Governments offer incentives for parents to open Registered Education Savings Plans, but low-income families stretched to save any money are less likely to do so, which is an inequity that needs to be resolved, says a B.C. credit union CEO.
The automatic one-time and annual grants can add up to more than $5,000 by the time a child turns 18, but a lot of families forgo those benefits over their inability to make contributions, according to Mike Schilling, CEO of the Lower Mainland’s Community Savings Credit Union.
RESPs have become popular as tax-shelter vehicles for higher-income Canadians, research from Statistics Canada has shown. And the federal government will match up to 20 per cent of contributions to a maximum of $500.
“What does it take to open an RESP, well it depends on the bank,” said Schilling. “At Community Savings, you don’t need a deposit, we’ll do the paperwork for you, of course there’s always paperwork.”
Then beneficiaries, the children or grandchildren or wards, for whom RESP subscribers are opening accounts for, can be eligible for the one-time, $1,200 B.C. training and education savings grant and federal Canada Learning Bond, a needs-based grant that can be up to $2,000.
“I don’t think (banks) are really incentivized to do this,” Schilling said.
The CEO gave credit for the credit union’s interest in the issue to branch-banking manager Mark Jones who led a grassroots’ campaign to open RESPs for all their members in a particular location.
“So it sort of led us to think about our RESPs more ourselves,” Schilling said.
Community Savings Credit Union commissioned the non-profit pollster the Angus Reid Institute to survey 810 British Columbians, which found that while 97 per cent of respondents knew what RESPs are, it was the higher-income respondents who were more likely to make use of them.
Some 78 per cent of higher-income respondents, with more than $100,000 in household income, said they had opened RESPs for children, versus 51 per cent of lower-income respondents, households with less than $50,000 in income.
Parents with higher levels of education, including university and trades training, were also more likely to have opened RESP accounts for children.
And among those who hadn’t opened RESPs for kids, the survey found that 79 per cent listed financial barriers as the reason, not having cash to spare for an initial deposit or because they struggled to find money to make contributions.
“What we find is that in times of inflation or when household budgets are tight, savings is one of the first things to go,” Schilling said.
Financial institutions also don’t make a lot of money from RESP accounts, so many “don’t really go out of their way to attract low-income families to work with them,” Schilling said. “And that’s really failing in terms of distribution of (the RESP) benefit.”
Researchers at StatCan have also taken note of the income disparity in RESP use, despite the program’s intent to make post-secondary education more viable for youth “from traditionally low-enrolment groups,” according to a 2022 study.
As of 2019, the cutoff in the study, Canadians in the top 20 per cent of income distribution held almost seven times more money in RESPs than those in the bottom 20 per cent of income distribution.
More generous incentives starting in 2005 helped close some of that gap, according to the report, but “families in the top of the income distribution were still considerably more likely to hold RESPs and had far more invested in them in 2019 than their counterparts in the bottom of the income distribution.”
For its part, Schilling said Community Savings is offering parents initial-deposit bonuses of $100 to open an RESP with them, $200 if they become members.
Then depending on how investments play out, the credit union estimates that interest on just the one-time grants could compound to $5,400 by the time beneficiaries turn 18.
“Most families, over a period, would be able to add to that and get a matching (contribution),” Schilling said.
The next step, Schilling added, will be to lobby government on ways to reduce bureaucratic barriers to opening accounts, then consider increasing their portion of the grants, which haven’t increased since 2007.
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