Many young adults have never been taught the structure of credit, interest, tax, and debt that can trap people in a cycle of wasted income and wasted time. It wasn’t taught in high school, and we aren’t necessarily taught it at home. Even financially-aware parents may not have shared their wisdom with their young high school graduates yet.
According to the website canada.creditcards.com, Canadians had $73.9 billion in outstanding credit card debts in 2009. With most cards accruing interest at a rate of 20-30% per annum, we’re looking at about a $15-20-billion profit for the credit card companies—and for doing what? Lending you money that they collected on other people’s debts. Collegestudentcreditcard.com has some interesting statistics specifically regarding student debt. According to their database, students have an average of 2.8 credit cards, and $885 average balance owed. Only 55% of students pay off their credit card debt every month.
Interestingly, the site also claims that more students drop out of school because of financial difficulties (8.5%) than because of academic inability (6%).
Student life isn’t often luxurious. With tuition, books, phone bills, going out, and perhaps parking passes and car insurance, it isn’t rare for a student to count their pennies. But without a disposable income, there isn’t any sense in spending money you don’t have.
If you can’t pay right away, you’ll soon be facing high interest charges on your debt. The longer you take to pay, the more your payments go to paying off interest, rather than your initial loan. Now those extra dollars you’ve been sweating for are essentially being thrown away. This system of credit, debt, interest, and tax has so many people today stuck in the proverbial “rat race,” and it only gets worse as your income increases. Apply the same principles to nicer, faster cars, bigger houses, and the costs of raising children. Instead of a $500 student credit card debt accumulating interest, you’ve got a debt of hundreds of thousands of dollars, known as your mortgage. So don’t be surprised if the revenue agency comes after your house!
Of course, everyone has the right to spend their money and credit however they wish. But think twice before you swipe that Visa when your debit card can’t cut it. The creditors may say they’re lending you that bit “so you can get what you want now”, but remember that they’re more interested in your money than your well-being.