Families Face Rising Back-to-School Costs Amid Education Savings Gaps

As families prepare for the back-to-school season, many are grappling with the financial burden of tuition fees, new clothing, supplies, and extracurricular activities. This annual cycle of expenses can overshadow long-term financial planning, particularly regarding education savings.

In Manitoba, 40 percent of eligible children are using the Registered Education Savings Plan (RESP), the lowest rate among Canadian provinces. The national average stands at approximately 53 percent, highlighting a significant gap in education savings among families in this region. According to federal government statistics from 2024, this discrepancy can have lasting impacts on children’s educational opportunities.

The financial strain on families is palpable. Findings from the MNP Consumer Debt Index reveal that around two-thirds of Manitobans feel pressured by their financial circumstances, with many hoping for a decline in interest rates. In this context, prioritizing immediate expenses like groceries, sports fees, and mortgage payments often leads to neglecting future education savings.

Sara Kinnear, director of tax and estate planning at IG Wealth Management in Winnipeg, emphasizes the importance of contributing to RESPs, despite the challenges. “A lot of it [low usage] has to do with a lack of knowledge about what’s available,” she notes. Families who are unaware of the benefits of RESPs may miss out on substantial financial support.

Understanding the RESP structure is crucial for maximizing benefits. Contributions to an RESP qualify for the Canada Education Savings Grant, which provides a 20 percent top-up on annual contributions up to $2,500 per child. This can equate to as much as $500 in grants each year, with a lifetime maximum of $7,200 in grants per child. Additionally, low- and middle-income families can access extra funding, while low-income families may receive the Canada Learning Bond, which offers $500 upon opening an RESP and $100 annually for up to 15 years.

Kinnear advises families to start early to take full advantage of these grants. “That’s $2,000 in bonds that could be available just by opening a plan,” she explains. Even for those who start late, opening a plan by the year their child turns 15 can still yield some grants.

Once families secure funding for contributions, the next step is selecting an investment strategy. A straightforward option is depositing funds into a high-interest savings account, which allows for growth through the grants. However, starting early enables families to consider more aggressive investments, such as stocks, rather than defaulting to low-risk options like bonds or guaranteed investment certificates (GICs).

Financial institutions are increasingly offering RESP investment products designed to simplify the process. The CIBC Education Portfolios, for example, feature a variety of allocations between stocks and bonds based on the child’s target enrollment date. The CIBC Target 2045 Education Portfolio is designed for children born from 2025 to 2029, starting with a full investment in stocks and gradually shifting to fixed income as the child approaches post-secondary education.

Michael Keaveney, vice-president of managed solutions at CIBC Asset Management, notes that these portfolios cater to families who may not have substantial savings immediately available. “The client we’re appealing to is not the ones with $100,000 lying around,” he states.

Similar RESP solutions are offered by other major banks, including RBC and BMO. The advantage of these products lies in their ease of use, with automatic rebalancing to reduce risk as children near enrollment.

For many parents, simplicity in managing their investments is essential. Jason Evans, a fee-for-service certified financial planner at Evans Retirement Planning in Winnipeg, emphasizes the appeal of asset allocation ETFs as a cost-effective choice for both education and retirement savings. These all-in-one portfolios trade on stock exchanges and generally incur lower fees compared to specialized education portfolios.

Yet, while these options provide ease, parents must remain proactive in managing their investments, particularly as their child approaches the age for post-secondary education. Kinnear suggests that grandparents may play a pivotal role in alleviating financial strain by contributing to their grandchildren’s education funds, especially when parents find themselves financially tight.

Ultimately, as back-to-school costs rise, families must balance immediate financial responsibilities with planning for future educational needs. Starting an RESP, even with small contributions, can significantly enhance the educational opportunities available to children, making it a worthy investment in their future.