The first budget of the rather short-lived Paul Martin administration introduced a fairly cool idea to Canadian policy: the Canada Learning Bond (CLB). The idea built on some the then-trendy work of American sociologist Michael Sherraden (among others) around asset-based solutions to poverty. Basically, the idea was that one of the reasons middle-class people act middle-class is that that they have a specific set of time-preferences; on the whole, working-class individuals tend to have shorter time-preferences and hence are less likely to invest in things which require a lot of patience. But if you give assets to the poor, then they will start to have longer time-horizons for investment because suddenly they have a reason to do so (if this sounds flaky, rest assured the experimental evidence for this is pretty good).
Translate this to higher education savings and you get something like the following: lower-income families do not think long-term about investing in human capital because they have so little long-term capital to play with. But give them some capital – say $500 at the birth of a child – and they will start to have longer-term horizons and be encouraged to save and help their kid in planning for education. And so the idea of the CLB was born. If you’re in the lowest quartile of income and you open up an RESP for your child, you get $500 from the government of Canada, plus $100 for every subsequent year you remain low income.
From the start, people could see problems with this one. The main one being: how many low-income Canadians know enough about savings programs to obtain the necessary information, contact an RESP-provider and actually open an account? Take-up rates in the first few years were below 20 percent, and while continuous improvements have been made in outreach, data currently suggest that we’re sitting at about 40% take-up.
When the federal Liberals came to power in 2015, Minister Mihychuk’s mandate letter included working with the provinces to try to find ways to increase uptake on the CLB. They even committed a few million to trying out “nudges” which would achieve this end. The problem is, according to a report which was obtained by the press, the nudges they have been experimenting with so far are only marginally effective.
Now, the obvious question here is: if assets for low-income kids are such a hot idea, why not make it universal? Why not just enrol everyone in a CLB? To which there are both good answers and bad answers.
The good answer, expertly summarized by Carleton University professor Jennifer Robson in a recent paper for the feds is that the legal framework to do so simply does not exist. CLBs are deposits into Registered Education Savings Accounts (RESPs) and RESPs are private contracts between individuals and banks. Since government can’t compel people to enter into private contracts, that makes auto-enrolment kind of difficult. And even if it did, the Canada Revenue Agency (CRA) doesn’t have the legal authority to check your income and transfer it to another federal department for a purpose to which you haven’t consented, so auto-enrolment is a no-go on that count, too.
But, as Robson, says, that doesn’t mean the government can’t set up notional accounts. That is, assuming you could re-write the rules on data-sharing with CRA, there’s no reason the government couldn’t auto-enrol someone in a CLB account, and keep the money there for them so that if the family ever does open an RESP, the money would be there for them. And in the meantime, the government could communicate with the parents, tell them how much money is available to them (which by itself would probably increase take-up enormously: “here’s $500 for your child” is a better pitch than “follow these steps to get “$500 for your child”). This would be a Good Thing.
So why don’t they do it? Well, this is the Bad Answer: as near as I can tell, it’s just because they claim they don’t have enough money to make it universal. Doing this, it is claimed, would create a huge liability because everyone under the age of 18 who hadn’t yet claimed the benefit (a group that is presumably north of a million people) would be eligible, and the costs would be ruinously expensive in the first year at least.
But this, as far as I can tell, is nonsense. There’s nothing stopping the government from passing an Act that says “From January 1. 2018, all eligible children born in Canada will get a notional CLB”; that wouldn’t be universal in the sense of covering everyone currently eligible, but over time it would have that effect. And the short-term financial hit to something like that is only in the tens of millions of dollars, which is higher affordable.
In short, the Government of Canada could continue futzing around with nudges, or it could do the smart thing, make a genuine commitment to low-income kids, and follow Professor Robson’s suggestion and move to universal, notional accounts. Here’s hoping it makes the right choice.