Along with a laptop, meal plan and calling cards, Squamish students heading off to their first year at university should also pack a head full of money sense, says a local expert.
While a 2013 Bank of Montreal poll, which found 96 per cent of Canadians said teaching children money matters is key to a healthier economy, suggests that almost all parents know they should talk to their kids about finances, it isn’t necessarily happening.
The same poll found only 18 per cent of parents spent significant time teaching their kids about money management.
“We spend 18 years teaching them manners and etiquette, reading, writing and algebra, but often it is not managing credit, budgeting and savings – the basics. They are not taught in school, they are not discussed at home,” said Holly Hetherington, branch manager at the Squamish branch of BlueShore Financial.
Before a child goes off to university – often the child’s first taste of adulthood and independence – it is important parents go over how the year is being funded.
“What is the budget? If you have given your kids spending money or they have a part-time job or they had a summer job, what does their money look like, where is it coming from and how is it going to be allocated?” are all issues to be open about, Hetherington said.
The discussion should also include when and how any student loans are going to be paid off.
CREDIT CARD TALK
When preparing young people for their new, more independent lives, a lesson about credit is very important, according to Hetherington.
Some credit card companies actively recruit university students on campuses, Hetherington noted, but the sales people aren’t going to teach the students how to manage credit.
Almost half of all Canadian credit card holders carry debt and one-quarter think of credit cards as a spending source, according to a 2015 BMO poll. Thirty per cent don’t pay off their credit card balances every month.
The interest rate on an unpaid student credit card balance is close to 20 per cent.
“There is no higher debt than that,” Hetherington said, adding interest rates are expected to go up a quarter per cent this year and another half per cent next year.
An 18-year-old who has wracked up debt and has a bad credit score may have her ability to borrow impacted for seven to 10 years.
“And you are going to be paying a lot more in interest when it comes to borrowing for something that is a good cause, like purchasing a home for example,” she said.
But building up a good credit history is important and so a credit card isn’t necessarily a bad thing, Hetherington added.
“It can be very good to establish your good credit,” she said. “Having a good credit score will allow you to walk into any financial institution and borrow money for your first home or a car loan, at low interest rates.”
She advises students get credit cards with low credit limits and pay the balance off each month.
If the company ups the limit without asking, Hetherington said to call and have the limit reduced.
Parents or students can pull up their credit scores online through the two national credit-reporting agencies, Equifax and TransUnion, to see where they stand, she said.
The credit scoring is on a scale from 300 to 900. Lenders will look on staying above 650 favourably, financial advisors suggest.
Payments that contribute to credit scores, other than credit cards, include utility bills such as BC Hydro, Internet payments and cell phone bills. If payments are 30 days late, it is marked on the credit rating.
Some people aren’t aware that opening several loan or credit accounts also hurts credit. “You are looking for credit too often and it raises concerns about if you use all that credit, how are you going to pay it off,” Hetherington said.
Students should also not stay too close to their borrowing limit. Keep balances on loans or credit cards below 35 per cent of the limit. If the credit rating shows a $500 limit and the youth has spent up to that limit a few months in a row that will reduce the credit score, Hetherington noted. “If you use your card regularly, though, and pay off the balances in full every month, that creates a solid history of… payments and that demonstrates your credit worthiness to lenders.”
It is important to check monthly statements carefully to ensure they are correct and any service fees are appropriate.
Young people can feel intimidated to go into their financial institution and ask to talk to an advisor, but they shouldn’t, Hetherington said. “They aren’t going to be turned away just because they don’t have any savings.” Sometimes students do not have the right bank accounts and can change to a lower- fee or no-fee account, she added. “If you can save $20 a month in service fees that is worth coming in for a half an hour appointment.”