‘It’s rough out there’

In the words of advice for students from Thornton Melon: “It’s rough out there. Move back in with your parents.”

As comedian Rodney Dangerfield’s character alluded to in the 1986 comedy Back to School, it is indeed a tough financial environment as students head back to the classroom in 2026.

A Capital One Canada survey found families are struggling with costs, with nearly six in 10 parents surveyed stating back-to-school expenses are higher than expected.

It’s not just tuition, new clothes and supplies. Extracurricular activities — like hockey, figure skating, ringette, soccer, dance, etc. — also ramp up, involving tuition-sized payments.

“Canadian parents are being more strategic than ever,” says Becca Mintz, head of credit and data at Capital One Canada.

She adds 50 per cent of Manitoba respondents save ahead for back to school.

It’s likely many are leveraging Canada Education Savings Grants that accompany contributions to a Registered Education Savings Plan (RESP) if their children are attending post-secondary school.

This savings plan is a workhorse for addressing post-secondary costs, and it is best started as soon as possible so grant money and contributions can grow tax-deferred for as long as possible.

The grants are worth an extra 20 per cent on contributions up to $2,500 annually. That’s an extra $500 each year from the federal government with a lifetime maximum of $7,200 per child.

Subscribers — often the parent who opens and manages the account — can also contribute up to $50,000 per child lifetime.

A TD survey of current students suggests those seemingly mountainous sums are needed. It found nearly 80 per cent of Manitoba students indicate financial stress negatively affects their well-being and academic performance.

“For many students, everyday affordability is becoming part of their academic experience,” says Joe Moghaizel, vice-president of everyday advice journey at TD. “A student may have tuition covered but is still faced with paying for rent, groceries, transportation and often credit card debt payments.”

One way to keep costs lower is for students to remain at home for their post-secondary education, he adds.

In this economy, many students recognize a degree alone may not cut it. A growing number are seeking education beyond their diploma or degree, hoping to secure work after graduation.

More students are upskilling, taking ancillary courses in coding and artificial intelligence programming, for example, to boost employability.

A CIBC poll found two-thirds of responding Canadian students are going down this path.

“They’re being practical, taking extra steps, based on what they’re seeing in the job market, and that’s causing them to rethink the type of education they need,” says Jamie Golombek, managing director, tax and estate planning at CIBC Private Wealth Management.

In many cases, these students can use RESP funds to pay for these courses, provided they are enrolled in a post-secondary program or the courses are offered by an accredited post-secondary education provider.

Golombek adds a tax credit is also available for upskilling programs, but it is only available for individuals ages 26 and older.

For parents of younger children, one takeaway is building up the RESP as much as they can. Grandparents can help in situations where the parents are short on cash flow amid all their other priorities.

“Instead of paying for all the plastic toys, grandparents help by providing money for the RESP,” says Sara Kinnear, director of tax and estate planning at IG Wealth Management.

This advice is largely targeted for grandparents who have accumulated substantial wealth likely to be passed on through the estate. Providing RESP contributions is a way to transfer some of that wealth tax-efficiently while alive and seeing the benefits for the family, Kinnear says.

One robust strategy is contributing the entire $50,000 maximum to the RESP all at once, she adds. Although this approach only attracts a single $500 grant, because there will be no further contributions, the $50,000 sum has 18 years to grow tax-sheltered.

Invested in a balanced fund, averaging about eight per cent annually, the RESP could be worth $200,000 by the time the child enters post-secondary.

Another savings trick is what Golombek refers to as the “Magic 14.”

To reach the maximum lifetime grant of $7,200, you need to contribute $36,000 to the RESP over about 14 years. But there is an additional $14,000 in contribution room that doesn’t attract the grant.

The Magic 14 approach involves contributing $14,000 up front to the RESP while continuing to make contributions for the following years to earn the grant. Effectively, you contribute $14,000 upon opening the RESP.

The contribution “won’t attract a grant, but it has the opportunity to grow in a tax-deferred environment for up to 18 years,” he says.

The more money the better: education is increasingly a wild card in personal finance, requiring families to upskill their money abilities and know-how.

One fundamental skill serving both children and parents well is budgeting.

Having a budget helps parents find extra money to contribute to a RESP or to their TFSA (Tax-Free Savings Account) for extracurricular activity costs. It also helps kids when they become post-secondary students.

“A budget is really a critical confidence tool because a lack of awareness of our financial situations creates anxiety and stress,” Moghaizel says.

Budgets need not be complex, but they are not one-and-done affairs. They are living documents that should be updated monthly.

Don’t think of a budget as putting limits on your financial freedom. It’s quite the opposite, Moghaizel adds.

“A budget really provides guidance for our decisions on what matters most so we can spend and save with confidence.”

Although it may well be rough out there, a good budget can help families roll with the pocketbook punches as the kids head back to school.

Joel Schlesinger is a Winnipeg-based freelance journalist

joelschles@gmail.com