allows Canadian MER fees on mutual funds to be amongst the highest in the world.

3) You can contribute to your RRSP at any time of the year!  Why would you wait for the period of the year that comes right after the orgy of consumerism that is the Christmas season?  That’s really poor planning and again shows a lack of basic understanding on how an RRSP works.

I don’t get mad at folks for not know about the seemingly endless acronyms that make up our wealth management world in Canada.  At what point does anyone tell us it is important to know these things?  Most people are shocked when I explain to them that understanding the difference between a TFSA and an RRSP could likely save them tens of thousands of dollars over the course of their lifetime.

Many of my buddies are beginning to start their families and have children.  When I show up to a one-year-old’s or two-year-old’s birthday party with a cheque in hand that has “RESP” written on the memo I often get some funny looks.  Understanding how Registered Education Savings Plans works can mean the difference between your child going to post-secondary schooling or not.  It can mean graduating with $25K in debt – or NOT!  Check out the articles below for some simple facts about RRSPs, TFSAs, and RESPs, in addition to advice on how to best make use of the programs.

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