Learning how to make effective financial decisions within our means is important for everyone, especially students. But unfortunately, it is not something that happens overnight.
The stress that comes with not knowing your financial standing or how you’re going to find money to pay your bills for the month can be really hard on people. Understanding how to prepare and build good habits as early as possible is essential.
Beginning your journey to becoming more financially literate can be scary. You may find it sparks the question: “Where do I even start?”
A great jumping-off point is understanding what financial literacy means.
In an interview with the project coordinator for the Help! Managing Your Money on Campus program which is part of the Canadian Foundation for Economic Education (CFEE), Chad Izatt dives into all things financial literacy.
Izatt defines financial literacy as “our basic understanding of not just what money can do, but what it should do.”
“Yes, you may have the actual funds to make a purchase, but does that mean it’s a good idea?” he said. “Knowing when and where to spend our money is the foundation of a budget, and sets the groundwork for all of the other financial journeys you are likely to take.”
George Brown College is one of many schools that host workshops in collaboration with the Help! program every Tuesday on financial literacy. The workshop is about chipping away at the knowledge gap between what we learn about finances in high school, and what we need to know in order to succeed on our own in college or university, and beyond.
Izatt explained: “We’re here to get people thinking about their finances in a positive light and build confidence in everyone’s ability to manage their personal finances. People go to the workshops to learn about debt, as well as investing. They ultimately want to know how to have long term stability with money to be able to achieve financial freedom.”
The initiative began at the end of 2020. In its first year, the program achieved above and beyond anticipated goals for 2021, doubling and finally tripling the number of workshops hosted and students’ attendance.
“It’s important for students to learn about this, because they start off with a bunch of debt to pay for their education,” Izatt mentioned. “The goal is to make more money long-term due to the education behind them, but they need to know how to use the money they are making in order to pay for the things they’ve already done.”
Izatt points out that making money is an understandably exciting part of an individual’s life, but learning how to use it is key for the future.
According to Izatt, the greatest area of weakness for students is debt—what it is, how to manage it, and when to avoid it.
“With post-secondary education costs always on the rise, taking on student loans isn’t just common nowadays, but expected,” Izatt explains. “An education is what we refer to as ‘good debt.’ But often the acceptance of student debt numbs us to the seriousness of other types of debt available such as credit cards, that can cause significant problems for credit scores and financial health.”
So how do students go about becoming financially literate, and tackle things such as budgets, credit scores, investing, and saving?
Izatt provided a breakdown of each category and provided advice on these common areas of confusion for students.
Budgeting
– Do your research on budgets. “There are lots of different types of budgets out there. Some are stricter. Find the one that’s best for you, monitor your expenses so you know how well you’re actually following it, be critical of the results, then do it again next month.”
– Be diligent. “Keep at it because you’ll eventually see some positive returns and strong growth,” Izatt said. “You can’t just say, “oh, I’m budgeting now” and your money will be completely under control. It happens when it’s over time, and you’re sticking with it.”
– Set limits within reason. “When it comes to budgeting, if you try to set things up so you’re completely changing your habits, then it’s going to be a lot harder to stick with it,” Izatt explained. The most effective budget is the one that gives you the opportunity to still have financial freedom but helps you to be more aware of expenses that aren’t as necessary.
“By taking away these things, it will help you save money.”
Credit Scores
What is a credit score?
“In general, a credit score is a record of your debt payments—how much debt you have and how you manage that debt, in order to determine if you’re a good borrower,” said Izatt. “This determines if the bank is willing to give you loans for purchases such as a mortgage, car payments, or borrowing larger sums of money.”
General tips for maintaining good credit
- Obtain a credit card. “Use it responsibly, and you will see positive growth in your credit score. Just use it like a debit card and only use it if you have the money to pay it off in full,” he suggested.
- Many students seem to think that if they don’t have a credit card, they can’t have bad credit. “That’s not the case. You need to have something like a credit card, and have to use it responsibly to see positive growth in your credit score and be able to access those credit things in the future”.
- Never delay monthly payments. “Your payment history is a significant part of your credit score, so having access to debt and making those payments on time is really important,” hesaid.
- Fight the urge to make minimum payments. “Credit card companies always advertise their “minimum payment,” and while it is important to pay at least that much, only covering the minimum will not get you out of debt,” Izatt stated. “The minimum payment is there to maximize the credit card companies returns long term, not get your card paid off. By the time your balance reaches zero, you will have often paid more than your original balance just in interest, greatly increasing your total costs”.
- Limit your credit card usage. A good practice is to use less than 30 per cent of your card’s available room. This is referred to as your card’s credit utilization. Keep this low, and try to pay off the 30 per cent every month in full.
How do you raise your credit score as a student?
- There are student credit cards at some banks that have easier qualification requirements to get one, so you can start growing your credit score from right now.
- You can get a joint card with a parent or guardian, which affects both their credit score as well as your own.
- Secured credit cards are easier to acquire for students than regular credit cards. The way this works is you deposit any amount of money you have available to work with into an account, which is then held in trust. This now allows you to have access to a credit card with an available room of however much money you put into the account as security. This allows students who don’t yet qualify for a normal credit card to still have a way of building a credit score. If you prove that you can use it responsibly, you prove that you can handle a true credit card. However, if you miss a payment, the bank will keep the amount you deposited stored away and your credit score will suffer.
Investing
Investing is going to be different for everyone.
“When it comes to investing as a student, in general, one of the big things you need to think about is your timeline. Your investments may take time to mature or turn profitable”.
If you’re choosing to invest your money to help pay for tuition, keep this in mind.
“If you’ll need the money in a few months to pay tuition, don’t put it into an investment that,” Izatt said.
Savings
- Monitor your expenses. “Start paying attention to your spending so you don’t let little things add up—buying a $2 coffee every day could end up costing over $700 a year, which is money you could be using elsewhere if you had a cheaper alternative”.
- “Open a Tax-Free Savings Account”. Many different banks offer this for people and it is a step you can take at any point in your life, no matter where you stand financially.
- Start building good saving habits. “Students often don’t have much money to put into savings. But in this stage of life, building that habit is even more important than building savings. If you get used to tucking away a few dollars every month, once you have a full-time job it will be really easy to increase that amount and start to see real savings growth”.
Izatt says, “The biggest takeaway is that financial literacy isn’t something that just happens to you.” It’s a process of becoming aware of what your choices mean. “Just be sure to compare multiple sources to ensure you understand what you’re doing and why. Small steps and consistency lead to big changes. ”
When beginning to understand your finances, it can be very overwhelming. Don’t think you have to apply everything mentioned, because that’s when things become too much – students already have enough on our plates. Being aware of your spending and just implementing even one tip will put you in a better place than before. Your actions can have life-long impacts, and things will become easier if you start now rather than later.
The Financial Literacy workshop runs every semester so if you missed the earlier workshops, that’s okay! You can attend next semester. If you’re graduating, below are three resource links for more information on all things finances, and how to better manage your money for long-term results.
Resources:
Improving your Credit Score as a Student Help:
https://hardbacon.ca/en/credit-score/7-simple-ways-students-can-improve-their-credit-score/
Budgets and Managing Spending Habits Help:
https://docs.google.com/document/d/15HEmK0jeVZ4nsAV92KaGtrFWI-wUW7Ht/edit
Debt Management Help:
https://docs.google.com/document/d/1naWY9XOElg4phCiHLNBCqq1RQ5S6ttBE/edit
