Our youngest son decided that he wanted to earn some money. Like a true entrepreneur, he started his own business: He sold golf balls at a public beach near our cottage. “Dad, this business is amazing! I sold 55 golf balls, and I made $53. The kid next door still owes me two dollars.”
What he didn’t remember was that he owes me $80 for the two rounds of golf that allowed us to find the 55 golf balls. So I explained to him the concept of debt. At the end of the day, I told him that he doesn’t have to pay me back the $80 until he graduates from university – about 12 years from now. By that time, I’m sure I will have forgotten about the money. Time will tell whether he forgets, too.
PERSONAL FINANCE
The truth is, over one half of students will graduate from postsecondary school with debt – primarily from financing their education. A recent poll conducted by Leger for CIBC reveals that 51 per cent of postsecondary students today have borrowed, or will borrow, to help pay for school. No wonder. About three quarters of students won’t earn enough money in their part-time work to fully pay for school.
The last National Graduates Survey conducted by Statistics Canada was almost 10 years ago (2005). At that time, the graduating class of 2005 had an average debt load of $18,800 (which was up from $15,200 a decade earlier), and the proportion of borrowers who graduated with debt of $25,000 or more had increased to 27 per cent (up from 17 per cent 10 years earlier). According to the recent Leger poll, 40 per cent of students today expect to graduate with debt of at least $25,000. So the trend is clear: Students are borrowing more to cover the increasing costs of postsecondary education.
As an aside, student debt can really impact finances after graduation. A past Survey of Financial Security conducted by Statscan showed that student borrowers had a significantly lower probability of having savings and investments than non-borrowers, and that borrowers with postsecondary education were less likely to own their homes. Finally, postsecondary graduates with student loans had, on average, lower assets and correspondingly lower net worth than those who did not have student loans.
Don’t get me wrong – student debt can be worthwhile if it allows a student to create higher earning capacity. But the debt needs to be managed. Here’s some advice for students who want to borrow prudently for an education (some of these ideas come courtesy of Consolidated Credit Counseling Services of Canada):
Rule of 10s. Follow this rule when borrowing for education: For every $10,000 in student debt, you should be able to earn $10,000 over a base of $10,000 annually to be able to pay off that debt in 10 years. For example, if you graduate with $30,000 of debt, you should be able to earn $30,000 over a base of $10,000, for a total of $40,000 annually in order to pay off that debt over 10 years.
Soften the blow. Although you may not earn enough in the summer to fully pay for a year of education, those earnings can make a big difference. You should save as much as possible, and consider working part-time during the school year to help cover education costs. But balance your work hours; it’s tough to work more than 15 hours a week while in school and still excel academically.
Create a budget. You should use loan proceeds wisely. Identifying needs and wants will help, and vow to spend student loans only on needs. Don’t spend your loans on a trip to Mexico.
Live lean. Most students in their late teens and early 20s don’t have other mouths to feed, so take advantage of this time in life. Live frugally. If you can get by without a car, do it. You’ll live with monthly bills most of your life, so avoid them now if you can.
Apply for bursaries and scholarships. Getting free money beats borrowing any day. Start the search for bursaries and scholarships a year ahead of the time you’ll need the money. Check out these websites: ScholarshipsCanada, StudentAwards, CanLearn, and Service Canada.
Pay it back. After graduation, be sure to reduce your debt as quickly as possible. Start with any credit-card debt (since there is rarely relief for interest on credit-card debt), then follow that by paying down your student loans (you’re generally entitled to a tax credit for student-loan interest). Make more than the minimum payment monthly if you can.
Jahnome McEwan university student is taking cost cutting to the extreme
A 21-year-old university student is taking on the consumer culture that turned back-to-school season into spend-o-rama.
Jahnome McEwan plans to go through the entirety of 2017 without spending on anything but necessities and a dinner out now and then with his girlfriend. Spending on everything else – clothes, electronics, socializing with friends – is out.
“We’ve been trying to figure out ways we can save our money,” the York University student said in an interview. “We decided, let’s just do a complete paradigm shift and not spend at malls at all. Don’t buy clothing, don’t buy anything for a full year. See how much we can save, see how much we can invest. Do the complete opposite of what’s going on.”
Right now, what’s going on is a back-to-school season that ranks second only to winter holiday shopping in terms of how much we spend. Inflation’s up 1.3 per cent on a year-over-year basis, yet a recent poll of 1,506 parents suggested spending on school supplies, clothes and such will on average rise 43 per cent over last year. The poll, commissioned by coupon website RetailMeNot.ca, pegged average spending at $472 per child.
