The Economic and Social Case for the RESP

Financial institutions play a critical role in building and supporting the asset growth of Canadians. Banks are with us on some of the most important life journeys and decisions: buying a vehicle, planning for a vacation or retirement, home ownership, and saving for a child’s future education.  One critical asset on the journey to a sustainable livelihood and wealth is the Registered Education Savings Plan (RESP). Far too few Canadians establish an RESP for their child. In Alberta, 30% of children eligible for the Canada Learning Bond, a financial contribution to an RESP from the federal government for children living in low-income families, have accessed it. That is more than $89M in unclaimed funds.

We believe financial institutions can play a critical role in increasing the uptake of RESPs, and thereby post-secondary attendance, setting their clients on a life-long relationship with their bank and growing their assets. We believe there is significant benefit, financially and socially, for financial institutions to further promote and support the opening of RESPs. We need your help to make this happen. We invite our colleagues in the financial sector to consider the following.

RESPS ARE AN IMPORTANT ASSET BUILDING TOOL FOR CANADIANS

• Children are 3-7 times more likely to go on to post-secondary education if there is a savings account in their name.[1]
• Higher levels of education contribute to higher earnings, higher earnings growth over the span of a career, and means a person is up to 50% less likely to experience a low income year, lower unemployment risks and higher net savings & assets. [2]

CHILDREN ARE BEING LEFT BEHIND IN ESTABLISHING THIS VITAL ASSET

• $89 million is unclaimed government grants in Alberta.
• More than 3,661,203 children in Canada have not accessed the government RESP grants.[3]
• Approximately 9,000 students drop out of school annually across the province of Alberta, which roughly translates into 3,000 youth dropping out of high school in Calgary every year.[4]
• Most low income parents want their children to go on to post-secondary education[5] but only 15% of funds in RESPs are held by low income households.[6]

RESPS BENEFIT FINANCIAL INSTITUTIONS AS WELL AS CANADIANS
Financial Institutions do not actively promote RESPs, which according to industry representatives, is due to the relatively modest financial contributions made to RESPs, the complexity of the product to both seller and buyer, and the heavy administrative requirements”.[7]

However, financial institutions can benefit from increasing the opening of RESPs by attracting new customers, diversifying customer’s assets, increasing their overall asset value of customers with RESPs, in addition to the positive social outcomes of supporting families and children in obtaining post-secondary education. Here is a summary of all the ways financial institutions can benefit from helping families establish an RESP.  Including families living on a lower-income.

New customers

• 13% of Canadians are outside the financial mainstream[8] (This equals 4.55 million possible new customers!).

Customer retention

• The opportunity to lock in families (i.e. if a child has RESP at the bank, it could result in a bank account at that bank and building a lifelong relationship).[9]

Asset diversification

• RESPs open the door for low income families to understand and buy into more complex financial products such as mutual funds and GICs.[10]

Increase investments

• There is up to $10,000 in government grants to be claimed by each child in Alberta. That is $2500 to start for families living on a low-income, without having to put in any money of their own.
• 97% of RESP subscribers of the Canada Learning Bond for low-income families, do deposit their own funds which means more money for the bank to invest and collect fees.[11]
• Economic growth of immigrant families from arrival to 5-10 years
• Supporting people in basic savings starts people on an asset growth accumulation pathway.[12]
• “The actions of establishing and monitoring RESPs provide both parents and children with hands-on experience that could improve their understanding of post-secondary financing. Gaining this experience could also increase their financial proficiency more generally by building savers' financial confidence and their access to a broader range of financial tools.”[13]
• It’s a generational approach to creating wealth in the community. Increased wealth leads to more investment and profits for banks.
• Growing income inequality results in system wide impacts that carry significant risks for institutional investors whose returns depend heavily on the overall health of the economy.[14]
• Stop losing clientele to payday lenders[15] & group plan providers. Despite higher costs and greater restrictions, group plan providers attracted 40% of the Canada Learning Bonds disbursed in 2009. This is more than any other type of RESP provider, including the low-cost bank plans (16%).[16]

Corporate Social Responsibility

• An opportunity to become known as an institution that makes post-secondary dreams come true
• An opportunity to provide peace of mind to parents
• Boost your bank’s philanthropic efforts & public image/reputation.
• “Canada’s banks could face greater reputational and regulatory risks if it is perceived that they are not sufficiently meeting the needs of all Canadians.”[17]
• It’s a way to give back to the community through real-time product/service instead of CSR or philanthropic channels.

HOW COULD BANKS PROMOTE THE RESP?

• Creating and distributing greater marketing materials and advertising on the RESP
• Hosting formal sign up campaigns or incentives for the RESPs, similar to the RRSP push in the New Year
• Comprehensive training of front line staff in RESPs and the four different government grants
• Greater recognition or commission for sales staff for the opening of an RESP
• Mass email/message to all clients.
• Signage on bank walls and at each till.
• Any other ideas would you have?

We invite you to respond to this brief, to take action today if you’re ready, or to meet with us to further discuss, to explore together how we can collaborate to increase the uptake of RESP and to increase post-secondary success for every child in Canada. Right now income level is the greater predictor of whether or not a child will attend post-secondary. Our goal is that aptitude is, not income. RESPs can help every child realize their potential and banks can be celebrated for their role.

