Financial literacy has long been a topic of conversation in Canada. While there’s been a push to include financial literacy classes in public schools, post-secondary students still receive little financial education while, ironically, going into thousands of dollars in student debt.
As a result, more post-secondary students are taking financial education into their own hands. The most crucial time to learn about money is the period after high school and before they start their first full-time jobs.
If you're a student and you have yet to learn practical money skills, here are four reasons to move financial literacy atop your list.
If you’re like most Canadian post-secondary students, you’ve applied for student loans to cover some or all of your tuition and living expenses in school. As a student loan holder, you’ve likely run out of money before you reached the end of your term at least once in your academic career.
Learning how to track your spending will teach you how to effectively budget for the semester and help you stop the feast-and-famine cycle.
Here’s what you should do:
Add up your monthly expenses including rent, Netflix, groceries, and cell phone bill. The number you end up with is the minimum amount of money you need to allocate from your student loans each month.
Once you receive your student loan installment, you’ll be able to calculate, using your budget, whether you’ll have enough money to cover your whole semester of school. If you do, excellent! Consider saving the leftover money to cover future terms when your student loans might not be as plentiful.
If you don’t have enough money to cover the whole semester, now you know in advance. You can find alternative sources of income including scholarships, grants, bursaries, a part-time job, or the funds of mom and dad.
For many young people, student loans represent the largest debt they'll take on for many years, yet shockingly few students know the extent of their debt, their interest rate, or even what their monthly payments will look like after graduation.
If you’re an average student in Canada, you’ll graduate with $28,000 in student loan debt. While student loan payments may seem very far down the road, it’s important to have a clear understanding of how your payments will affect your life post-graduation. By minimizing student loan borrowing, you’ll reduce the effect of student loans after graduation.
“The best time to plant a tree was 20 years ago. The second best time is now.” – Chinese Proverb
When applied to investing, the magic of compound interest is the strongest when you have an extended timeframe. You can think of compound interest as an “interest on interest,” meaning your savings will be growing at a much faster rate.
You can start out by putting money in a high-interest savings account or a GIC. Or you can take on additional risk and invest in a balanced mutual fund. However, the more risk you take the greater the potential for higher returns as well as losses. Despite the risks, stocks should be in your portfolio.
Although it might seem silly to save money while taking on debt as a student, think about investing as a way to take the pressure off your future self. The longer you invest, the less you need to save overall.
For example, Natalie starts saving $200 per month in her tax-free savings account (TFSA) at age 25 and the money she invests produces a 6 per cent return. Tim decides to wait until he’s 35 to start saving the same amount. Both add $200 a month until they turn 65. By that time, Natalie has contributed $96,000 while Tim has contributed $72,000. But due to compounding, she has a total of $402,492 in her TFSA, while Tim has about half that amount in $203,118. That’s why it’s important to start saving early, and knowing how to!
As a student, it's important to be financial literate because money permeates almost every decision you’ll make in life. Whether you’re picking your major, choosing between paid and unpaid summer internships, deciding to live with roommates or alone, or applying for your first credit card, the more you know about your money and how to manage it, the more comfortable you’ll be.
For many students, financial literacy is low on their priority list. But if you take some time to learn about it now, you’re setting yourself up for financial prosperity in the future.