Schools are demanding more spending from parents, but there’s a discretionary aspect to all of this. It feels normal to us to spend more from year to year on ourselves and our kids, and so we do.
Mr. McEwan understands this urge to spend because he has given in to it. He has a taste for the finer things – he particularly likes watches – and admits to carrying a credit card balance. In an e-mail he sent me, he admitted that he and his girlfriend shop a lot at high-end stores.
“We figured it would be interesting to see how much we could actually save in a year by stopping,” he wrote. “Our aim is to show ourselves how much we can save to invest at our young ages by cutting our costs to the highest degree possible.”
He’s young and he has made mistakes, but Mr. McEwan is an example to us all about handling money. Though he’s still completing an undergrad degree at York combining English and marketing, he’s the author of a self-published book of financial tips for young adults called 50 Rules for 50 Fools. He’s also an active investor who has a goal of reaching $1-million by the age of 35.
Here’s his plan for the year ahead: Save 70 per cent of the money he earns through the 30 or so hours he works every week at a home improvement chain, and save or invest it. Ideally, he wants to put $5,000 a year into his investment account annually over the next several years. To accomplish this, he intends to spend only on necessities such as food, transportation and stuff for school.
The most basic way to improve your finances is to cut spending, but not everyone can do this for reasons that include low-paying jobs and family obligations. Mr. McEwan’s challenge is peer pressure. People want to socialize with his girlfriend and him, and he’s had to say no a lot lately.
“People are saying you’re crazy, you’re too young,” he said. “They call me cheap, although I’m still spending. I’m just not spending on things that give me immediate gratification.”
There’s definitely some immediate gratification in our back to school spending habits. We’ve gone from equipping children for school with such necessities as paper, pencils and some new clothes into a complete annual refit of supplies, clothes and electronics. Mr. McEwan is opting out this year. He’s got his cellphone, laptop and winter gear ready to go and doesn’t plan to buy any more.
He said his financial reboot was made necessary by his use of credit cards, which is noteworthy because of how easy it is for postsecondary students like him to get credit cards these days. Mr. McEwen used his card often to generate travel reward points and found he was unable to pay his balance in full when the bill arrived. Lately, he has been using his paycheques to hammer the down the balance.
Based on his past spending history, some of Mr. McEwan’s friends question whether he’ll be able to disconnect himself from on our consumer culture. He insists he’s committed to saving and investing ahead of spending. “I have tunnel vision,” he said. “I don’t anything get in the way of the goal I’m trying to achieve.”
What he didn’t remember was that he owes me $80 for the two rounds of golf that allowed us to find the 55 golf balls. So I explained to him the concept of debt. At the end of the day, I told him that he doesn’t have to pay me back the $80 until he graduates from university – about 12 years from now. By that time, I’m sure I will have forgotten about the money. Time will tell whether he forgets, too.
PERSONAL FINANCE
The truth is, over one half of students will graduate from postsecondary school with debt – primarily from financing their education. A recent poll conducted by Leger for CIBC reveals that 51 per cent of postsecondary students today have borrowed, or will borrow, to help pay for school. No wonder. About three quarters of students won’t earn enough money in their part-time work to fully pay for school.
The last National Graduates Survey conducted by Statistics Canada was almost 10 years ago (2005). At that time, the graduating class of 2005 had an average debt load of $18,800 (which was up from $15,200 a decade earlier), and the proportion of borrowers who graduated with debt of $25,000 or more had increased to 27 per cent (up from 17 per cent 10 years earlier). According to the recent Leger poll, 40 per cent of students today expect to graduate with debt of at least $25,000. So the trend is clear: Students are borrowing more to cover the increasing costs of postsecondary education.
As an aside, student debt can really impact finances after graduation. A past Survey of Financial Security conducted by Statscan showed that student borrowers had a significantly lower probability of having savings and investments than non-borrowers, and that borrowers with postsecondary education were less likely to own their homes. Finally, postsecondary graduates with student loans had, on average, lower assets and correspondingly lower net worth than those who did not have student loans.
Don’t get me wrong – student debt can be worthwhile if it allows a student to create higher earning capacity. But the debt needs to be managed. Here’s some advice for students who want to borrow prudently for an education (some of these ideas come courtesy of Consolidated Credit Counseling Services of Canada):
Rule of 10s. Follow this rule when borrowing for education: For every $10,000 in student debt, you should be able to earn $10,000 over a base of $10,000 annually to be able to pay off that debt in 10 years. For example, if you graduate with $30,000 of debt, you should be able to earn $30,000 over a base of $10,000, for a total of $40,000 annually in order to pay off that debt over 10 years.
