Reading, writing, budgeting

Opinion

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This article was published 26/08/2023 (744 days ago), so information in it may no longer be current.

Heading back to school can be a costly time of year for families, who often face added expenses for new clothes, school fees, phones and computers — all with a big dollop of extracurricular activities piled on top.

It’s a stressful time on the finances, and due to inflation it will likely hit even harder this year.

Higher interest rates aren’t helping much either.

Those higher debt servicing costs on mortgages and home equity lines of credit mean many families have less free cash flow for all those back-to-school outlays.

“Going back to school is probably the most stressful time of year financially behind the holiday season,” says Mark Kalinowski, Calgary financial educator with Credit Counselling Society, a non-profit offering free of charge debt counselling services.

“It’s a real tough time for parents, especially when they’re carrying debt and interest rates have gone up, making keeping up with debt that much harder.”

A recent PC Financial survey points to parents feeling a lot of financial stress with nearly half (46 per cent) worried about their finances more than previous years.

Anxiety aside, 68 per cent of respondents do not budget for back-to-school.

“Canadians are feeling the pinch,” says Jackie Porter, a certified financial planner with Carte Wealth Management Inc. in Mississauga.

“So, it’s definitely a time to go back to the basics of finance, and a big part of that is budgeting — looking at what you’re actually paying for things.”

She points to PC Financial having plenty of resources for consumers to help, including a budgeting tool on its app.

It’s sage advice that can sound like a broken record these days, especially as prices and rates continue to press higher.

A recent Chartered Professional Accountants (CPA) of Canada report noted that while inflation has fallen from its highs of last summer, prices are still rising quickly for food and shelter.

Although the Consumer Price Index shows school supply prices have largely remained steady from last year, the cost of services has surged, the CPA report notes. It points to prices for services — like summer camps — increased one per cent from June to July. Extrapolating that rate over 12 months, that’s potentially a 12 per cent annual rate of inflation. That said, services in July only increased about four per cent from last July, Statistics Canada data shows.

Regardless, higher price pressures are unavoidable right now even for extracurricular activities, says CPA Howard Wirch, managing partner at Accent Chartered Professional Accountants Inc. in Dauphin.

“Everybody is charging more because their cost of servicing those programs have gone up, and in turn, some families are making tough choices as to whether or not the kids can be in as many extracurricular activities.”

On top of all that, mortgage and other variable interest rate debt costs are burning up the free cash flow in many households. According to RATESDOTCA, every 25-basis-point hike costs an additional $15 per month per $100,000 of debt. Canadians have essentially experienced 19 of those 25-basis-point hikes since March 2, 2022. In turn, some households could be paying $285 more per $100,000 of debt each month today compared with about 18 months ago. On a $400,000 mortgage, that’s a significant chunk of cash flow now going toward interest each month.

Those higher rates and costs overall are leading to higher insolvency rates, says Michelle Statz, licensed insolvency trustee with Bromwich + Smith in Regina.

“Insolvency filings are going up over the last year, about 20 per cent across Canada from June this year to June last year,” she says, pointing to the latest data from the Office of the Superintendent of Bankruptcy.

Bankruptcy and consumer proposals are last resorts for families and individuals who can no longer make gains on paying off debt and are likely only further indebting themselves, she notes.

Best to nip the situation in the bud, particularly at this time of year where costs can get unwieldy.

“It really comes down to budgeting, and a lot of people don’t keep close track of spending,” she says.

It’s not just parents.

Young adults heading back to university are facing higher costs for rent, tuition and food, says Gayle Ramsay, head of everyday banking at BMO.

“For many young Canadians, entering university and college is the first time they’re living away from home,” she says, pointing to a recent BMO survey finding 80 per cent of respondent students feared they may not be able to keep up with their bills.

“Budgeting involves discipline,” she adds. “No one wants to sit there and look at how much money they spend and plan for the future.”

But the effort is well worth it over the long run — regardless of where you are in life.

Consider it an essential life skill, Kalinowski says, that many people are now realizing they need. It’s an incremental process that requires commitment because the little things make a big difference over time with budgeting, which may seem cliché these days.

“But that’s the way money management works,” he adds.

No quick fixes can right a listing financial ship, Kalinowski says.

“What I’ve come to discover over my 30-year career in finance is that little savings add up over time to make a huge difference in people’s lives.”