Financial Success After Graduation
How can grads carefully budget and track purchases to avoid long-term debt?
By: Melissa Goertzen, Staff Writer
This month, after years of exams and assignments, thousands of graduates will walk across the stage and receive the fruit of their labor: a diploma or degree. The milestone marks the end of student life and hints at the benefits and challenges of entering the workforce.
The transition from studies to career is both exciting and overwhelming. One of the largest changes during this period involves finances. Many grads have debt from school, and repayments will factor into monthly budgets.
And at this time of economic uncertainty, some find that they’re not earning as much as they expected.
The summer months are the perfect time to reflect on personal financial goals and priorities. By creating a solid spending plan now, grads can set themselves up for financial success.
A Portrait of Student Debt in Canada
In 2012, The Globe and Mail reported that the average amount owed by students with debt is $24,579. This figure mainly accounts for government student loans and doesn’t include credit card debt. However, research also suggests that students are receptive to offers from credit card companies, especially those that provide low-interest introductory rates and reward incentives. In most cases, banks “actively promote cards to students, who have shown themselves to be a most enthusiastic audience.” The Globe further notes, “In our consumption-driven economy, a credit card is a membership card.”
A survey conducted of 15,000 Canadian university students discovered that 89 per cent of students have one credit card, and 26 per cent have two or more cards. While the majority indicated that they pay off their balance each month, those who don’t pay off their balance monthly carry an average credit card debt of $3,444. If they make the minimum payment each month, it would take 18.5 years to pay off this balance.
With credit card interest rates hovering around 20 per cent, students can quickly land in financial trouble if they’re not diligent in managing their finances. As Personal Bankruptcy Canada reported, “Credit card debt is the single most common type of debt burdening those who wind up bankrupt.”
[pullquote]And at this time of economic uncertainty, some find that they’re not earning as much as they expected.[/pullquote]
In our interview, David Smith, the co-founder and president of Personal Bankruptcy Canada, said that maintaining a cognitive connection to cash is one of the best ways students can set themselves up for financial success and avoid excessive debt loads. This approach includes creating a realistic budget, tracking purchases, and identifying needs versus wants. Essentially, financial success comes down to developing a real awareness of where your money goes.
“You can make a lot of money and not have financial success,” Smith says. “Some people live very comfortably on $2,000 a month and others make $10,000 a month and never feel like they have any money. The amount of money you make isn’t the most important factor. What’s important is the knowledge of where you spend your money, as well as living within your means.”
Smith also said that tracking purchases is especially important when it comes to credit cards because they have some of the highest interest rates.