ABCs of finance

ABCs of finance

TOM HAMZA IS UNEQUIVOCAL about the cost of a university or college degree, especially in Atlantic Canada, where tuitions tend to be higher than in other parts of the country. “The fact is people are now expecting to gradauate with $20,000 or $30,000 worth of debt,” says the president of the Ontario-based Investor Education Fund. “If you don’t do sound planning, then this becomes a burden. But it’s not a burden. It’s like a mortgage. It’s a part of life.”

Indeed, it’s a part of life with which students in schools across the land have become wincingly familiar. Some estimates peg total student debt in Canada at more than $15 billion. And, according to the Canadian Federation of Students’ website, “for more than a decade, students studying in the Maritimes have had the highest average debt loads… The Maritime Provinces Higher Education Commission… reports that student debt skyrocketed between 1999 and 2004, from $21,177 to over $28,000 – an increase of more than 33 per cent in just five years.”

What’s more, “Among those who have never participated in post-secondary education, ‘financial issues’ have been found by researchers to be the most commonly cited barrier.

“Meanwhile, for those who are enrolled in higher education, apprehension about accumulating debt can… have a profound impact on the likelihood of completion. As many students work part- or full-time to reduce their borrowing, academic commitments can become more difficult to fulfill. Other students simply leave before completion at the first offer of decent employment as a way to stop accumulating debt.”

In fact, the effects on the broader economy can be palpable. “The pursuit of higher knowledge may be noble, but it is also sinking Canadian post-graduate students in debt and delaying major life milestones, suggests a new poll,” the Huffington Post Canada reported in July. “Research from TD Canada Trust suggests 30 per cent of post-grad students—those who pursue Master’s degrees, PhDs or other degrees after their undergraduate years—accumulate more debt than they had expected. About 40 per cent said they find it difficult to meet minimum repayments on student loans in their first two years after graduating… The still struggling post-recession job market has been particularly tough on young people and many find it difficult to find well-paying jobs in their fields. Canada’s youth unemployment rate sits at about 13.8 per cent, about double the national average.”

All of which may be the unavoidable consequences of post-secondary life in the breaking years of the 21st Century. But Hamza is one among many who believes that these consequences need not be crushing. As with everything else worthwhile (buying a house, a car, RRSPs), obtaining a university or college degree is all about level-headed, personal financial planning. And sources of help have never been more accessible. “Overall, the attention on this issue has been increasing steadily, over the past 20 years… The tools to help students in university to manage their finances are more numerous and more available today than in the past,” he says. “There are much better interfaces and they allow you to have much more detail… The big challenge is putting the tools in the right hands.”

His own organization is a case in point. According to its website, “The Investor Education Fund develops and promotes unbiased, independent financial information, programs and tools to help consumers make better financial and investing decisions. It was established as a non-profit organization by the Ontario Securities Commission and is funded by settlements and fines from OSC enforcement proceedings.”

Says Hamza: “About five years ago we would have about 190,000 people using our content, and last year, we were just under two million… For both students and adults (non-students), we provide information that you might not get from the industry in particular, which tells you much of the story, but not always the whole story. So we are here to be the customer’s advocate when it comes to financial matters.”

Although Hamza allows that a certain percentage of the student population will embrace their personal finances early and with gusto, a sizable chunk simply won’t. These are the individuals who need to be “hooked” before their disinterest (or fear) forces them into an uncomfortable bind.

“There are a couple of structural things you really need to get your head around when you are looking at potentially assuming some major debt.” he says. “The first one is acceptance and, after acceptance, developing a plan. It’s a fairly overused axiom, but this is, after all, an investment. The whole thing needs to be much more about planning and addressing facts of the plan and far less about the fear of that debt that is coming.”

Related to this is developing a degree of financial literacy. Lamentably, he says, “none of the Maritime provinces and only a couple of provinces elsewhere in Canada teach this stuff in school… They don’t teach basic financial education, including values and percentages, understanding inflation rates, understanding accumulated and compounded growth. Getting a basic understanding of these things, including the accumulation of debt and also the paying down of debt is critical to developing the long-term plan.”

As for the basics, Investor Education Fund sets out an easy-to-follow series of guidelines that should be familiar to anyone who has had to function with fixed or limited resources. These include: how to save money to pay for the cost of education; budgeting to make school funds last over the academic year; managing student debt to prevent it from wheeling out of control; the dos and don’ts of using credit cards; how to avoid frauds and scams; and making the most of tax deductions.

As the website stipulates, “if you’re a student, you are in a very different place than someone just starting out in the workforce. You have not yet started making real money. You are focused more on your studies. And, of course, you want to have fun. However, it is important to take your money choices seriously.”

The bottom line, Hamza says, is that none of this is a disaster: “It just needs a plan.”

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