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Low-income Canadians are not cashing in on the free money Ottawa is doling out for their children's education, and lack of awareness and understanding may be what's holding them back.

Although registered education savings plans are designed to help all families save for their children's education, so far they have primarily benefited those with high incomes and education levels, says a recent report by SEDI, the non-profit organization that runs the Canadian Centre for Financial Literacy.

The Canada Learning Bond, for example, was expected to cost $170-million in its first two years and benefit more than 120,000 newborns in its first year. However, after its first year and a half on the market, less than $51-million had been spent on CLB direct payments, benefiting only about 76,000 children. In 2008, the participation rate for the CLB - a one-time RESP payment of $500, plus $100 annually for low-income families - was 16 per cent, well below government targets.

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Clohe Williams, a Toronto single mom, is a case in point. She says she had never even heard of RESPs before her manager hosted RESP workshops at her workplace and suggested Ms. Williams open an account for her two girls, aged 11 and 16.

. Weigh in on whether you would stash some extra money into an RRSP, RESP or a TFSA.

Ms. Williams opened an RESP in March and, while she still finds elements of the plan confusing, she suggests more families could benefit from the program if it was more widely promoted. "Advertise more and I think that it would help benefit families that can't afford to put money away for their children's education."

Participation among low-income Canadians is partly hindered by education, says Rock Lefebvre, vice-president of research and standards at the Certified General Accountants Association of Canada, which recently issued its own report on Canadians' lack of education regarding RESPs.

The report cites a 2008 EKOS Research poll of 900 families making less than $38,000 a year, which showed that although 83 per cent of respondents had heard of the RESP, only 54 per cent were able to actually define it. Only a third had heard of the Canada Education Savings Grants, and only 1 in 10 had heard of the CLB.

"Most people lack a clear understanding of how it works and what the benefits to them would be," Mr. Lefebvre said. "This is particularly true with the very people who stand to benefit the most from the RESP program: lower-income Canadians."

Another barrier is confusion among the financial institutions that offer RESPs, says Adam Fair, managing co-ordinator for SEDI's Canadian Centre for Financial Literacy.

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Investor Education: RESPs

  • How does the Canada Learning Bond work?
  • Chapter 1 : What affects how much my Registered Education Savings Plan pays?
  • Chapter 2 : How can the government help me save for a child's education?
  • Chapter 3 : What will it cost to have an RESP?
  • Chapter 4 : What happens to the money in my RESP if plans change?
  • Chapter 5 : What happens if I close out my RESP?
  • Chapter 6 : What do I need to know about the risks of an RESP?




"There's a low level of knowledge even within some of the financial institutions on how RESPs work, specifically relating to the government benefits that are inside of them," says Mr. Fair, who knows of cases where clients were misinformed that they needed to make a deposit when opening an RESP.

"There's some real logistical challenges with having very low-income individuals set up these accounts without having any funds of their own to invest in the products, [and they]still need to wait for their application to see if the government is going to chip in with the Canada Learning Bond."

In its report, SEDI makes several recommendations for increasing RESP participation among low-income Canadians, including:

  • a government "voucher system," in which families eligible for the CLB would receive documentation proving their eligibility and outlining the steps necessary to set up an RESP account;
  • a "no frills" RESP product that is simple, low risk and has a reasonable annual cap on fees;
  • a single contact number for RESP inquiries and a single application form for RESP providers.

SEDI would also like to see more funding for programs like My Child's Future, a recently ended workshop series that helped low-income families access RESPs and government grants.

Shari Grayson, who co-ordinated the My Child's Future program through the Learning Enrichment Foundation in Toronto, says such programs are a great way to help people build their confidence around financial issues.

One My Child's Future participant, Terhas Tessema, who immigrated from Sudan in 2005, said she could barely speak English when she attended Ms. Grayson's workshops in 2008.

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Through the program, Ms. Grayson was able to accompany Ms. Tessema to her bank and help her set up an RESP for her three children, aged 3, 5 and 9. Without that kind of support, said Ms. Tessema, she would not have been able to set up the account.

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