Running head: CHILD EDUCATION SAVINGS IN CANADA

Child Education Savings in Canada and

It’s Role in Poverty Reduction

Susan Herman

University of Calgary - SOWK 665

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CHILD EDUCATION SAVINGS IN CANADA
Abstract

This paper examines the Canada Education Savings Program, an asset-based child education

savings policy, with a specific focus on its link to poverty reduction. Questions exist regarding

the effectiveness of this program and its role in supporting a generation to achieve upward

economic mobility. Critics of child education savings programs contend in the modern economy,

post-secondary education does not provide the same return on investment, arguing completion of

high school is a greater determinant of avoiding persistent poverty. In contrast, other research

points to the need for post-secondary training to obtain economic security, and a distinct

correlation between child education savings and academic achievement among low-income

children. The CESP has tremendous strengths, yet its current structure denotes barriers to access

and low awareness, resulting in underutilization.

A literature review was conducted through a search of major databases and think tanks. In

addition, an informational interview was completed with a community-based organization

engaged in public policy and program implementation.

Asset-based social policies focused on child education savings in Canada is relatively new.

Future work involves conducting a full program evaluation, identifying the strengths and

problems of the policy, and implementing policy recommendations towards the overall goal of

post-secondary equity.

Keywords: asset-based poverty reduction, child education savings, Canada Education Savings

Program, Canada Learning Bond

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CHILD EDUCATION SAVINGS IN CANADA
Child Education Savings in Canada and

It’s Role in Poverty Reduction

Introduction

The Canada Education Savings Program (CESP) is an important, yet underutilized, asset-

based poverty-reduction strategy, which has the capacity to support the upward economic

mobility of eligible children and their families. Asset-based policies can be defined as “programs

intended to assist lower-income households to increase their financial assets” (Mendelson, 2007,

p. 1), and a tool to enable low-income households to improve their quality of life (Brandolini et

al., 2010; Mendelson, 2007). Child education savings is defined as incentivized savings vehicles

designed to encourage low-income households to save for their child(ren’s) post-secondary

education (Lewis & Elliott III, 2014).

The CESP administers three programs: the Canada Education Savings Grant (CESG), the

Additional Canada Education Savings Grant (A-CESG), and the Canada Learning Bond (CLB).

The CESG pays a 20% match on the first $2000 or less contributed to a child’s RESP annually

(ESDC, 2017). In response to low take up rates by lower income families and to encourage them

to increase their savings, the Canadian government initiated the Additional – Canada Education

Savings Grant (A-CESG). According to ESDC’s CESP Summative Evaluation Report (2015), in

2013, families with net incomes of $43, 953 or less receive an additional 20% grant on the first

$500 contributed annually, while families with net annual incomes between $43, 953 and $87,

907 receive an additional 10% grant on the first $500 contributed. The total CESG amounts paid,

including the A-CESG, is limited to $7200 (ESDC, 2017).

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The CLB is a federal tool intended to springboard the education savings of lower-income

households (ESDC, 2017). An initial $500 is contributed into an eligible child’s RESP if he or

she is born after December 31, 2003, and the family is a recipient of the Canada Child Benefit,

formerly the National Child Benefit Supplement (ESDC, 2015). As long as the family remains

eligible for the Canada Child Benefit, the child will receive an annual contribution of $100 into

his or her RESP until they reach the age of 15. The lifetime limit of the CLB per child is $2000.

Additionally, the government contributes $25 to cover the cost associated with opening an RESP

(ESDC, 2017; Mendelson, 2007).

The objective of this paper is to demonstrate the relevance of the CESP in poverty

reduction and to increase the awareness to support enrollment. Calculations indicate 1.5 million

Canadian children could currently claim $1 billion in unpaid CLB benefits (Robson, 2016, p. 5).

As a framework, this paper will outline the current context of the CESP, provide a thorough

review of the key arguments that both negate and support the program and its effectiveness in

poverty alleviation. Following this, a discussion of the implications for social work practice and

recommendations for policy development is presented.

