The changing world of work is also a changing world of pay, a world that will likely lean toward greater wage-rate inequalities, stagnating incomes for the bottom 40 percent, and greater income insecurity for the broad majority. The changing world of work requires a more skilled workforce, and continual retooling and reskilling over an individual’s working life.
If this is the case, if enhanced and repeated skills development is essential to both national and individual prosperity, then public policy should recognize this necessity, and remove all financial barriers to the development of core competencies.
The federal government offers important incentives for parents to save for the higher education of their children, but those directed to lower-income families are not all that more generous and tend to suffer from low take-up rates.
The Registered Education Savings Plan (RESP) is the linchpin of these programs, a savings account in which the returns are tax-free but that must be spent on education. The Canada Education Savings Grant adds a progressive element to this program, offering a grant of 20 percent on the first $2,500 of annual contributions regardless of family income, and an additional 10 to 20 percent to children from low- and middle-income families to a lifetime limit of $7,200. This limit amounts to roughly somewhere between one to two years of tuition for some programs in some community colleges.
The Canada Learning Bond enhances these benefits for the lowest-income families to a maximum of $2,000. It sets aside $500 for each child at birth, and $100 for each year until 15 years of age. The parents must have a Registered Education Savings Plan for the child in order to receive the bond, but they need not make any contributions to the plan.
However, many parents leave this learning-bond money on the table. The take-up rate for the program is growing, but it most recently amounted to only about one-third of eligible children. Take-up rates are low, in part because parents have a lot of other things to worry about, and it is much easier to put off until tomorrow a decision about saving for a distant future.
The federal government’s current approach to improving uptake of the bond is to give parents more information about how to open an account at a financial institution. Budget 2018 included $12.5 million in funding for a pilot project that would “explore new ways to increase awareness and access” to the bond.
Why not make the learning bond automatic, by simply opening an account on behalf of parents, and contributing the funds in escrow? Government officials tell me that administrative hurdles make such automatic enrolment too challenging.
Policies offering more information about how to apply for savings programs make sense, but they are no substitute for automatic enrolment in the learning bond. Another policy option would be to make community college free, removing the need for parents to make a decision about benefits that will only be realized decades down the road.
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The federal government should also permit more flexibility to beneficiaries of the Canada Learning Bond so that they can invest the funds the way they choose. Currently, the bond can only be used for post-secondary education. Individuals have different views on their optimal level of schooling, and not all children will see higher education as the top priority in their lives. The current design of the bond does not allow, for example, for the individual to use the money for a first home, retirement or other key life expenses.
By contrast, Ottawa gives people with higher incomes a great deal more investment flexibility within Registered Retirement Savings Plans and Tax-Free Savings Accounts. These vehicles can be used by well-to-do parents to enhance the financial assets of their children.
The Canada Learning Bond could be made generous and more flexible to promote financial wealth, not just human capital, in the manner that US Senator Cory Booker has suggested with his proposal for “opportunity accounts.” These accounts would be opened for every child upon birth, and seeded with $1,000. Every year, through the tax code, children would receive up to $2,000 in the account depending on their family’s income. The funds would earn interest, as they sit in a low-risk account managed by the Treasury. The account holders would have to wait until age 18 to access the funds, and there would be a defined list of allowable uses – such as education, homeownership and retirement. Booker’s proposal for “opportunity accounts” embodies the spirit of the Canada Learning Bond, but the accounts are more accessible and more flexible.
The changing world of work and pay will lead to a great deal more disparity not only with regard to wage rates but also wealth. Public policy should lean toward promoting the wealth holdings of the bottom 40 percent or so of the population. Making community colleges free and offering more flexibility in the Canada Learning Bond can be seen as constructive steps in this direction.
This article is part of the Preparing Citizens for the Future of Work special feature.
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