In August the federal government released the Canada Education Savings Program (CESP) 2009 Review.
This is the umbrella under which is housed the familiar Canada Education Savings Grant (CESG), and the apparently not-so-familiar Canada Learning Bond (CLB). (More on the CLB below.)
Overall, past performance metrics for the CESP seem quite positive, and the trajectory for the future appears similarly on neutral to favourable ground.
RESP – Contributions and asset growth
While annual RESP contributions increased in 2009 to just over $3.1B, that is less than a 1% increase over 2008. At the same time, the number of RESP beneficiaries increased at a slower rate in 2009 (about 6.8%), than the average for the preceding 3 years (9.2%). Not surprisingly then, annual contributions per beneficiary dropped (by 1.5%) last year for the first time since 2001, falling to an average of $1,423.
When the CESP was introduced in 1998, Canadians held $4B in RESP assets. By the end of 2009, those assets had grown to $25.9B, and apart from the 2008 downturn when there was a 3% decline, RESP assets have increased every year since CESP inception.
Of course a 3% drop is a mere blip in comparison to the way general investment and retirement portfolios may have fared in 2008. Consider though that the asset tally includes existing assets from the prior year plus contributions and CESP supplements. Respectively, those additions in 2008 were $3.1B and $599M. If one carves out these additions, existing assets declined by about 19% that year.
And though one might expect fairly conservative approaches to RESP investment, I am reminded of a friend who stuck it out with the markets through the downturn. With one child having started university in 2009, and another commencing this September, he is now lamenting not having glided to conservatism in these lead-up years. He may work a bit longer to pay the education tab now, but presumably their success will be the payback.
CESG – Dollars and participation rates up
Total CESG payments have increased every year since CESP inception, up 2% from 2008 to 2009 at $612M. Over its history, the CESG has contributed almost $5.1B toward education savings.
The average age of new beneficiaries has decreased every year since CESP inception in 1998 when the average child was almost 8 years old. For 2009, average age is 3.6 years, which the Review suggests is evidence that the program has encouraged families to begin saving early for post-secondary education.
It is estimated that over 40% of children up to age 17 participated in the CESG in 2009, with peak participation occurring in the 5-9 age range at over 45%. There is no explanation or suggestion for this phenomenon, though greater promotion in recent years may explain higher participation of younger children. As to the very young, as a parent who is just getting the last of 3 out of diapers, I think I know where some of the money (and distraction) goes early on.
CLB – Money left on the table
While much of the report is rosy, one troubling aspect is the low participation rate for the Canada Learning Bond. Acknowledging that participation rates have increased by about 5% annually from 2005 inception up to 2009, a rate of 19.3% is unfortunately low.
To summarize the CLB, it is aimed at children from low-income families, using entitlement to the National Child Benefit Supplement (NCBS) as the qualification criterion. It pays an initial $500 directly to a child’s RESP, and another $100 for each year of continuing eligibility to age 15 – and does not require matching parent contributions.
So, if qualification is independently determined, and the parent need not be out-of-pocket … why don’t we see 100% participation? I can’t answer that, but I do have a suggestion.
This is not a mere statistical estimate of qualification: The NCBS, as part of the Canada Child Tax Benefit (CCTB) program, is monitored using parents and children’s social insurance numbers. This is tracked and shared with those parents on CRA’s “My Account” secure web-server.
So here is the suggestion:
Maybe the government could credit the CLB amounts to the appropriate My Account location for children of NCBS entitled families. Credits would earn no income, but could be wired to a financial institution once an RESP is actually opened. If no RESP is ever opened, then the credit could be triggered in future if and when the child claims a tuition credit or provides similar evidence of qualifying post-secondary education.
It may not be quite that simple, but I don’t think it’s much more complicated.