5 money tips every college student should know
It’s that time of the year again for college-aged kids and their parents: time to roam the Ikea aisles looking for dorm room furniture essentials, to check textbook lists and load up on school supplies.
But, personal finance advisers warn, this should also be the time to broach that most awkward of dinner-table topics: money.
Darren Farwell, a Toronto-based wealth manager, was surprised, to say the least, when his then-21-year-old daughter, about to set off to university, popped the question: “Dad, what’s a credit card?”
“I assumed that she would know but then realized we had never talked about it,” said Farwell, who heads the Farwell Group at Scotia Wealth Management.
Many kids who are about to start living on their own for the first time don’t know the first thing about money, which is why it’s important to talk about it before the school year starts, he added.
Here’s what that conversation should entail, according to experts consulted by Global News:
1. Set a budget
This is the time to dispel a number of mysteries about money: how much of it will come in every month, where it will come from and what it should cover.
Without that minimal preparation, the first lesson students are likely to learn about money on their own is just how quickly it can disappear, said Farwell. And that can lead to frustration on both ends.
So sit down and draw up a monthly budget together. “It’s fodder for financial planning that will last a lifetime,” said Farwell.
He advised parents to set up monthly or bi-weekly payments, which don’t require long-term money management skills.
Parents should be prepared to enforce that budget but should be open to tweaking it, especially in the beginning, in order to adjust for expenses that were unaccounted for, said Farwell.
To keep track of where the money is going, students can turn to budgeting apps such as Mint and YNAB (You Need a Budget), said Lisa Gittens of H&R Block. Bank apps also track financial inflows and outflows, she noted.
2. Bank accounts are a must-have. Credit cards are not
Every post-secondary student should have a bank account, know how to perform an Interac e-transfer and, especially if moving far away from home, send money through a wire transfer, said Farwell.
Make sure to open a student bank account, which comes with no annual or monthly fees and unlimited transactions, and to have power of attorney over it, so you can easily top it up and keep a close eye on outflows.
Credit cards, on the other hand, aren’t usually a good idea for budgeting newbies, he added. Better to stick to low-balance options such as pre-paid cards. Many universities offer their own such cards. Western University, for example, has Western ONECard, while the University of Toronto has TCard Plus. These can generally be used at any of the stores on campus (food outlets, vending machines, laundry machines, bookstores, printers, etc.) as well as at some off-campus locations (every institution has its own restrictions). Most offer a discount on products purchased using the card.
3. There’s always room for saving
With that first chequing account should also come a savings account, said Gittens.
Busting the budget if the car needs a repair job or the laptop breaks down shouldn’t be an option, she added. So students need to save up in order to build a small emergency fund.
Short-term savings should also serve to pay for vacations during breaks, advised Farwell.
Squirreling away some money, even as little as $10 a month, should become routine – even for full-time students who have no source of income.
“It’s a great foundation for forming that habit of saving,” he added.
Students who work or who have a more generous allowance should also save for the longer-term, according to Gittens.
There are benefits to opening both a Tax-Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP), she added.
A TFSA, which can be set up for anyone 18 years and older with a social insurance number, is for saving up for things like a new car, said Gittens. Unlike with a regular savings account, you don’t get taxed on interest or other investment income earned through a TFSA – and you can withdraw money from it at any time. (More on how TFSAs work here.)
An RRSP can be useful not so much as a retirement savings vehicle but as a way to set money aside for a downpayment on a house or to pay for more schooling later on, she added.
RRSPs generally make sense for people with relatively high incomes (more on that here). Most students have very low incomes and aren’t thinking about retirement, Gittens noted.
But two government plans – the RRSP Home Buyer’s Plan and the Lifelong Learning Plan – allow you to withdraw money from your RRSP tax-free in order to buy a house or finance training or education for yourself or your spouse. (Still, there are drawbacks to using an RRSP for a down payment on a house compared to a TFSA – more on that here.)
Gittens advises budgeting and saving for three months before actually putting any money into a TFSA or an RRSP.
4. Check into scholarship awards, bursaries and grants
Don’t leave any money on the table, said Farwell. Many schools’ scholarships, fellowships and bursaries often go unclaimed simply because students aren’t aware of them.
“These things aren’t always advertised,” he said.
Kids and parents can usually inquire directly with the schools about what options are available.
5. Don’t always go for bail-outs
Budgeting during university is a bit like money management on training wheels. And it’s OK to get a few minor scrapes on the way.
The bank of mom and dad shouldn’t be always ready to step in if bills are missed or unexpected expenses crop up, said Farwell.
“It takes a little bit of courage to allow for some consequences,” he noted, but in the long run, getting a call from a collection agency tends to teach a better financial lesson than just phoning mom and pop for a quick bank account top-up.
Minor damage to credit scores can be patched up relatively quickly and well before life’s big expenses come along, Farwell noted.
“At that age, there’s a little bit more leeway.”
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