5 Tips for Students to Protect Financial Health

A recent report published by Statistics Canada found that young Canadians aged 25 to 34 with a university degree earned an average of $18,868 more per year than similarly aged high school graduates. The income gap increases over time, with university graduates ages 55 to 64 earning an average of $52,782 more than their high school grad counterparts. In light of the potential payoff, it is easy to see why post-secondary education is in such high demand.

Implementing these five tips for financial health can increase a student’s chance of converting that higher income into greater wealth and security:

1. Treat your education as an investment

An investment is an asset or item purchased with the hope that its value will increase in the future. When it comes to education, the asset is your future earning potential. The cost of this asset is not limited to just the price of tuition, which averages between $2,500 and $11,000 per year in Canada, but also includes less obvious things such as textbooks, supplies, living expenses, and even lost income. It also includes any interest you must pay on debt accumulated to acquire the education.

To maximize your return on investment, choose a program that maximizes your income potential while minimizing the cost of your education. The program should be one that matches your personal strengths and interests to increase the likelihood of you completing your education and attaining that higher income. In addition, it is critical that you balance your studies with your physical and mental wellbeing so that you can sustain your work over the long term.

2. Make financial literacy part of your studies

For many young people, their post-secondary studies represent a time of transition between financial dependence on parents or guardians to financial independence. Prior to now, your opportunity to manage money may have been limited or non-existent. Taking time to learn about financial literacy and practicing good money management habits will help prepare you to make the most of those future earnings when they do roll in, as well as to understand how to deal with it in case they do not.

Financial literacy is not just about budgeting, although that is a key component. Financial literacy includes a broad range of topics such as banking, managing savings and investments, insurance, income tax obligations, protecting yourself from fraud and understanding credit and debt. If possible, incorporate some introductory finance courses into your studies and take advantage of any informal opportunities available around campus. If your goal is to be self employed, you should consider taking an introductory accounting class. If opportunities on campus are limited, the Financial Consumer Agency of Canada has some valuable information and resources online.

3. Start building good credit history

Your credit rating is a score assigned to you by the credit bureaus and is a prediction of your ability to repay debt. Generally speaking, the higher your credit score, the less it will cost you to borrow money. And of course, the less you pay to borrow, the more money you can save or allocate to other goals. Credit ratings can also be used by prospective landlords or employers to consider whether they will rent to you or employ you. So even if you do not plan to borrow money, it can still be beneficial to build a good credit score.

To build a good credit score, it is necessary to first borrow money and then meet the terms of repayment. The longer you do this, the higher your potential rating will be. A simple way to do this is to obtain a credit card with a small limit — these are often offered to students on campus. By using the credit card to pay for a regular monthly expense that is part of your budget, such as food or utilities, and then paying the card balance in full by the due date, you can start to build that positive credit history without really taking on debt. Keep in mind, however, that the card is not cash. A credit card is a legal obligation to pay all charges at a future date. If you fail to pay on time, they will continue to charge you large amounts of interest until you finally do pay in full.

4. Budget, track, adjust, repeat

Financial wellness is not achieved through a precise dollar figure, but when an individual feels secure in their ability to meet both their current and expected future needs. Budgeting is an essential part of your financial wellness plan, and it is a lifelong process.

The process of budgeting starts with a thorough analysis of where you sit now, and then setting some goals for the future. As a student, your goal might be to fund your education without going into debt. If, for example, you estimate the total cost of your education will be $40,000 over four years and you only have $16,000 saved, your goal will be to save at least $8,000 by the start of each school year for the next three years. Breaking it down further, if your monthly income is $800 per month on average, that means you will need to limit your spending to $133 per month, thereby saving $667 per month — that is your budget. 

While a budget is a great start, it is often the easiest part. More challenging is living within your budget. To know whether you are on track with your budget, it is essential to regularly track your spending and compare it to your budget. There are many great apps that can help you with this; however, the way in which you monitor your progress is less important than actually doing it. So pick the way that is easiest for you, whether that’s an app, a spreadsheet or good old-fashioned pen and paper.

Finally, no matter how well you budget and monitor your progress, it is almost certain you will not be perfect. Perhaps more important than your original budget is your ability to adapt as you progress. If you are behind on a savings goal, you will need to make up the difference. This might require spending less in future months, earning more income, or some combination of the two. Another option might be to delay a purchase until you have saved the additional funds required. If possible, it is best to avoid taking on more debt than was planned as this will only increase your financial burden post-graduation.

5. Minimize expenses and debt.

Being a student typically means you will have little time available to earn an income. It is therefore a good time to learn to live as cheaply as possible. While we all have the same basic needs for food, clothing and shelter, and there is a wide range of ways to meet these needs. The way you choose to meet your needs should not be dictated by what other friends or students have, but by what works within your budget. Undoubtedly, this can be difficult. Remaining flexible and choosing to focus on your reasons for staying within your budget can help alleviate some of the negative feelings you may have and help you stick with it during difficult times.

Since one of the reasons individuals choose to attend post-secondary institutions is the expectation of higher income in the future, it is only natural to start thinking about all the things you want to do with that money after you graduate. Unfortunately, a higher income is not guaranteed. Regardless of whether you finish your program and regardless of the employment or income you achieve, you will still be legally obligated to pay back any debt plus interest. For this reason, it is best to minimize the amount you take on in the first place.

For many, a post-secondary education is not possible without taking on at least some debt, whether that is government-issued student loans, credit issued by banks or other lenders, or both. If this is your situation, you will need to come up with a plan to repay that debt as soon as it becomes due, if not sooner. 

Government student loans typically require you to start monthly payments within six months after your last day of studies; however, if you are unable to do so, you may qualify for relief through the Repayment Assistance Program. Other creditors may not be so accommodating and may commence legal action against you if you do not meet the repayment terms.

If you find yourself in this situation, you may want to speak with a Licensed Insolvency Trustee at MNP who can review your situation and advise you on the options for dealing with your creditors. Many individuals find relief with a Consumer Proposal, which is a formal offer to amend the payment terms that can often reduce the amount to be repaid.

Note that you are typically not eligible for relief from government student loans through Bankruptcy or a Consumer Proposal in the first seven years after you complete your studies. However, this exception does not apply to other debts you accumulate while you are a student (e.g., credit cards) or non-government student loans or lines of credit.