Background of Policy Issue

In Canada, the debate remains regarding the definition, prevalence, and interventions to

resolve poverty and wealth inequality. According to Lammam & MacIntyre (2016) and

McKenzie & Wharf (2016), Canada has no official poverty line. Four measures of poverty are

commonly used in research including the Low Income Measure (LIM), Market Basket Measure

(MBM), the Low Income Cut-Off (LICO), and the Basic Needs Line. Lammam and MacIntyre

conclude, using the Basic Needs Line, the percentage of the population who are persistently low-

income is becoming increasingly rare, noting 3.6% between 1993 and 1998, followed by 1.5%
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between 2005 and 2010 (2016, p. 20). In contrast, Torjman (2008) argues certain racialized and

vulnerable groups face disproportionally high rates of poverty, indicating much work remains in

poverty reduction. Despite all cumulative evidence, consensus does not exist regarding whether

poverty has increased or decreased (Wharf & McKenzie, 2016).

It is well known that at risk groups for persistent poverty include lone-parent households,

persons with disabilities, new immigrants, and racialized groups. The causes of poverty are

multifaceted, complex, and interconnected (Lammam & MacIntyre, 2016; Torjman, 2008).

Despite its causes, poverty is inextricably linked to increased health care costs, crime rates, child

abuse, academic underachievement, and under-employment (McKenzie & Wharf, 2016).

Attendance at post-secondary institutions is correlated to family income (Foley & Green, 2015).

The CESP is an asset-based federal policy initiative to promote equity in post-secondary

education (PSE) through the administration of the CESG and CLB. These programs use the

Registered Education Savings Plan (RESP), a tax deferred savings infrastructure introduced in

1972, as the vehicle to encourage savings for a child’s PSE. The objective of child education

savings incentives is set out in the Canada Education Savings Act (CESA); namely to promote

affordability of PSE by encouraging savings from a young age (Employment and Social

Development Canada (ESDC), 2015).

Initially, the RESP was a tax-deferred savings vehicle subscribed to by higher-income

households (Mendelson, 2007). Participation rates were low and in response, the government

implemented incremental adjustments to encourage increased engagement through three

incentivized vehicles targeting the middle-income and lower-income households: Canada

Education Savings Grant (CESG) in 1998; the Additional Canada Education Savings Grant (A-

CESG) in 2005; and the Canada Learning Bond (CLB) in 2005 (ESDC, 2015). This policy is a
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shared responsibility among three federal departments including the ESDC, Department of

Finance, and the Canada Revenue Agency (Robson, 2016).

Monies accumulated in the RESP’s from private contributions, provincial contributions,

CESG, A-CESG, and CLB can be withdrawn, without penalty, for qualified PSE expenses. If

the child does not attend PSE, all monies received through the CESG and CLB must be returned

to the Canadian Government (ESDC, 2017).

Criticism of the program centers on the use of the existing RESP infrastructure for the

CESG and CLB. Barriers to access are numerous and diverse. Currently, enrollment includes a

multi-step application process entailing the parent of an eligible child to open an RESP at a

financial institution then submit two separate applications for both the CESG and CLB. Parkin

(2016), states 23 percent of RESP holders who were eligible for the CLB in 2012 did not receive

it because the appropriate application had not been made. Mendelson (2007) identifies the

requirement to identify as low-income to benefit from the program discourages participation

while Loke and Sherraden (2008) indicate the volume and complexity of investment options at

financial institutions may be daunting. Robson (2016) cites low awareness of the program has

resulted in poor participation. Furthermore, the Omega Foundation, as cited in Lewis and Elliott

III (2014), identify confusion and language barriers as hurdles to participation (p. 21). Despite

federal efforts to increase awareness of the CESG and CLB program, including promotional

strategies of direct marketing, integrated communication, and funding community-based

outreach, the CLB has experienced only an annual 2% increase in participation since 2010, and

remains approximately 55.1% below the participation rates of the CESG (Robson, 2016).

