The Dirtiest F-Word of All
By David Bitonti
Here's an F-bomb for you: Finances. It may be the dirtiest dirty word of all, especially for a lot of university students. And no wonder; between finding an original quote for a Shakespeare paper, steaming lattés at Starbucks, and trying to have some kind of social life, there isn't a lot of time left for balancing a chequebook.
Then, once school is over and the search for a real job ensues, most graduates will finally have to deal with the one thing they may have taken for granted over the past four to six years: their student loan. The average student will be looking at about $20,000 of debt. And if they only make the minimum monthly payment, that debt could take over 10 years to settle, with much of the amount going to interest.
According to self-taught money master Gail Vaz-Oxlade, host of Slice TV's Til Debt Do Us Part, many university students have difficulty with long-term planning. "Most students don't have any idea how the decisions they make today will affect the rest of their lives," says Vaz-Oxlade in an e-mail interview. "Whether it's 'doing the dog' all first year while they break away from their parental tapes, or taking on huge debt loads to get degrees when they don't know what their employment prospects will be, kids leap before they look.
"My daughter told me today about a peer who plans to use her student loans to see Europe this summer. Seeing Europe is a great idea. Doing it on your student loans, not so much!"
However, students who take a proactive approach to personal finances before they enter university and penny-pinch along the way, may be able to avoid some unnecessary lost dollars. The best way to start is with a cash flow sheet. Vaz-Oxlade's student worksheet (Excel document) takes into account everything a student might need to spend money on, including transportation, cell phone usage, and entertainment.
"It's the little things that throw a budget off," says Vaz-Oxlade, "the trips home, laundry, cold medicine. Plan for those and you're better off than having to deal with them on the fly." Similarly, take into account life's variables. "When my daughter created her first cash flow and I looked at it, I commented that I didn't think $10 a month for laundry would be enough. But she'd beaten me to the punch. She'd allocated $10 for the months she knew she'd be coming home and could do her laundry without cost. For all the other months she'd allocated $20. It's the small details that really make a plan work."
Students also need to consider how much of a student loan, if any, to apply for. "Lots of kids need to use student loans. But you also have to know how much you'll be able to repay, so that you don't take more loans than you'll be able to manage. While people often assume student loan interest is on the low side, that's not true at all. Since your student loan did not accrue interest while you were in school, once you're out, the interest rate ratchets up to make up for lost time!"
Options are available. Most of the big financial institutions offer student products such as credit cards and lines of credit. BMO, for instance, was one of the first banks to offer a cheaper, more flexible way for students to borrow money while pursuing a post-secondary education. Carol Currie, a senior financial services representative at BMO, found that student lines of credit were a "life-saver" for her three daughters, who were able to focus on their studies instead of finances. Students can borrow up to $45,000 in one lump sum or borrow $10,000-$15000 per year up to the maximum. They are only required to make interest payments while studying, and are given 12 months after graduation before the amount borrowed is turned into a proper loan with regular principal-interest payments.
Other financial institutions also offer student loans and lines of credit, as well as special banking plans. RBC no-fee student chequing account includes 25 monthly in–branch or debit transactions. Students may also want to consider their local credit union for operating accounts, since these financial institutions don't always need to answer to a higher governing body and are able to keep costs down for their members.
Don't want to go the loan route? Not looking forward to that five–figure debt after your degree is finished? Rhiannon Evans, a recent graduate from Vancouver Island University, found that the right job can really pay off. "Try working in a restaurant where the bosses don't mind pawning leftover food on you," she suggests. Evans waitressed in a few different places during university and was able to take home a meal or two whenever she felt a bit strapped.
If getting a job that feeds you isn't an option, students can and should take advantage of their student status. Most establishments, from supermarkets to restaurants to movie stores usually offer anywhere from 10% to 20% discounts. Doing some simple research before a trip out for food or entertainment can equal a few extra dollars, and, over time, those dollars can be used for other practical purposes.
Or students can simply shop smarter. According to Vaz-Oxlade's website, "research shows that there can be as much as a 15% difference on identical grocery orders at two different stores in the same area. If you spend $400 a month on groceries, that could mean $720 a year in savings. Instead of tossing stuff in your basket without looking at the price, learn the costs of what you buy, comparison shop, and meal plan so you can shop smart and save."
A lot of students also overspend on debit card use. Many are unaware that, if they use their debit card in another institution's ATM, they'll not only pay the fee charged when the money is dispensed but a further $1 to $2 for using a a competitor's machine. So that 20 bucks you took out the other day could end up costing you $23. As Vaz-Oxlade points out, wasting a few bucks every time you take out cash adds up. If you went to a competitor's bank machine twice a week for a year, you'd end up paying over $300.
Vaz-Oxlade's website is full of other great tips on how to save money on interest, to manage debt, and invest smartly. It also carries many of her published articles and a Q & A section where you can ask financial questions. If you really want to focus on your finances, buy one of her 11 books on the subject. Her latest is Debt Free Forever.
Many of her tips are simple ones: eat out less, rent movies instead of going to the theatre, and make your clothes last a bit longer. But they're tips that can curb a condition many Canadians have become too used to: living outside their means. "Stuff doesn't make you happy," says Vaz-Oxlade. "Happiness comes from a sense of accomplishment, from the joy you can share with others, and from knowing you're doing some good in even some small way. If we focus on happiness, as opposed to stuff, we can expect to make better decisions about how we live our lives and what we'll do for money."