Financial Friday #78:Getting Schooled on Managing Your Finances
It’s back to school next week and many young adults will be heading off to further their education, and live on their own for the first time! Managing their finances will be one of the most important challenges they face.
Poor choices with credit cards or student loans could have lasting repercussions and the financial habits developed at this stage will last a lifetime, so it’s important to get started on the right foot.
Personal finance is part of the school curriculum in several provinces and Enriched Academy is actively working with education officials across the country to deliver financial literacy programs to the classroom before students graduate.
If your kids were fortunate enough to get some financial education at school, or you were able to teach them about money matters yourself, they may be adequately prepared. If not, or you think your kids might benefit from just a little more advice, here are some key points they should keep in mind as they start a new stage in their life.
Understand credit and how to manage it. Credit cards are easy to get and there are plenty of "no interest until 2022 offers" out there. Credit cards debts carry crippling interest rates, and "do not pay until 2022" usually means you have to pay 100% by Jan 1 or you are on the hook for retroactive interest (at 20%+) on the full balance from the day of purchase.
Make sure to study the fine print of any credit or loan agreements and know exactly what you are signing. If you get in over your head with debt and can’t pay your bills on time, your credit rating will nosedive and the cost of buying a car or home will skyrocket, even your job prospects could be adversely affected.
Student loans are not free money. A student loan must be paid back, with interest, usually beginning a few months after graduation. Students may receive grants, scholarships, and other bursaries and these should be seen as a way to reduce the amount of student loans required, not bonus spending cash.
Education is an investment and it usually pays a handsome financial and personal return; keeping the cost as low as possible will help maximize that return.
Create a system to allocate your funds evenly for the entire school year. Putting your money for the year in one account and then using the ATM or debit card whenever you "need" something is a recipe for running out of money in late-February when classes end in mid-April!
Set up a hi-interest savings account for the bulk of your money and pay yourself weekly or bi-weekly by transferring in a fixed amount to a no-fee daily chequing account.
Make a budget and track expenses. Make sure you know the timing of big-ticket items like course fees, housing and/or meal plans, text books, even that trip home or ski weekend, and have those funds set aside. For daily expenses, pay yourself weekly or bi-weekly (see above) and get used to living within your means. No matter how much money you make in the future, this is an essential mindset to master.
Tracking your expenses with a budgeting app or a pen and paper will help immensely with managing your spending.
Safeguard your financial information. There are plenty of scammers out there, they are increasingly savvy, and young people are not immune — the bank will not call to "confirm" your account number and online password, and the CRA does not threaten arrest and demand payment of back taxes in Google gift cards!
The government has some great info on protection from frauds and scams
Learning to manage your daily finances and understanding how to build your wealth over the long-term plays a huge role in your overall happiness. Enriched Academy believes that people of any age can learn these skills and we have helped plenty of "older" clients over the years. However, learning these skills at a younger age has a profound effect throughout your lifetime and amplifies the results many times over.
If you work in the field of education and would like to your students learn the financial basics that all young Canadians should know, why not reach out to us at kevin.mccarthy@enrichedacademy.com with a few details.
We will take over from there and do our best to try and make it a reality. Enriched Academy works with governments, boards of education, and directly with universities, colleges and schools across Canada to deliver practical, engaging and inspiring financial literacy programs.
Resources
"Shrinkflation" everywhere as companies try to keep a lid on rising prices
If you noticed a few less Doritos in the bag lately, or that roll of paper towels seems to disappear a lot more quickly than before, it's not your imagination! Check out these 18 everyday items that producers have very cleverly reduced in size, while keeping the price unchanged - and make a note to be careful next time you hit the grocery store.
Big banks may not have your back when it comes to fraud
Just because it's one of the "big banks" doesn't mean their systems are immune to fraud, or they are willing to help you when it happens. One Ottawa BMO customer found out the hard way that the level of fraud protection may be a lot lower than you think
Compound interest: A 1-minute primer on why you need to invest
Who knows more about calculating interest than a bunch of accountants? The Chartered Professional Accountants of Canada put together this very short read on the wonders of compound interest on your investments. You can take their word for it, or listen to Enriched Academy Co-founder Kevin Cochran talk about it on YouTube. Either way, you are going to be surprised by just how fast your money piles up.
The best investment I ever made
MoneySense spoke to several top Canadian financial experts and asked them, "What's the best investment you ever made?" This entertaining 3-minute YouTube video provides some great insights and ideas.