Tax deductions can lessen the load for kids’ expenses, says one advisor.Andres Leighton/The Associated Press
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Most clients have no trouble maintaining a monthly household budget of the regular line items. But it’s the big occasional purchases – like summer camps and kids’ extracurricular activities – that can land them in trouble, advisors say.
And they know from experience. Nadege Koskamp has enrolled her school-aged daughters in full-day summer camp for seven weeks and she had to pay the full fees for those camps in February. This month, she already forked out fall registration fees for novice cheer, which begins in September.
“I wasn’t prepared for the costs to come so early,” says Ms. Koskamp, certified financial planner (CFP), senior financial consultant and division manager at IG Wealth Management in Toronto. “It’s been an eye-opener.”
But now armed with the knowledge, she passes the information to her clients, who mostly have children of a similar age. She says camps charge around $200 to more than $800 a week per child. Specialty camps, such as hockey and golf, skew on the higher side.
“Where I am in my life has really been beneficial for the clients I work with,” she says, noting that new parents aren’t necessarily aware of the cost of these programs and the earlier-than-anticipated deadline for payments.
Of course, that assumes you can also get a spot in the program of choice. At first, Ms. Koskamp attempted to register for summer camps run by the city, which tend to be a few hundred dollars a week cheaper. But she only managed to secure spots for two weeks. How does she advise clients to save enough money for these expenses?
For clients who will no longer use daycare, she suggests transitioning the daycare line item toward kids’ activities.
Sharing resources and funding education
She also tells clients to join neighbourhood community groups on social media and get recommendations there. One idea is sharing a sitter with other families on the same street/area and rotating the houses where kids are watched.
She will often advise clients to ask their families to contribute to a registered education savings account (RESP) in lieu of providing gifts to the children. Besides building up education savings and potentially helping the child not to go into debt in the future, it frees up cash flow for the parents to use their own contribution toward summer camp or fall extracurricular activities.
“Having an education funded by extended family creates a legacy, fewer toys in the house and more cash flow in your budget,” Ms. Koskamp says.
Elke Rubach, CFP and principal at Rubach Wealth Holistic Family Advisors in Toronto, builds the costs of summer camp and extracurriculars within the client’s financial plan.
“I ask what activities the kids are getting into and get specifics from them on registration and equipment costs,” she says.
Ms. Rubach has seen prospects panic at the costs and throw the expense on a line of credit.
“Instead, they need to ask what they need to cut back on, so they can afford camp and we walk through those scenarios,” she says.
Ms. Rubach also learned the hard way about the early costs when she tried to sign her daughter up for a two-week overnight summer camp in June. Turned out, it sold out in November.
Clear up confusion over expenses
Cathie Hurlburt, senior financial planner at Assante Financial Management Ltd. in Vancouver, notes that clients often confuse savings and cash flow planning as the same thing. But she says the former is investing for the future and the latter is saving for upcoming purchases.
She allocates a client’s expenses into three categories of expenses – fixed, variable and what she calls “lumpy expenses,” which is essentially spending on occasional items. Retirement savings go under “fixed.” Items such as summer camps and kids’ activities would go under “lumpy expenses.”
Ms. Hurlburt says it’s important to know the true costs of “lumpy” annually and then add the monthly obligation to the household budget.
She suggests putting the savings-for-spending into a separate account. “If kids’ activities are going to be $3,000 a year, we put away $250 a month into an account,” she says.
She says tax deductions can also lessen the load for kids’ expenses. If a client doesn’t file their income taxes on time or at all, they may miss out on receiving the Canada child benefit, a tax-free amount paid out every month depending on the parents’ net income.
Many camps and kids’ programs can also be deducted, so Ms. Hurlburt advises clients to get a tax receipt from the provider.
“Any tax refund received because of this can then go back into the savings for spending account,” she says.
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