The Marxist theory provides an explanation for the incremental changes to CESP.

Central to Marxist theory is the conflict of interests between the dominant and subordinate class
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(McKenzie & Wharf, 2016). Incremental policy changes to the CESP is influenced by a desire by

the dominant class to protect the policies and tax benefits which maintain their status, such as tax

deferred savings vehicles while legitimizing the inequality of the market system through

additional benefits including the A-CESG and the CLB. In the democratic political structure, the

government is influenced by and aligns with the will of the majority. Therefore, the will of the

dominant underscores policy decisions and can limit progressive solutions from being

implemented.

The Debate

Arguments Against

A key argument that questions the relevance of child education savings strategies centers

on the claim that wage disparity is markedly impacted by the completion of high school, not

PSE. Lammam and MacIntyre suggest a high school graduate earns “significantly higher” wages

in comparison to those who did not graduate (2016, p. 26). Furthermore, Lammam and

MacIntyre illustrate those with less than a high school education have a 2.6% probability of

experiencing persistent poverty while those who have at least some post-secondary education

have a 0.5% probability (2016).

Furthermore, as previously indicated, the growth or decline of poverty has not been

agreed on, nor has wealth inequality (Sarlo, 2017). Some research points to the life-cycle

hypothesis of consumption and saving, outlining stages of life and age as determinants

(Grinstein-Weiss et al., 2005, Sarlo, 2017). Sarlo (2017) concludes wealth inequality does not

limit opportunity. Additionally, Grubel suggests the poor are getting richer and dismisses claims

concerning the poverty trap in his research on income mobility (2016).

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Another argument against child education savings strategies highlights the declining

return on investment for post-secondary education. Foley & Green (2015) depict wages of high

school graduates are on the incline while wages of university graduates has declined since 2000.

Despite wage differentials based on education, Foley & Green argue the labour market has

restructured, with research demonstrating “higher educated workers cascading down the

occupational structure and pushing other education groups down with them” (2015, p. 373).

They conclude in Canada, the resource-based market condition has resulted in an increased

demand for middle to low paying employment, and the demand for high-income occupations has

decreased since mid 2000 (Foley & Green, 2015, p. 389).

Arguments For

Child education savings promote academic achievement before and after PSE (Robson,

2016). As previously identified, the lack high school education is a vulnerability to persistent

poverty. Furthermore, research indicates PSE such as a diploma, degree, or technical certificate

is the minimum education required for economic security (Government of Canada, 2016,

Deming & Dynarsky, 2009; Torjman, 2008). Grubel concludes investment in PSE degrees

increases the probability of advancement into Canada’s top once percent of income earners

(2016, p. 57). In 2006, of Canada’s top once percent income earners, 41.8 percent had less than a

bachelor’s degree, while 81 percent of Canada’s general income earners had less than a

bachelor’s degree (Grubel, 2016, p. 56).

Related to this, PSE drop-out rates among students from low-income households are an

identified concern (Deming & Dynarski, 2009; Elliott III et al. 2011). American research shows

29% of low-income high-scorers complete PSE in contrast with 74% of high-scorers from upper-

income households (Deming & Dynarski, 2009, p. 1). Research points to a clear link between
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CHILD EDUCATION SAVINGS IN CANADA
child savings and post-secondary expectations for a child (Grinstein-Weiss et al., 2005; Parkin,

2016). Child education savings from an early age mitigates the PSE incompletion rate of

students from low-income households through the development of college-bound identity.

