Last Thursday, students gathered in the Li Koon Chun Finance Learning Centre to hear The Globe and Mail columnists Rob Carrick and Roma Luciw speak about personal financial literacy.
Carrick outlined how our financial reality has changed in the past 30 years. The cost of tuition has gone up, the job market has changed, and early retirement has become unrealistic.
Carrick said that students need to think strategically about how the things they want to do fit into the workforce, and to tailor their studies accordingly.
“Connect what you’re studying with what employers want, and you’ll make it easier for someone to snap you up,” he said.
To deal with student debt, Carrick advised making the minimum payments to start, then increasing them as funds increase.
“Get those loans paid off, because your financial life isn’t going to start until those are paid off,” Carrick said. The default payback period is 10 years. Carrick pointed out that paying 200 to 600 dollars a month for 10 years adds up to money that can be used to travel or buy a house.
During the Q and A session, a first-year student asked about balancing a job during school and avoiding stress. Carrick advised that working about 40 hours a week during the summer at a good job might be enough to avoid working part-time during the school year. He also advised that students should also start looking for summer jobs after the winter break. Most well-paying government jobs start hiring in January or February.
Carrick also encouraged students to inform themselves about the products banks sell them, such as credit cards and student accounts.
A student chequing account, he said, shouldn’t have any fees. He once received an email from a man whose son made 80 debit transactions in one month and had to pay a $40 fee because he went over his transaction limit.
The fundamental problem with students and credit cards, he found, is that students don’t realize they have to pay the money back.
Carrick recommended having a credit card for online purchases or booking things, and storing it in a drawer otherwise. “My rule is to never use a credit card unless you have the money to pay sitting in your chequing account and you can pay it off that day or the next,” he said.
Waiting for a monthly bill may result in realizing that the amount is too much to pay. Missing a few months can blow your credit rating and make it difficult to get a loan in the future.
Changes in our financial reality mean that we’ll be doing things at a different pace than previous generations. Before, people could have bought their first house at 20 and paid off the mortgage by 40. Now, Luciw said, that pace is unrealistic in face of current financial pressures, such as buying a car or paying for daycare. Everything costs more and housing prices have gone up.
Carrick pointed out that our life expectancy has increased. Early retirement at 55 no longer computes if we expect to live to 90 or 100. “If you expand the years you’re working, you don’t have to be in a big rush to get started,” said Carrick. “It’s okay if your pace for reaching all these financial milestones doesn’t match the pace of people who expected to live to 70 or 80.”
Carrick advised students to take their time with buying a home and to consider how much they make, along with where they are in raising a family.
If prices continue to rise in the next 10 years the way that they have in the past 10, Carrick said, a house in Toronto could cost two million dollars.
Carrick also encouraged students to rent their homes.
“Don’t let anyone tell you that renting is a bad deal,” said Carrick. “It’s not a bad deal, and it’s [a] smart deal.” Renting may allow individuals to save money that would go to a mortgage or property maintenance and use it towards retirement, or building an investment portfolio.
An investment portfolio, said Carrick, offers more liquidity than a house. A house may also restrict flexibility in the case of moving to take a job in another location.
“Do the math, look at the whole situation, and don’t do something because it’s expected of you,” said Luciw. “Do it because it makes good sense.”
One of the positives for our generation, Carrick said, is that we have information at our fingertips. We can ask the Internet our financial questions and make informed decisions.
Columnists at The Globe and Mail have made online calculators to help individuals figure out their financial situation before making a decision.
Once students find a job, Carrick advised them to set up automatic transfers of five percent of their gross income into a savings account. Though it won’t be possible to save throughout life—for example, saving will be difficult when one’s kids are young—saving when possible helps build the concept of smart spending.
Another student in the audience asked about balancing life and debt. If our generation is paying back student loans, it may mean we won’t be able to afford sports or after-school activities for our kids.
“It’s important to decide what your lifestyle priorities are and then scale back in other ways,” Luciw said.