Financial Strategies for Back to School Season

As summer winds down and back-to-school season approaches, funding a child's post-secondary education becomes top of mind for parents.

From the 2022/23 Stats Canada report the average cost of undergraduate degree for a Canadian student is $6,834 per year. In addition there is the cost of textbooks, transportation, housing and general living expenses we’ll estimate to be around $15,000. Combining the two puts the average cost of a four year degree around $87,336.

These numbers could be offset in part by scholarships, grants, loans, and bursaries. Additionally, if your child will be contributing their own savings or is planning to work part-time while they attend school, this should be factored into the overall cost.

Here are strategies to consider:

Registered Education Savings Plans (RESPs) offer significant benefits, including government grants of 20% on contributions up to $2,500 annually. For optimal RESP funding, contribute $16,500 in the first year, followed by $2,500 annually for the next 13 years, and $1,000 in the final year. This approach maximizes funding, captures full grants, and optimizes tax-free growth potential.

If you have not maximized the grants in the RESP, you can catchup by contributing $5,000 in a year and getting two years’ worth of grants.

Within your RESP, maintain a diversified investment portfolio. Include a mix of equities for higher long-term returns and bonds for stability. As your child approaches college age, gradually shift to more conservative investments to protect accumulated savings.

Once the RESP and TFSA’s are maximized, families may explore family trusts as a strategy to split income with children with low or no other income and save tax. Given their complexity, make sure you consult with legal and tax professionals before establishing one.

Although there are different strategies to consider, it’s important to establish one that reflects your unique needs. Talk to your tax and legal advisors, and wealth planning team to help ensure you are taking advantage of all the relevant options.

Fraser Willson, CFP, CIM | Senior Wealth Advisor | CIBC Wood Gundy | Collingwood | Fraser.Willson@cibc.com | (647) 588-4344