Elliott III et al. (2011) introduces a concept of a “college –bound identity” and posits child

savings accounts should inherently be designed to not only promote savings but also intentionally

support the positive development of college-bound identities (2011, p. 2). Children’s vision of

themselves in a future state, more specifically their post-secondary expectations, are correlated

with their likeliness to pursue and complete further education, noting positive college

expectations act as a link between assets and university or college attainment and those with

early savings have greater expectations (Elliott III et al., 2011; Meni, 2016). Parkin (2016) also

supports this claim, depicting Canadian and American indications of a quicker transition between

high school and PSE and an increased likeliness to complete. Children with just $500 or less

saved for PSE are three times more likely to attend post-secondary institutes and four times more

likely to graduate than those without savings (Meni, 2016, p. 1).

Many households have difficulty saving. Families with children find it more challenging

to save than other households with barriers to savings a result of multiple factors including

income-expense ratios (Grinstein-Weiss et al., 2005). As cited in Grinstein-Weiss et al. (2005),

Hubbard et al. (1995) and Hurst and Ziliak (2001) indicate that as means-tested social

programming has increased asset limits, eligible families have also increased their savings.

Available evidence demonstrates when an eligible household receives the CLB, they are likely to

contribute towards the child’s education savings (Robson, 2016). Asset building interventions are

emerging as an important dimension in poverty reduction strategies (Brandolini et al., 2010;

Torjman, 2008).
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CHILD EDUCATION SAVINGS IN CANADA
Lastly, a comprehensive poverty strategy involves a combination of safety net elements to

help offset the negative effects of a market economy interlinked with springboard components to

foster opportunities for sustainable success (Torjman, 2008). The accumulation of financial

assets is correlated with upward economic mobility (Carter & Barrett, 2006). Not only does PSE

improve possibility of economic capital, PSE also improves one’s social and human capital

through improved life expectancy, health, and increased likeliness to engage in community and

vote (Government of Canada, 2016; Torjman, 2008).

Brandolini et al. (2010) posit the chance’s in an individual’s future are dependent on the

opportunities available to them. Asset-based strategies may be the most effective way to mitigate

intergenerational transmission of poverty through reducing barriers to opportunity (Loke &

Sherraden, 2008).

Implications for Social Workers

Practicing from a systems perspective, underscored by a conscious awareness of the

dynamic interconnections of the economic, political, and social environment will inform areas of

advocacy and intervention. Continued engagement in promoting awareness of systemic

inequities and barriers to upward mobility is essential to create social change.

Clinically, encouraging a parent to dream can be powerful as poverty often includes a

sense of hopelessness. According to the ESDC summative evaluation report (2015), participation

in the CESG and CLB are highly influenced by parental aspirations of college. If parents of

eligible children do not internalize future aspirations of PSE for their children, they are less likely

to participate in child education savings programs. In speaking with Anna Cameron, Public

Policy Coordinator from Momentum, a community-based non-profit working to support the

unemployed and underemployed to develop profitable futures, she identified it can be

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challenging for a parent to internalize the positive correlation between educational assets and

subsequent post-secondary attainment. Furthermore, she noted parents have difficulty believing

the CLB is free, absent of parental contribution. Additionally, she portrayed bridging a parent’s

current reality with aspirations of a different economic reality for their child is difficult,

particularly when they are reliant on a youth in the household to work part-time to financially

contribute to the family’s income security.

According to Johnson, Adams, and Kim, recipients of asset-based programs would like to

learn about budgeting and the post-secondary experience (2009). Integrating these learning goals

into individual client work or developing group learning opportunities exists for community

development practitioners.

Recommendations

Due to the complex nature of poverty, solutions likely need to remain multi-faceted, with

linked interventions undertaken by all levels of government in collaboration with communities

(Torjman, 2008). There are tremendous strengths and possibilities housed within the CESG and

CLB programs. From an integrated policy analysis approach, opportunities exist to capitalize on

the strengths of the current program through problem identification and solution generation to

advance the policy objective (Linbdlom, 1959; McKenzie & Wharf, 2016). Foley and Green

(2015) caution PSE funding should not be a central policy but exist as one of several broader

policies along with those targeting early childhood. One policy shift could include broadening

the scope of accepted uses of child education savings. For example, should a child not attend or

be expected to attend post-secondary education, for reason perhaps of cognitive limitations,

allowing a more flexible use of the child savings account may support a household in weathering

income disruptions or promoting human and social capital. Critical to this is ensuring eligibility
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determination for other social welfare programs has provision for RESP exemptions. Continuing

to develop diverse and linked policy interventions, including opportunities to develop resilience,

point to academic success (Elliott III et al., 2011).

