Financially savvy families more likely to start RESPs: study

The number of low-income families with RESPs is on the rise, with 400,000 of these families contributing as of 2012, finds finds a government review of the the Canada Education Savings Program (CESP).

However, RESP take-up rates still vary significantly based on family income, ranging from 25.2% for families with income below $25,000, to 70.1% for families with income over $125,000 in 2012.

Read: Encourage clients to talk to kids about education

The review finds RESP take-up rates are also influenced by parents’ general savings habits and whether they encourage their kids to attend post-secondary. Families are more likely to start RESPs if they have “good financial knowledge and awareness of the benefits,” says the review.

Read: RESP incentive underutilized: CPA

Of families who hadn’t started RESPs, as of 2013, only 38.6% saved for post-secondary using other means, the review adds. Some of the most common reasons for saving outside of RESPs are:

• diversification (21%);
• easy access to funds (17%);
• for families with RESPs, the fact that they’ve already maximized annual CESG received or the lifetime RESP maximum of $50,000 (7%); and
• for families who don’t have RESPs, a lack of awareness (11%).

For tips on helping parents save, read: Give new parents direction

Additional findings

Breaking down the data further, the review finds the RESP take-up rate quadrupled for low-income families between 1999 and 2012.

But, “This four-fold increase may have been caused more by the Basic Canada Education Savings Grant (CESG), as the rate of uptake [for these families] didn’t change noticeably with the introduction of the additional grant.” The Canada Learning Bond, designed for families with modest incomes, was also useful.

Read: Student debt troubles persist

Overall, says the review, “The proportion of children under 18 years of age who [have] received the CESG at least once in their lifetime has increased from 9.7% in 1998 to 47.1% in 2013.” Of the nearly 7 million children under the age of 18 across Canada in 2013, more than 3.2 million had RESPs and had received the Basic CESG.

Read: Budget’s education measures take from the rich, give to the poor

And, between 1997 and 2013, RESP assets climbed from $2.4 billion to $40.5 billion. In 2013 alone, $883 million in grants were disbursed though the program.

This education savings review was launched to find out whether post-secondary costs justify the need for the CESP, which includes the Basic Canada Education Savings Grant, an additional grant and the Canada Learning Bond. These benefits are available to parents saving for kids’ post-secondary schooling, and the government wanted to assess whether they motivate people to save.

Click here to check out the review in full.

Read: What eliminating Ontario education tax credits means for clients