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Written by Emma Amaral and Katusha Saraiva
Contributors Emma Amaral and Katusha Saraiva break down the national picture on student debt – and how you can begin to tackle yours.
Young Canadians are in a difficult position when it comes to making smart financial decisions under the constraint of paying for post-secondary education. 2017 marked nearly three decades of steadily increasing tuition that has almost tripled since 1990, due to increased costs of educating each student and decreased government funding. Outside of Quebec, undergraduate tuition is now at a yearly average of $7,600 per year for domestic students (not to mention added fees and living costs).
This massive cost is getting harder for university students and recent graduates to pay off. According to a report published by RBC Economics this summer, thirty years ago it took students working minimum-wage jobs 293 hours to pay for an average year of tuition. Despite a jump from $5 to $13 in federal minimum wage, it now takes students 505 hours to pay for school. So it’s not surprising that over 20% of graduates with a bachelor’s degree graduate with more than $25,000 in debt.
The good news is that post-secondary education still pays off, in more ways than one. According to the 2015 median salaries of full-time employees, university graduates earned 63% more than high school graduates. University degrees also shield workers from unemployment, especially during economic downturns. This may also explain the increase in female enrollment in Canadian post-secondary education.
But this comes at a price, beyond tuition. The reality is that young Canadian graduates are suspending important milestones because of student debt, such as delaying a home purchase; having children; or getting married. These outcomes might be positive, negative, or neutral depending on the individual, but there are other consequences that are just plain bad: delaying things like paying off other debts; working in preferred fields; and saving for retirement, as well as having less money saved for emergency situations.
This one’s not easy. Student loans add exponentially more stress at a time when young adults already have a lot on their plates. However, facing student loans head on is the best way to minimize long-term pain.
It may be too late for those of us who are already in school or recently graduated, but we can always educate our younger family members and friends to make smart financial decisions.
Only 51% of eligible Canadians are benefitting from RESPs, and this group is skewed towards families that already have higher incomes.
You can ask your bank to automate the transfer of a fixed amount from your chequing account into your savings. A good default is a bi-weekly schedule that is synced up with your pay day, or whatever works best for you. You should also automate your bill payments (i.e. phone and credit card bills) to avoid late payments and interest fees.
It might be too late for an RESP, but every young adult should have a TFSA. The interest accrued from this savings account is tax free, as are withdrawals (so you can save for a future big ticket item of your choice). Check with your bank to see what your contribution limit is and what you can afford to set aside, because the more you do, the higher return you will receive. Now is a good time to have this conversation with the new year just around the corner. Try and reach your maximum contribution limit (without going over) before the year’s end.
Online shopping has never been more tempting, with more and more ads popping up across our social media accounts. Self-control is key: stop spending money on fast fashion pieces that catch your eye, no matter how many paid instagram influencers are flooding your timeline. To reward your self-constraint, pick once or twice a year to indulge in a few investment pieces that will last you well into your career and never go out of style. This equals long term savings, and a healthier environment (fashion is considered one of the most polluting industries in the world, not only because of the production process that is water intensive and toxic, but think about how many Zara and Forever 21 pieces are chucked every year).
This may seem insulting to those of us who haven’t even landed a full-time job yet. And just to be clear, you shouldn’t be saving for retirement until you’ve paid off your student loans. But once you get a full-time job, you should be asking your bank about opening an RRSP. The earlier you start to save, the more time you have to grow the pot (think compound interest). And if employers are willing to match your contributions in an RRSP, that free money should be fully taken advantage of. But keep those TFSAs around, because they provide you with more freedom to withdraw funds.
In typical millennial fashion, there are more and more user-friendly options for investing that are geared towards young people. These apps have features such as automated customized investments synced with bank accounts, graphics that track cash flows, and curated lists of socially responsible investments. Even if you don’t currently have extra income to invest (after rent and student loan payments), try to keep yourself informed. Don’t be afraid to ask questions at your bank and do research online, getting comfortable with what your financial goals may be; what your timelines for these goals are; and how much risk you are comfortable with. But remember to run any big moves by a financial professional.
Apps can do more and more for us, but don’t underestimate the value of doing a deep dive into your finances and spending habits yourself. The goal of creating a budget manually is simple: spend less than you make by becoming more cognizant of your purchasing habits. The first scary step is to dissect your bank statements to get a clear picture of where you’re currently spending your money as well as your financial health (i.e. your student and credit card debt). Next, create a monthly budget for expenses such as housing, transportation, and debt repayment in order of importance. Not only will this keep you on track for things like long term savings, but paying off debt but will make you more conscious of exactly how you are spending your hard earned dollars.
The increasing costs associated with post-secondary education have resulted in many young Canadian students incurring debt. However, the financial burden of post-secondary education should not be prohibitive years after graduation. To make lemonade out of this otherwise sour reality, there are, thankfully, generally easy things we can be doing. For instance, being diligent about tackling student loans through early planning and short term sacrifices to become debt free as soon as possible. Or simply spreading the word about the realized cost of schooling and different funding options to save money.
The upside is that university graduates are still in a good spot within the country’s labour force, and apps are making investing and financial tracking more appealing and accessible to a younger generation of Canadians. Financial literacy is the first step to improving financial health and stability (kudos for reading this article), so stay curious about your finances and the Canadian economy at large because it is definitely not the same world that our parents moved through.
Katusha Saraiva is a Bachelor of Commerce student in her final year of study at Ted Rogers School of Management with a major in Global Management. She is interested in marketing as it relates to business management, and had the opportunity to work for a start up company in the Fashion Zone – Canada’s first incubator for fashion inspired business this past summer.
Emma Amaral is a Master of Global Affairs candidate at the University of Toronto. She is interested in exploring topics related to digital technology, democracy, and human rights, and has been lucky enough to research these topics at the United Nations. Emma is currently enjoying a semester abroad in Paris at Sciences Po. Connect with her at https://www.linkedin.com/in/emma-m-amaral/