From My Perspective – Registered Educational Savings Plans

As a proud new grandmother, I’ve been thinking a lot about how I will be fulfilling the many promises I made to my grandson while he was still in the womb. One of those promises is that I will do everything I can to ensure his access to post secondary education. Given that by the time he is likely to be going to university, he will need tuition funds in the vicinity of $20,000 a year, any contribution I can make will be essential.

The reality, however, is that saving for education is a difficult task. I wish I could have done it for my own children, to prevent them going into debt carrying the burden of student loans, but I couldn’t. When you are part of the middle class, struggling to raise a family of five, keeping food on the table and dressing them well, not to mention giving them a few benefits like dance and music lessons, there is simply nothing left over to stash away in a savings account. Even that changed once I became a single parent. Struggling just to survive meant there was no longer room even for small benefits. When you have four school-aged children and are trying to figure out how to scrape up money for four sets of school fees, supplies, and clothes, saving money for university is a very distant wish on some far-away dream horizon.

Things haven’t really changed. I’m not in any position to save for university, and I’ll be facing significant student loan repayment myself. But I do want to do whatever I can to make life easier for my grandchild, so I’ve vowed to start some savings, regardless of how small, in the hopes that once I graduate I may one day find myself in a position where I can make some “real” contributions to those savings.

To that end, I’ve been checking out my options. Through my involvement with the student union, I’ve become quite familiar with Registered Educational Savings Plans (RESPs) and the Canada Education Savings Grant (CESG). As far as I’m concerned, these are benefits for the rich, and this opinion is reinforced the more I read about the topic.

RESPs are considered by many to be a good way to invest money toward education, and these investment plans are marketed to people by various companies belonging to a lucrative scholarship “industry.” For many years, government regulations meant that if parents did not use these investment funds for post secondary education, a portion was lost – funds which the companies then re-invested to cover investment growth for those whose children did attend university.

In 1998 the government changed the regulations to expand the list of eligible post secondary institutions to include colleges, and under the new family plan, parents were allowed to transfer unused funds to another child or to their RRSP. The industry also received a boost in 1998 when the Liberals implemented the CESG as part of their “improved” education budget. The CESG provides 20 cents for every dollar parents contribute to a child’s RESP, matching funds up to a maximum of $400 yearly – meaning that the more you can afford to save, the more the government helps you!

Even though they received a huge financial boost from these new regulations, the RESP industry has other problems. The Alberta Securities Commission 2002 industry report has revealed that in Ontario, several companies have been barred from taking on new business, while others are required to make monthly reports. The same has occurred in Alberta, where five scholarship plan dealers registered in the province in 2002 were found to be in breach of securities legislation (Edmonton Journal, July 21, 2004). Where does the problem lie?

The Securities Commission stated that although the investments themselves are safe, the companies in question are guilty of misrepresentation, and misleading and aggressive sales tactics, among other issues. Individuals signing up were not adequately informed regarding what would happen if the plan was terminated, and returns were often quoted as much higher than they actually were. Some sales reps said they worked for a non-profit organization, even though the plans and their distributors are very much for-profit. The Alberta Securities Commission is working with these firms to try to fix the problems cooperatively, but it certainly seems that those who have extra money that they plan to invest in RESPs need to follow the adage, “buyer beware.”

I certainly don’t need further proof that RESPs are not a benefit to help low-income and disadvantaged families send their children to university, but a recent Statistics Canada report has provided it anyway. It came as no surprise to read that this report has confirmed that even though the government has aggressively marketed the CESG over the last four years since its inception, almost half of all Canadian parents with children under 19 remain unaware of the program.

What about the 53.2 percent who were aware of the program? They have higher incomes, better education, and are more likely to own their own homes. Thirty-five percent of those with incomes less than $15,000 were aware of the grant, compared to 69.5 percent of those with incomes of more $40,000.

Of parents with a high school diploma only, 36.6 per cent know about the grant, compared to 73.6 awareness among parents with post-graduate degrees. Similar statistics were apparent in home ownership, with only 38 percent of renters knowing about the grant, while 60.4 percent of “mortgage free homeowners” were aware.

These findings support what many have been saying about these education grants from the start: they are a perk for the rich and those who can afford to save. Surely it cannot be that difficult to see the obvious? Individuals who only have a high school education, who make $15,000 a year, and who are paying rent, cannot even begin to think about stashing savings in a bank account for their children to access many years from now. On the other hand, individuals with university degrees, making good money, owning their homes mortgage-free, with plenty of cash to spare and earning over $40,000 a year, can easily put away yearly savings of $2000 per child. High income, privileged families are therefore eligible to receive $400 of government grant money every year, while low-income families continue to be shut out of post secondary educational opportunities.

During the last four years, the federal government has given $2 billion in registered education savings plans to this grant program. Direct study grants for low-income students only amounted to $474.45 million for the same period. Even more telling is the fact that banks and mutual fund companies have flooded the market with RESPs, considering these a lucrative industry. Some statistics indicate that it costs the government $1 billion a year just to administer the RESP/CESG program (see SUDS report, The Voice, August 3, 2003. v11 i36 (http://www.ausu.org/voice/search/searchdisplay.php?ART=1973)). Add to that the Alberta Securities Commission report on this lucrative industry, and one really has to wonder why the government continues to insist that they are supporting post-secondary education.

In Alberta, of course, babies born during Alberta’s Centennial next year will “benefit” from a government grant of $500 to further boost the savings of those wealthy enough to start an RESP for their newborns (see Taking Notes: Alberta Government to Give $16 Million for Education. The Voice. Feb 18, 2004. v12 i07 (http://www.ausu.org/voice/archives/articledisplay.php?ART=2582&issuesearch=1207))

I find it deeply disturbing that saving for university is big business, a lucrative industry that primarily benefits the rich. But in spite of my ideological issues with RESPs, and CESGs, if I can manage it, I’m not averse to taking some government money if it means I can help my grandchild access post secondary education. In all honesty, I doubt any savings plan or grant will make much of a dent in what he will be paying for university, but at the very least, saving toward that goal will reinforce for him the importance of a university education.

Parents should scrutinize RESPs: Though investments are safe, sales methods sometimes questionable. Ray Turchansky, Edmonton Journal, July 21, 2004.

Many families, especially poor, unaware of education grants. Edmonton Journal, July 25, 2004. Sarah Schmidt, CanWest News Service, Ottawa.

Debbie is a native Edmontonian, and a single parent with four daughters. She has worked as a professional musician for most of her life, and has enjoyed a rich variety of life experiences – with many more to come! Debbie is working towards an eventual doctorate in psychology.

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