_______________________________

Our notes: For individual reach out with this report, here are CSR Quotes from the major financial institutions:

• TD: Young people are our future, and at TD, we believe that every young person should have the opportunities and support they need to reach their full potential. These are difficult economic times for many young people in our society – making it even more imperative for companies like ours to play a role by funding and ensuring access to quality youth programming. http://www.td.com/corporate-responsibility/community/our-priorities/creating-opportunities-for-young-people.jsp
• CIBC: We have a client-focused strategy that creates value for all our stakeholders. We know that serving our clients and meeting their evolving financial needs is critical to our long-term success. That’s why our corporate objectives are focused on developing deep and long-lasting client relationships, strategically growing our business in areas where we have or can build competitive capabilities, operating in an environment of sound risk management and generating consistent and sustainable earnings for our shareholders. http://corporateresponsibilityreport.cibc.com/
• RBC: Banks have a significant impact on people, communities and countries. Our first priority is doing our jobs as bankers well, and serving our clients with integrity, every day. At RBC, we also take our responsibilities in the community, marketplace, workplace and to the planet seriously. http://www.rbc.com/community-sustainability/our-approach.html
• BMO: Our first responsibility is to our customers. We are committed to providing accessible, affordable banking and relevant products and services that make sense. As a responsible corporate citizen, we support financial literacy. https://www.bmo.com/home/about/banking/corporate-responsibility/our-approach
• Scotiabank: We measure our success not only in terms of financial criteria, but also in building customer satisfaction and employee engagement, and supporting the communities we serve.

http://atkinsonfoundation.ca/wp-content/uploads/2013/11/financial-inclusion-investor-brief.pdf

http://www.statcan.gc.ca/pub/81-004-x/2011001/article/11432-eng.htm

http://maytree.com/wp-content/uploads/2010/11/More_than_Money-Final.pdf

http://www.ekospolitics.com/articles/0048.pdf

http://www.cga-canada.org/en-ca/ResearchReports/ca_rep_2010-06_RESP.pdf

http://totrov.com/english/industry_practices.pdf

http://www.osc.gov.on.ca/documents/en/Securities-Category4-Comments/com_20100621_41-101_naresp.pdf

[1] The Role of Savings and Wealth in Reducing “Wilt” between Expectations and College Attendance. Elliott & Beverly 2011 pg.13 (http://csd.wustl.edu/Publications/Documents/WP10-01.pdf)

[2] HRSDC Special Reports- What Difference Does Learning Make to Financial Security? (http://www4.hrsdc.gc.ca/.3ndic.1t.4r@-eng.jsp?iid=54) Accessed February 10, 2015.

[3] The CESG….

[4] Towards Resiliency for Vulnerable Youth. United Way April 2011. (http://www.calgaryunitedway.org/images/uwca/our-work/kids/public-policy-research/vy_fullreport.pdf)

[5] Research into Low Income Parents’ Views and Experiences Regarding RESPs, CESG and the CLB. EKOS Research Associates Inc. March 2008 (http://www.ekospolitics.com/articles/0048.pdf)

[6] More than Money: Mining the human and financial potential of Canada’s education savings programs for low- income families. Wong & Murray, Page 6 (http://maytree.com/wp-content/uploads/2010/11/More_than_Money-Final.pdf)

[7] Review of Registered Education Savings Plan Industry Practices. Informetrica Limited. 2008. Page 9. (http://totrov.com/english/industry_practices.pdf)

[8] Investor Brief: Promoting Financial Inclusion in Canada’s Financial Services Sector. Rohan. Page 2. (http://atkinsonfoundation.ca/wp-content/uploads/2013/11/financial-inclusion-investor-brief.pdf)

[9] Children’s Savings Accounts: The Case for Creating a Lifelong Savings Platform at Birth as a Foundation for a “Save-and-Invest” Economy. Cramer & Newville. 2009 (http://community-wealth.org/sites/clone.community-wealth.org/files/downloads/article-cramer-newville.pdf)

[10] Why Financial Capability Matter. Government of Canada. Page 11 (http://www.fcac-acfc.gc.ca/Eng/resources/researchSurveys/Documents/SEDI-FCAC_FinCapability-eng.pdf)

[11] Examining the Canadian Education Savings Program and its Implications for US Child Savings (CSA) Policy. Lewis & Elliott. Page 23

[12] Why Financial Capability Matter. Government of Canada. Page 10 (http://www.fcac-acfc.gc.ca/Eng/resources/researchSurveys/Documents/SEDI-FCAC_FinCapability-eng.pdf)

[13] More than Money: Mining the human and financial potential of Canada’s education savings programs for low- income families. Wong & Murray, Page 7 (http://maytree.com/wp-content/uploads/2010/11/More_than_Money-Final.pdf)

[14] Investor Brief: Promoting Financial Inclusion in Canada’s Financial Services Sector. Rohan. Pages 4,5. (http://atkinsonfoundation.ca/wp-content/uploads/2013/11/financial-inclusion-investor-brief.pdf)

[15] Investor Brief: Promoting Financial Inclusion in Canada’s Financial Services Sector. Rohan. Page 2. (http://atkinsonfoundation.ca/wp-content/uploads/2013/11/financial-inclusion-investor-brief.pdf)

[16] More than Money: Mining the human and financial potential of Canada’s education savings programs for low- income families. Wong & Murray, Page 10 (http://maytree.com/wp-content/uploads/2010/11/More_than_Money-Final.pdf)

[17] Investor Brief: Promoting Financial Inclusion in Canada’s Financial Services Sector. Rohan. Page 2. (http://atkinsonfoundation.ca/wp-content/uploads/2013/11/financial-inclusion-investor-brief.pdf)