Going to university or college can be a very exciting time as it can be a huge step for many young Canadians. This is possibly their first time living on their own, paying their own bills and managing debt. This can also be a very expensive phase of life as many students accumulate debt during their post-secondary career through tuition fees and cost of living (i.e. rent and food).

It is important to help your child build good financial habits that will make this transition smooth. Upon graduating, they can take these habits and use it throughout their adult lives. Below are four tips on how to prepare your child for their financial health.

1. Set Saving Goals and Plan, Plan, Plan!

Students need to  set up savings goals and create  a plan prior to attending college or university. If your child can start saving when they are younger, these funds can be put to good use during the earlier years where expenses can run higher prior to settling down to a new routine. You can help your child research the potential cost of their education so they have a better idea of how much money they should set aside regularly.

In terms of achieving those savings goals, it may mean getting a part-time job or even putting away the Christmas/holiday cash gifts into a savings account. By establishing these saving habits and goals, they will carry this skill into all stages of their lives.

2. Managing Expenses

As your child enters a new phase of life filled with novel experiences, there may be a tendency to splurge and to live in the moment. It is important to help list out their expenses and categorize them as needs versus wants. This can help your child stick to a budget. Once they have gotten used to the new routine, they will be able to identify the expenses they can live without.

Many students lead a financially cautious lifestyle with high expenses and minimum sources of income. Although some students may have adequate personal or familial financial means, it is still important to promote an appreciation for the value of money. Every dollar spent is a dollar not spent on something else. Hence, even though one may not ‘need’ to engage in  the exercise of price comparison, one should still familiarize themselves on the price and quality differences around campus. For example, note the differences between new and gently used textbooks or eating on campus versus shopping at grocery stores. Ultimately, these real-life cases serve as a precursor to understanding the core investment principles of valuation and the Price-to-Earnings Ratio (PE Ratio), where stock prices are compared to the profit a company generates. This tool helps investors fairly compare the relative valuation of different companies and sectors.

3. Finding sources of income through scholarships and financial support

There are many scholarships, grants and bursaries that your child can apply for to help subsidize all or part of post-secondary education. There are a wide variety of scholarships for different programs and interests. The application process may take significant time and effort, but the reward could be more than just money. Being a successful applicant allows one to appreciate the relationship between their hard work during high school that has been recognized to earn the award. Even unsuccessful applicants can come away with the deduction of what else could have been on their application that would have improved their chances of success. Ultimately, this all relates to preparing one for future employment and resume building goals which is also fundamental to achieving financial independence.

4. Understanding the use of student debt and credit

Many young Canadians may use credit, bank financing or student loans from the government to fund their schooling. Understanding the finer details of the debt will pay dividends in the future when they are looking at mortgages and line of credits. It is also important to understand how to use the credit and to differentiate between “good debt” and “bad debt”. Debt accumulated to fund the core needs of school such as tuition, books and living expenses is a good use of credit. However, borrowing to fund spring break vacations or a “night out” should strongly be reconsidered. This form of analysis is also applied when judging the quality of a company’s management team that one may consider investing in. Are the capital and resources of the company being allocated efficiently and effectively?  Being a good steward of your own capital and debt is the first step in being able to accurately judge the stewardship of others.

Keeping these tips in mind will help your child develop good financial and investing habits during their post-secondary education. More importantly, these habits will extend into their adult life and set them up for future success. Talk to us about assisting you and your child with their own financial literacy. Our team has successfully guided families over the last 35 years in education planning  and goal setting.