When it comes to financial matters, students are among the hardest hit in Canada. The post-secondary school lifestyle is the perfect storm for financial woe: high debt levels, low employment opportunities and a lack of understanding and resources. It’s these challenges that Globe and Mail personal finance columnist Rob Carrick looks to address in his book How Not To Move Back In With Your Parents: The Young Person’s Complete Guide To Financial Empowerment.
As part of our Financial Literacy Month focus, we had the chance to catch up with Rob -- read on for his take on students' financial challenges, commonly made mistakes, savings strategies and more.
The unique financial challenges facing students
Q: You’re a finance columnist and come across money issues facing all age groups. Why choose to write about students?
RC: I think they have the highest level of need for good advice, and yet there’s nothing out there for them, so I thought I could fill that gap.
Q: What are the unique challenges facing this specific generation that didn’t exist for generations past?
RC: One is that it costs an ever increasing amount of money to go to university and most people would have to borrow money to afford it and I think that’s why 40 per cent of students are graduating with debt, and the average debt level is $27,000 dollars. Another thing is the job market for young adult graduates is weak. The national unemployment rate is about half of what it is for young adults, and the figures mask underemployment which is where people are working at jobs that are well below what they’re capable of and what they’re trained to do. Another problem is the things people are studying in university are not the ones that generate good jobs, and I think in many cases young adults are getting a really poor level of assistance from high schools and educators about what the good careers are.
Q: What are some of the biggest mistakes parents make that give kids the wrong idea about money?
RC: I think what parents have to do is get their kids used to making the kind of money decisions you have to make as an adult, and that is compromising, living within your means. You have to demonstrate that in your own life, and you have to convey the message that this is how you manage money. You need to talk about money, and allowance is a great way to do that, a part time job is a great way to do that, a cash gift is a great way to do that. But you can’t assume people are going to pick this stuff up, and while it may have been fine in the past to let people learn through the school of hard knocks, the stakes are pretty high now.
Q: What advice would you have for students while they’re in school to minimize their debt repayment and get ahead after graduation?
RC: One thing I would suggest is take a gap year, do a little work, and build up a little savings to help pay your borrowing costs. Kids who are going to university at 17, 18 - that’s pretty young to start investing between $5,000 to $6,000 and $20,000 a year. [...you] could be a part time student and work a little. Take a larger number of years to graduate, but with less debt. You’ll have some employment experience to put on your resume. ASnd we’re all living to 90 these days anyway – it’s not going to make a difference if you graduated in your early 20s from school. It doesn’t make any difference at all. One more suggestion I’ll throw out there – you have to live rough as a student… I guarantee you will hate paying back your student loans while you’re working. It will be such a burden and you will get more joy out of the money you’ve saved than you will out of spending money on booze, eating out, whatever while you were a student, believe me.
Q: Are there any steps grads can take during the unemployment limbo?
RC: One thing is you have to move back home with your parents if you’re in limbo. There’s no way you should be wracking up debt to be living on your own. It’s just senseless. It’s basic economic survival.
Q: What are the key financial goals kids should strive to achieve while living at home with their parents?
RC: First of all, don’t incur any debt. If you’re living at home and you’re benefitting from this huge break, don’t go out and waste it by wracking up your credit card with extras. Stay debt free. The second is once you get a job, I know a lot of people are very eager to move out, but it might not be a bad idea to build up a little cushion of cash that you can use to get yourself a good launch.
Q: Your own son is graduating debt free. What kind of strategy have you taken to accomplish this?
RC: It’s a two pronged strategy. One, my wife and I have saved aggressively, and somewhat excessively, in an RESP since they were one to three years old, for him and his brother, and we’ve been contributing every year. We haven’t always maxed out, but we’ve always put money in. So, we’re at the point where he’s in university and his brother is two or three years away, and we have a good pot of money – it’s not going to pay for every cent, but we’re confident it’s going to pay for almost all of it, and what we don’t have raised is where the second part of the strategy, which is working. My oldest son had a part time job last summer and we came up with a formula that says how much of his earnings will go into the savings, and it’s been a significant contribution, and it’s helped bridge the gap between what we’ve been able to save. I’m pretty confident that neither will have to borrow money to pay for their university or college.
Q: What are your tips for financial products for this age group?
RC: You can’t give blanket advice that would suit everyone, but I think most students would be best served by a TFSA to start investing rather than an RRSP. They’re very flexible, and you can dip into them for priorities like buying a house or saving for retirement. RRSPs are good, and as your earnings grow, I would definitely suggest branching out into RRSPs, but there’s a good argument for starting out with the TFSA. There’s almost no fees associated with them, but with RRSPs there’s sometimes annual admin fees.
Also, a young person should take advantage of student banking, they’ll often give it to you for free, and online banking, with a zero cost chequing account makes good sense.
Q: What do you think about how financial products are marketed to this group?
RC: I think with credit cards, and this is part of the landscape, we can criticize the banks for doing it. But I think individuals who don’t have a job should not have a credit card.
Q: Do you think financial literacy should be coming from the schools as well as in the home?
I think that schools are essential. One thing I’ll point out is, if families were so effective at teaching financial literacy, why do we have such high debt levels in this country and such low savings rates? That said, I think we need to bring in some outside help, and the schools are a great place.