Soften the blow. Although you may not earn enough in the summer to fully pay for a year of education, those earnings can make a big difference. You should save as much as possible, and consider working part-time during the school year to help cover education costs. But balance your work hours; it’s tough to work more than 15 hours a week while in school and still excel academically.
Create a budget. You should use loan proceeds wisely. Identifying needs and wants will help, and vow to spend student loans only on needs. Don’t spend your loans on a trip to Mexico.
Live lean. Most students in their late teens and early 20s don’t have other mouths to feed, so take advantage of this time in life. Live frugally. If you can get by without a car, do it. You’ll live with monthly bills most of your life, so avoid them now if you can.
Apply for bursaries and scholarships. Getting free money beats borrowing any day. Start the search for bursaries and scholarships a year ahead of the time you’ll need the money. Check out these websites: ScholarshipsCanada, StudentAwards, CanLearn, and Service Canada.
Pay it back. After graduation, be sure to reduce your debt as quickly as possible. Start with any credit-card debt (since there is rarely relief for interest on credit-card debt), then follow that by paying down your student loans (you’re generally entitled to a tax credit for student-loan interest). Make more than the minimum payment monthly if you can.
Jahnome McEwan university student is taking cost cutting to the extreme
A 21-year-old university student is taking on the consumer culture that turned back-to-school season into spend-o-rama.
“We’ve been trying to figure out ways we can save our money,” the York University student said in an interview. “We decided, let’s just do a complete paradigm shift and not spend at malls at all. Don’t buy clothing, don’t buy anything for a full year. See how much we can save, see how much we can invest. Do the complete opposite of what’s going on.”
Right now, what’s going on is a back-to-school season that ranks second only to winter holiday shopping in terms of how much we spend. Inflation’s up 1.3 per cent on a year-over-year basis, yet a recent poll of 1,506 parents suggested spending on school supplies, clothes and such will on average rise 43 per cent over last year. The poll, commissioned by coupon website RetailMeNot.ca, pegged average spending at $472 per child.
Schools are demanding more spending from parents, but there’s a discretionary aspect to all of this. It feels normal to us to spend more from year to year on ourselves and our kids, and so we do.
Mr. McEwan understands this urge to spend because he has given in to it. He has a taste for the finer things – he particularly likes watches – and admits to carrying a credit card balance. In an e-mail he sent me, he admitted that he and his girlfriend shop a lot at high-end stores.
“We figured it would be interesting to see how much we could actually save in a year by stopping,” he wrote. “Our aim is to show ourselves how much we can save to invest at our young ages by cutting our costs to the highest degree possible.”
He’s young and he has made mistakes, but Mr. McEwan is an example to us all about handling money. Though he’s still completing an undergrad degree at York combining English and marketing, he’s the author of a self-published book of financial tips for young adults called 50 Rules for 50 Fools. He’s also an active investor who has a goal of reaching $1-million by the age of 35.
Here’s his plan for the year ahead: Save 70 per cent of the money he earns through the 30 or so hours he works every week at a home improvement chain, and save or invest it. Ideally, he wants to put $5,000 a year into his investment account annually over the next several years. To accomplish this, he intends to spend only on necessities such as food, transportation and stuff for school.
The most basic way to improve your finances is to cut spending, but not everyone can do this for reasons that include low-paying jobs and family obligations. Mr. McEwan’s challenge is peer pressure. People want to socialize with his girlfriend and him, and he’s had to say no a lot lately.
“People are saying you’re crazy, you’re too young,” he said. “They call me cheap, although I’m still spending. I’m just not spending on things that give me immediate gratification.”
There’s definitely some immediate gratification in our back to school spending habits. We’ve gone from equipping children for school with such necessities as paper, pencils and some new clothes into a complete annual refit of supplies, clothes and electronics. Mr. McEwan is opting out this year. He’s got his cellphone, laptop and winter gear ready to go and doesn’t plan to buy any more.
He said his financial reboot was made necessary by his use of credit cards, which is noteworthy because of how easy it is for postsecondary students like him to get credit cards these days. Mr. McEwen used his card often to generate travel reward points and found he was unable to pay his balance in full when the bill arrived. Lately, he has been using his paycheques to hammer the down the balance.
Based on his past spending history, some of Mr. McEwan’s friends question whether he’ll be able to disconnect himself from on our consumer culture. He insists he’s committed to saving and investing ahead of spending. “I have tunnel vision,” he said. “I don’t anything get in the way of the goal I’m trying to achieve.”
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