TL: DR: Rich folk use RESPs much more than the poor, counter to whom it was supposed to help.
Estimated reading time: 3 minutes
Stats Canada came out with a very telling survey titled, Why are Lower-income Parents Less Likely to Open an RESP Account? by Aneta Bonikowska and Marc Frenette. The findings are worrisome in that it points to the fact that the RESP seems to be a program used mainly by the wealthy(er) parents.
A telling quote from the Executive summary.
The results suggest that differences in wealth remain the single most important factor behind the gap in RESP participation by family income, even after accounting for differences in parental education and literacy, numeracy and financial literacy.
Why are Lower-income Parents Less Likely to Open an RESP Account? The Roles of Literacy, Education and Wealth
Many lower-income families are unaware that it can grow with the Canada Learning Bond even if they put no money into the program. The CLB can add up to almost $2000 (over the life of the RESP).
They claim that this is a Financial Literacy issue is a bit of a stretch, but possible. I think it is that Lower Income families are not aware of the CLB and other benefits (which I suppose is Financial Literacy). My guess is tellers at banks will not offer to set up an RESP for a “No Star” customer. The Up-Sell would be reserved for “good” customers.
Conclusion
I guess the question is simple if Canadian Parents are barely making ends meet, will they put money aside for their kids’ post-secondary education? This report concludes, No.
I think I agree, but I’d like to know how to change that.
Ways to Fix This?
- Banks need to market this program to lower income families, and point out that there is Free money to be had. The Canada Learning Bond is that free money. I really doubt many banks will do this, unless they could make money doing it.
- Expand the Canada Learning Bond, so that there is more money for lower income families.
- Maybe a Government run RESP program, that is set up for lower income families?
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More on Canada Learning Bond
- Pro Literacy did a guest post about RESP’s in general and CLB’s in specifc.
- Sometimes Putting Money into an RESP doesn’t make sense, but with the CLB still open an RESP.
- I have written about the Canada Learning Bond before.
- Canada Learning Bond Frustrations really was me being silly enough to believe I made so little that my kids would get the CLB.
- Are RESPs only for Rich Folk ? Banks certainly think that is the case
- Plenty of other articles about the world of the Registered Education Savings Plan
Another reason it is not promoted is that the CLB seems to requires more administration for the banks or investment institutions. Last time I checked, RBC can handle the CLB but when I tried to transfer a LARGE RESP to RBC Direct Investing (DI), DI is not set up to handle the CLB so I was told I would lose that and could not even split it off to stay with the bank.
It sounds like the RESP program needs to be revamped to make this stuff work for the people it is supposed to work for.
To fully benefit, you have to be able to contribute $5K per child a annually – don’t lose your job and stop contributing! I thought I can catch up on all those years I was out of work – as soon as I was working again, I plowed aggressively for my 2 children, hoping to catch up. Then I found out that I had a sizeable amount of funds labelled “unassigned” meaning that I wouldn’t be getting the 20% on that amount, even if I left it there for the following year. It has to be new money deposited in the subsequent year to get the 20%. It would forever remain “unassigned” unlike an RSP where you can over contribute and use it as a deduction in future years. Okay, so I called to inquire about withdrawing the unassigned amount to use the money more wisely and was told that they would claw back ALL the CSG that I had earned on the assigned amount. Why?? I would leave the assigned amount alone that supports the CSG received.
This plan is for the wealthy and those with steady high incomes throughout their children’s’ lives. Presents for the wealthy. And finally, the plan is so complicated and difficult to understand – which is why I made the costly mistake – even the bank wasn’t sure what they were talking about. It must cost a lot of tax payers’ dollars to administer such a complicated program to help wealthy Canadians get their free money. Very disappointed in our government.