RESPs Are An Equity Issue - Pre-Primary Edition
Talent is equally distributed; opportunity is not. Adam Grant, Hidden Potential
As a high school coop teacher, a big part of my job involves helping students develop an Education and Career Plan. This process requires a student to thoughtfully and individually evaluate many things - their strengths, interests, grades, labour market trends, and of course, finances.
For many, finances will emerge as the most important constraint that will limit which educational paths they can access as they look to build their careers. Many nice, mid-level achieving students from relatively affluent families will finish Bachelor’s Degrees and get started on their careers.
Other equally nice, higher-achieving students from families with lesser means may settle for shorter post-secondary programs, such as 2 year College Diplomas, or persist through Bachelor’s Degrees to graduate with tens of thousands of dollars of debts as they seek to get their careers started.
The equity issues we struggle with in the public education system persist and may even be amplified in the post-secondary system.
As educators, we have a potential tool in our repertoire that is almost never discussed : RESPs.
The Registered Educational Savings Plan, RESP, allows “people to save for a child’s education after high school”. As educators, we can help make sure the right ‘people’ know about these plans and understand how they can participate in the plan. Two groups I believe we should be talking to about RESPs include the parents/guardians and the teenaged students themselves.
So what do we need to know to start talking about RESPs in our school communities?
Not as much as you might think. And we are afflicted by a social stigma to not want to talk about issues that relate to money. And, ironically, we spend many hours in our week working through the issues that affect our students that have their roots in… you guessed it… money.
Here are some simple core concepts about RESPs that educators can understand and communicate to their school communities to possibly decrease the financial burdens related to post-secondary education faced by many of our students.
Small Contributions Started Early Can Make Huge Differences
Let’s say that a parent/guardian learns about the advantages of an RESP in September when their four year old, Child A, starts school. The student has 14 years of schooling before they will likely be ready for post-secondary education.
In the simplest example, let’s say the parent/guardian decides to put aside $10/month for those 14 years and invest it into a RESP holding a safe, fixed-income bond that will pay 3.5% interest per year.
Many families might realistically consider making a $10/month commitment to their child’s education.
The government will support this parent/guardian by adding 20% to the parent’s contributions through a grant called the CESG* until the end of the calendar year in which the student turns 17.
How much will be in Child A’s RESP when Child A is 18 and ready to start their Post-Secondary Education?
$2572
Now, some people will think that $2572 isn’t that much money to put towards a post-secondary education. Maybe that’s true. But ask the student who doesn’t have anything saved on their behalf if they would be happy to have $2572 to help pay for their education rather than work an additional 169 hours at a part-time job at $15.20/hour (Nova Scotia’s current minimum wage) to replace that amount. To the student funding their own post-secondary education, $2572 is A LOT of money!
There Is Additional Support for Low Income Families
Some families in our systems may not realistically have $10/month/child available to them to save for their children’s future educations. Knowing this may prevent some educators from being willing to introduce the idea of RESPs to the parent/guardians in their school community.
If anything, I hope this section convinces these educators to do exactly the opposite: it is even more important to introduce RESPs to low income families.
Why?
Because in addition to the 20% CESG* grant top up that the government will add to the parent/guardian’s contributions, there is an additional support, called the Canada Learning Bond (CLB), available to low income families.
And to access the Canada Learning Bond, a parent/guardian just needs to open an RESP for the child and does not need to make any contribution to the account. Ever.
In the first year the account is open, the government will add a $500 CLB to the RESP account. In each year after that in which the primary caregiver continues to qualify for the CLB, the government will add an additional CLB of $100 each year until the calendar year when the student turns 17.
What is the Low Income threshold to qualify for a Canada Learning Bond? The eligibility is determined by the Adjusted Family Income of the Primary Caregiver, which considers the Primary Caregiver’s pre-tax income and, if they have one, their Spouse or Common-Law Partner’s pre-tax income with a couple other adjustments.**
If the Adjusted Family Income is less than $53,359 for families with 1-3 children, the RESP will qualify for a CLB. If there are more than 3 children in a family, the income threshold to qualify is even higher.
Let’s say Child B, age 4, lives in a low income family that qualifies for the Canada Learning Bond. The parent/guardian learns about RESPs in September of the first year the child is in school and opens a RESP. They apply for the CLB, and the government puts $500 into the account for the first year.
The parent/guardian continues to qualify for the CLB all the way through the student’s education so the government puts an additional $100 in each year for the student.
The parent/guardian has the RESP account set up so that the CLB is automatically invested into a safe, fixed-income bond that will pay 3.5% interest per year.
How much will be in Child B’s RESP when Child B is 18 and ready to start their Post-Secondary Education?
$2215
And what if that same parent/guardian also decided to add $5 to the RESP each month until the end of the calendar year when the student turns 17. Let’s call this child, Child C. How much would be in the RESP account now?
$3491
Additional Benefits To Having an RESP
Opening an RESP for a child signals a commitment to post-secondary education for both the parent/guardian and the child.
When kids are old enough to know that they have an RESP growing for them, it helps keep them focused on a long-term, education-focused mindset. Early on, kids can start to learn that there are different careers with different pathways and they can start gathering information about themselves, their options and the world to help them become better informed financial and educational consumers.
The students in all three of these examples, Child A, Child B and Child C will also have access to another tremendous benefit when they reach their teenage years: They will be able to contribute to their RESPs and also receive the 20% CESG***grants until the end of the year in which they turn 17.
When I explain this benefit to students, I tell them to think of it like they are getting a 20% raise on any contributions they make to their RESPs. When I show them that this is like getting paid $18.24/hour instead of $15.20/hour, they are extra motivated to save for their future selves!
And for the students who know that they have no adults in their lives who can contribute to their post-secondary education, they also see each of these contributions as less debt they will have to pay down before they can really start building themselves the happy and financially healthy lives they want to go along with their career plans!
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References
*CESG grants are subject to Lifetime Limits of $7200 for each child. They are also subject to Annual Limits of $500/year or $1000/year if the contributor has fallen behind in their annual contributions.
** The CLB is available for eligible children from low-income families born in 2004 or later and provides an initial payment of $500 for the first year the child is eligible, plus $100 for each additional year of eligibility, up to age 15, for a maximum of $2,000. Personal contributions are not required to receive the CLB. To help cover the cost of opening an RESP, ESDC will pay $25 into the RESP to which the initial CLB of $500 is deposited in recognition of a one-time incidental expense that may be associated with opening the RESP account.
*** In order to qualify to keep receiving the CESG in the years in which the student is 16 and 17, before the end of the calendar year when the student turned 15, one of the two following conditions must be met:
- a minimum of $2,000 was contributed to (and not withdrawn from) the RESP of the child before the end of the calendar year the beneficiary turned 15
- a minimum annual contribution of $100 was made to (and not withdrawn from) the RESP in at least four of the years before the end of the calendar year the child turned 15