How advisors can help families tackle rising back-to-school costs

Inflation is making school education-related costs more expensive than they've ever been

How advisors can help families tackle rising back-to-school costs

Canadian students planning to return to school are facing more financial challenges than ever, but advisors can help them, and their families, better prepare to face the rising costs.

“One of the things that’s shocking me is the increase in back-to-school costs,” Aimee Wagner, vice president of member services at Your Neighbourhood Credit Union in Kitchener, told Wealth Professional.

She said the National Retail Federation’s recent Back-to-School 2022 study showed that back-to-school spending has reached record levels. It is expected to total $33.9 billion, up from $26.2 billion last year and even breaking the record $30.33 billion that was set in 2012.

“That really moves the meter, so you can understand how this becomes a real financial issue in families, especially those who have more than one child attending post-secondary at the same time. Then, there are the back-to-school and education cost we have while our kids are in elementary and secondary school, as well,” she said, noting tuitions and school costs are climbing, too.

“The increased costs as our kids start their post-secondary education, at a time when inflation is obviously on the rise, are astronomical. It’s got families considering how to give their children this education in a far different way. So, it’s a great opportunity to educate our clients about how to finance their children’s futures in a more affordable way, but also educate their children as they do.”

Wagner said advisors can provide financial tips on how to fund an education as well as budget more effectively while the students are at school. 

“These are really valuable lifelong financial and budgeting skills that will help these kids as they move forward,” she said, laying out three ways they can finance an education, too.

The first is to open a line of credit for school-related expenses. A parent can be the guarantor with the student co-owner to get approval to borrow funds up to a pre-established limit. These have a custom repayment schedule to suit the student’s needs and budget, so the student can also learn how to repay debt. This avenue allows the student to establish a credit rating. The interest rates are also lower than for credit cards, which students could be enticed by on campus.

The second is to apply for a student loan to supplement their savings. Students can do that from their local financial institution, such as a credit union. These types of loans usually have variable interest rates, so students will have an interest-only minimum payment while in school.

Families can also open a Registered Education Savings Plan (RESP), which they often do when a child is young, so families can help them save for post-secondary education. Wagner liked those plans as the government provides a maximum matching contribution for part of it. She suggested families use this to fund tuition, but then use the other vehicles to cover additional expenses.

Students can also deposit their money in a Tax-Free Savings Account. So, they don’t have to pay tax on the investment income they earn. Then, depending on the duration of the investment vehicle its invested in, they can withdraw money to cover for things like car repairs or high textbook costs.

On the flip side, advisors can also help clients teach their students how to save money. The first  thing is budgeting, so they know what they need to meet their expenses and maintain an emergency fund. They can limit fast food and caffeinated drinks as those can eat up a budget. They can learn to pre-plan meals to manage food costs and budget for special coffee nights. They can also withdraw a set amount of money from their account weekly, so they don’t spend beyond that.

“Budgeting really helps in this time of inflation,” said Wagner. “So, this is a great opportunity to start setting up our kids with this budget mindset as it does take a lot of willpower. But, it’s a great time to do it when we’re really strapped.”

Students should only use the ATM machines from their own financial system, especially when they’re on campus. Credit union ATMs, for instance, don’t have any service fees, so paying them for other institutions could add up if students regularly withdraw money from them.  

“It’s a fabulous way to save on what seems like minor costs at the time, but can really add up if they’re doing a few visits to the ATM every week,” said Wagner.

Students can also talk to their advisors and financial institutions to see if there are student banking options with lower monthly fees, such as for ATMs, credit, and debit transactions.

Sticking to their pre-paid campus food plans will be cheaper than snacking elsewhere. Clothing is expensive, while thrift shopping is cheaper and, she said,  “incredible fun”. Students can attend cheap movie nights or ask retail outlets if they have student discount days or prices.

“Socialize on days where there are some deals because all of this makes an incredible amount of difference over the span of four years,” said Wagner.

“The sooner we start teaching our children about financial literacy, the longer they have for it to get traction for these important transitional years and to support them throughout their entire lives.”