The Relationship of Financial Inclusion to Education Savings in Canada

Background and Purpose:

Financial inclusion may be necessary for households to achieve financial health and meet their short- and long-term financial goals, such as saving for their children’s education (Sherraden, 2013).  Research on saving for children’s education savings has typically used bank account ownership as an indicator of financial inclusion. However, this indicator may have limited utility in settings such as Canada where most people are banked.   In this study, we systematically examine alternative indicators of financial inclusion and how they relate to education savings in Canada.  We ask: to what extent are financially and institutionally included households more likely to save for their children’s education? 

Methods:

Data from the nationally representative Canadian Financial Capability Survey (2014) (n =6,685) were used.  As over 99.5% of the sample was banked, the first indicator - financial inclusion - was operationalized as a binary indicator of ownership of a checking/savings account and credit card, with no credit card as reference group.  The second indicator - institutional inclusion - was operationalized as a binary indicator of participation in the Registered Education Saving Plan (RESP), with no RESP as reference group.  The third indicator – full financial inclusion - examined the joint relationship of the financial and institutional inclusion variables generated from 4 potential options across the binary financial inclusion and institutional inclusion variables.  The dependent variable was a dichotomous answer to the question ‘are you saving for your child’s education?’. The sample was narrowed to include only respondents who indicated financially responsibility for person(s) under the age of 18 (n=1,592).  Covariates included age, gender, and number of children in the household, household income and level of education.  Three logistic regression models were estimated seeking to understand the relationship of financial and institutional inclusion to saving for children’s education.

Results:

            Overall, 69% of households with children saved for their children’s education. The predictive accuracy as measured by pseudo-R² of the financial inclusion, institutional inclusion, and full financial inclusion models were 0.13, 0.34, and 0.36, respectively. As expected, full financial inclusion was the best fitting model. Compared to the group with no bank products nor RESP, all groups were more likely to be saving for their children’s education: bank products but no RESP (OR=2.34, p<0.05), RESP but no bank products (OR=11.91, p<0.001), and both bank products and RESP (OR=52.47, p<0.001).  In the full paper, we present predicted probabilities of saving for education across age and income levels.

Conclusion:

The full financial inclusion indicator was most predictive of saving for children’s education and suggests a need to expand measures of financial inclusion.  Further, households that had bank product ownership and institutional inclusion in the form of the RESP were most likely to be saving, suggesting that access to more complex financial products may be more important than simple transactional accounts for achieving long-term family-related financial goals.  Future research should examine moderating and mediating pathways by which financial inclusion shapes savings outcomes.