Simplifying and streamlining the application process to reduce barriers to access the

CESG and CLB is widely encouraged in the available literature (Demeng & Dynarski, 2009,

Loke & Sherraden, 2008; Robson, 2016). Furthermore, designing a framework for automatic

enrollment for children in receipt of the Canada Child Benefit and households interacting with

other income-replacement programs is a consideration to boost participation in the program

(Robson, 2016, Loke & Sherraden, 2008). Consequently, it eliminates racial or economic barriers

to owning a child education savings account (Mendelson, 2007; Meni, 2016). Automatic

enrollments entail complex policy changes with the overlapping relationship of the ESDC,

Canada Revenue Agency, and Department of Finance.

Information and awareness of the CESG and CLB are vital for increased participation

(Loke & Sherraden, 2008). In an interview with Anna Cameron, the Public Policy Coordinator

of Momentum, she noted the 2017 federal budget included an additional 12.5 million in funding

to increase awareness of the CESG and CLB programs among eligible households. To date,

Anna relayed advocacy efforts to engage the Alberta education and health ministries to support

promotional strategies utilizing schools, and health programs did not receive attention. Further

grassroots engagement and advocacy exist to educate professionals working in the health,

education, and finance sectors in addition to eligible households.

Conclusion

The government plays a pivotal role in child education saving’s policy through establishing a

legislative framework, allocating finances, and working with related policies to exempt the assets
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in eligibility determination for social programs. Addressing barriers to PSE will help break the

cycle of poverty and promote quality of life. The CESP has already had an impact on Canadian

children’s long term savings despite its low enrollment. Between 1998 and 2013, over 3 million

children have received benefits of approximately $728 million under the CESG (ESDC, 2015).

As of 2013, over 384,000 children have received $101 million through the CLB (ESDC, 2015).

With respect to the CESG and CLB, the long term impact of the policy and program delivery is

still unknown as children who were the original beneficiaries of the CESG and CLB recently

began aging out in 2015. There is an opportunity for the government to adopt incremental

changes to increase access and awareness of the CESG and CLB, should they have the political

will. Additional research to understand the causes of poverty will further inform policy

interventions (Lammam & MacIntyre, 2016).

Allowing income inequality to rise and social mobility to decline undermines core

Canadian values of fairness and equality of opportunity (Government of Canada, 2016, p. 11).

Mendelson (2007) suggests that if the federal government fails to increase the participation rate

of the CLB, the social policy is merely a symbolic gesture of generosity rather than a real attempt

at providing a valuable asset to vulnerable households. Continuing to develop the CESP to

operate in concert with other social policies may support those experiencing poverty to meet both

their immediate needs while improving economic mobility.


CHILD EDUCATION SAVINGS IN CANADA
Appendix One: Table of Principal Arguments
Arguments Against CESG & CLB
Wage disparity is markedly impacted by
completion of high school, not PSE.
Income disparity and wealth accrual is part of a Families with children find it more challenging
natural life-cycle and does not inhibit
opportunity.
The return on investment for post-secondary
education is on the decline.
14
Arguments for CESG & CLB
Child education savings promote academic
achievement before and after post-secondary
education. Post-secondary education is the
minimum training required for economic
security.
to save than other households.
Child education savings from an early age
mitigates the PSE incompletion rate of students
from low-income households through
development of college-bound identity.
A comprehensive poverty strategy involves a
combination of safety net elements to help
offset the impact of low-income and
springboard components to foster opportunities
for sustainable success
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