At Teachers Life, one of our communication goals as a financial service provider, is to also provide helpful financial tips and education for our Members – and all Canadians – including youth. Financial literacy is important at all ages, but you could argue, most critical while you are starting your adult life and taking financial planning, saving and spending responsibilities for the first time. A healthy approach to all three areas is key to a financial secure future.
In this 4-part blog series, Laura Osborne, a young adult in her final year at McGill University is exploring what young adults (and their parents) need to know about to take control of their financial future.
So where do we start?
I’m in my early twenties, finishing my final year of my undergraduate degree at McGill University. Financial planning and saving seem like luxuries at this stage in my life. But, as I’m starting to appreciate – financial health is no different than approaching any other aspect of our lives. Why should youth today be particularly mindful of financial literacy and avoiding common pitfalls of poor money management?
According to one Globe and Mail article, here are just a few reasons: Canadian household debt is at an all-time high; students are graduating with record debt loads; Canadians are no longer saving like they use to and fraud is increasing at alarming rates placing our hard-earned money and savings at greater risk. Okay, this sounds alarming and depressing but there is some very good news….you can protect yourself and set yourself up for a secure financial future despite these alarming trends by educating yourself with basic financial literacy. So, let’s talk about some of the basics.
Okay, let’s be honest, we’re young and debt is all to familiar to most of us as we start our adult lives. That’s normal. But, proceed with caution. Whether it be from credit cards or student loans, debt is one of the most common financial obstacles you’re likely to face as a young adult. Both of these lending vehicles can have both short and long-term implications on your future including taking on other financial responsibilities as you enter into adulthood like car ownership, moving out on your own or getting married. But, fret not, when handled responsibly, these impacts may actually be positive and can even work in your favor. Debt, when handled responsibly and with a well-calculated and disciplined plan to pay off, is an enabler.
What is debt?
When you spend any money, whether it be on a credit card or through a student loan, you are borrowing the spent money, which you are expected to pay back. Identifying your debts are a great place to start. Through all these debts, you want to keep track of the total amount you owe, the minimum monthly payment, and the interest rate. Minimum monthly payments are established between you and the bank to ensure you are continuing to work to pay off the money you have borrowed and spent.
It’s important to continue to make these monthly payments as it establishes a sense of trust and responsibility between you and your creditors – typically your bank. Failure to make payments will impact your credit rating which will prevent you from future purchases and spending privileges such as loans and mortgages – delaying key life decisions and phases.
What is your end goal in 6 months, 1 year, 3 years?
What can you afford to borrow and pay off while still achieving your goal? Make sure you research and think about the best ways to pay off debt with the lowest interest paid. Prioritize paying off those debts that have the highest interest rates. Through a healthy balance of borrowing money and paying off the debt with the minimal interest paid out, you will increase your credit score and limit to make larger purchases that allow for greater asset accumulation as you mature and take on more responsibility.
Now let’s talk savings. Most of us had piggy-banks as children and have heard our parents say – make sure you’re saving your money. Most of us aren’t great at this one. But, saving is and will always be a critical part of a secure future. And, the amazing thing we have going for us with savings is our age.
The most common savings vehicles for us to either learn about or pay more attention to:
Registered Retirement Savings Plan (RRSP)
A RRSP is a savings plan that you can increasingly contribute to overtime to prepare for retirement. Contributions may be used to reduce your tax and are generally exempt from being taxed, so long as they remain in the account for your savings plan.
A Tax Free Savings Account (TFSA)
A TFSA is a savings account for individuals eighteen or older to save money in their account – free of tax. Although there is an annual limit on the amount you can contribute, you can invest in stocks and bonds and accumulate compound interest over time. And, there is where our age comes in. Compound interest can and should become our best friends especially when we are young. You earn interest on your principal investment and your interest and it keeps compounding. The earlier you begin saving and contributing, the greater the compounding muscle. Think of these two savings vehicles as incentives from the government to encourage you to save. They are there to help you with tax relief mechanics built in. Make them a very important part of your early savings planning.
Here’s one you may not have seen coming, am I right? Insurance you ask? Don’t I just need to worry about car insurance at this stage of my life? Well, believe it or not, life insurance is something we young ones too should be thinking about. Okay, I’m going to sound like your parents for a moment here, but, one of the most important investments you can make in life is yourself – it’s true! Life insurance helps to protect your loved ones (your beneficiaries) in the event that an untimely death may occur. It may help pay off debts owing at the time of your debt so your loved ones are not saddled with that on top of their grieving, it may help pay for funeral expenses or other financial responsibilities.
For a young adult who currently has no children or property and other assets, it may seem like a nice-to-have versus a must have. However, there are many benefits to investing in life insurance at a young age. One of the primary benefits is cost. The younger and healthier you are, the less you will have to pay for your life insurance over the policy term. In other words – buying life insurance will never be cheaper than it is right now! Furthermore, if your health declines down the road, your insurance payments will not increase.
Setting up life insurance when you’re healthy, protects you down the road at highly affordable rates even if you experience an illness and untimely death. There is no better time to start investing in your life than right now. Click here to calculate your current life insurance rate.
Let’s Sum it all up!
That wasn’t so bad was it?! Let’s face it, learning the basics of financial literacy can actually be quite liberating and empowering. Watching that compound interest build overtime because we were super savings savvy in our twenties is kindof exciting right? Our future selves will be absolutely thanking us. But, yes, financial literacy can also be daunting, although educating yourself as a young adult, treating debt with a healthy and responsible approach and protecting your debt load and assets as they accumulate overtime, while you’re gleefully watching your savings compound away in your RRSP and TFSA accounts will establish the fundamentals that will have you well on your well to a secure financial future.
Ready to get started? Contact us to learn more about how you can get a kick-start on your insurance plan at 416-620-1140 or email@example.com.