What Can Canada Teach Us About Child Savings Accounts?

Guest Blog Post: This post is contributed by Willie Elliott, Director of the Assets and Education Initiative at the University of Kansas and Asset Building Program Senior Fellow, and Melinda Lewis, Policy Director of the Assets and Education Initiative. You can find a copy of their new report, Lessons to learn: Canadian insights for U.S. children’s savings account (CSA) policy, here.

Last fall, a guest post on The Ladder by David Swol of the Canada Education Savings Plan (CESP) opened our eyes to the significant innovations in Children’s Savings Accounts (CSAs) unfolding across our northern border. With support from The Ford Foundation and in partnership with the New America Foundation, we reached out to CESP staff. Promising conversations sparked an exploratory investigation of their program elements and their effects. After studying Canada’s financial aid landscape and the development of the education savings program, we traveled to Canada to meet with government officials, advocates, and academics. Today, we are releasing a report outlining some lessons from Canada’s CSA experiences and how they might inform CSA policy in the United States at this particularly critical point.

We shared our evolving framework for understanding CSA effects with our Canadian neighbors, particularly pointing to the educational outcomes associated with account ownership, including increased expectations for and engagement with post-secondary education. Our primary motivation for the project, though, was to learn from the Canadian experience.

As Swol explained in his post last year, the CESP uses a national system of Registered Education Savings Plan (RESP) accounts, similar to state 529 plans, as the infrastructure for progressively-funded savings incentives. Canada provides matches—the Canada Education Savings Grants (CESG) and Additional-CESG, available to all Canadians and to low- and moderate-income Canadians, respectively. Canada also invests significantly in transfers to low-income Canadians’ accounts; the Canada Learning Bond is worth up to $2,000 and does not require any household contribution. Additionally, some Canadian provinces have their own incentives, delivered directly or through the tax code, layered onto the RESP vehicle.

Among the lessons we’ve taken from our investigation:

• Canada’s national plan has increased PSE savings: Canadians, including low-income families, are saving for higher education at a significantly higher rate and in greater amounts than in the U.S.

• A national plan may lower administrative costs: Administration of the matching grants costs just $0.06 for every $1 of assistance. Additionally, provinces can leverage the CESP infrastructure for their initiatives, unlike in the U.S., where states seeking to layer progressive savings supports onto the 529 plan architecture often face considerable challenges, absent a ‘turnkey’ system.

• Attending to asset theory in program design may increase positive effects: Clear savings expectations and goals can encourage early account opening, regular deposits, and greater savings amounts. To maximize effects, regulations should cultivate children’s ownership by placing accounts in their names and allowing them to make deposits. Lifelong accounts would best meet families’ asset-building needs throughout the lifespan.

• There are potential trade-offs in using existing structure v. designing one intentionally redistributive: While the existence of the RESP facilitated fairly rapid implementation of asset incentives, it (like 529s in the U.S.) is an instrument designed for higher-income households, and low-income families may struggle to navigate the enrollment process. Even with progressive incentives, CESP participation skews toward more economically-advantaged households, which means missed savings opportunities for low-income Canadians. For example, only 29.4% of eligible children received the Bond in 2013. As seen in the U.S. context, targeted, intensive outreach can work but is hard to scale.

• Delivery of a CSA intervention through private financial institutions may blunt some potential benefits: While CSAs can play a critical ‘gateway’ role, connecting children to mainstream financial institutions, there are drawbacks of relying on private companies to deliver essential benefits. Certainly, if private financial institutions are to play a central role in account delivery, regulatory authority and careful oversight are essential. However, Canada’s experience also suggests that utilizing private institutions for account management may reduce public administrative costs, thus making universal enrollment more affordable.

• Matches and initial deposits may work together as effective tools to increase savings, asset accumulation, and account opening: More than 97% of Bond recipients are also saving for college, despite no requirement to do so. Evidence suggests that both savings matches and the transfers early account opening and increase asset accumulation, facilitating the development of both dimensions of CSA effects.

While certainly there are significant differences in the U.S. and Canadian contexts, we believe that Canada’s Education Savings Program holds important lessons for Children’s Savings Account policy development in the U.S. As we continue to reflect on these lessons, we are grateful for the authentic collegiality of our Canadian peers and encouraged by the growing CSA momentum on both sides of the 49th Parallel. We are eager to continue the conversation about the best policy mechanisms for realizing the potential educational outcome effects of children’s asset-building.