by Shelbey Hernandez
The Lance – News Editor
Within the past couple weeks, students have probably noticed a surge of funds in their bank accounts thanks to the financial contributions made out by OSAP.
The most common automatic response to the thousands now available is excitement and readiness to spend. However, that exact thinking is what has made the income to debt ratio in Canada jump from 66 per cent in the 80s to a whopping 150 per cent in 2011, according to Statistics Canada. This essentially means around $1.50 of each dollar of disposal income is actual indebted to something else.
What often happens, according to financial planner Sean Middaugh CFP, CHS, is the misuse of OSAP leads to a life-long debt problem. As new debts accumulate for financing a car or purchasing homes, eventually students who become adults are stuck in a never-ending hole of debt.
So how can this be stopped? Well, according to Middaugh, the best way is by being preventative.
- Be aware: Middaugh said the biggest consideration students need to constantly think about is what that money is. It is a loan, not free money and so being aware of that is very important.
“You have to know it has to be paid back. It’s not something that just gets swept under the rug, can be taken care of at some point later and eventually, will just go away. It never goes away,” said Middaugh. “So you need to be aware of that and really consider how you spend money.”
- Budget: When you get the money, you need to come up with a spending plan. Decide what you can buy, how much you can spend and go from there. The better your plan, the less likely you’ll use up all your OSAP money within the first semester, making it so when you have to pay it back, the amount will be much smaller.
- Only buy the essentials: It may be tempting to purchase those shoes you’ve wanted for a while or to eat out every day because it’s easier, but in the long-run, it will not be worth it. It may be hard to see right now, but there are repercussions. So only spend what you need to spend not what you want to spend.
“The type of world we live in now it’s all about the newest gadgets, the newest technologies,” said Middaugh. “Often, you will look at those things and think, ‘I should buy that,’ but you need to think, ‘Do I want it or do I need it?’”
- Educate yourself. There are many things that need to be known. Not everything can be known by yourself so even seeking help from outside sources can be incredibly beneficial. Middaugh said you could see a financial planner, but even just talking to family members who have been through it already can make a world of a difference. Plus, knowing interest rates when it comes time to pay off the loan is very important.
“Keep in mind the interest rates are low right now,” said Middaugh. “They may be low now, but if they ever swing in the other direction, you could be paying twice as much so awareness is important. Paying that debt sooner while the interest rates are low would be beneficial and always checking interest rates is necessary.”
- Consider other debts and how that plays a part in your spending habits. Many students have credit cards which can be dangerous enough on their own. Although student loans can take a while to pay off and are much larger than credit card debts, when not taken care of, credit card debts can become uncontrollable.
“Credit card companies will just issue credit cards to students so they will end up with not just student debt but credit card debt as well which is much worse than student debt,” said Middaugh. “Most students look at credit cards and think, ‘Oh great! More money!’ but that’s not the case. Students need to be aware of their credit card debt and what they’re taking on there because the interest rates are higher on the credit card and the repayment options aren’t as favourable. With a credit card, miss one month for paying the minimum payment and you could be looking at jacked up interest rates.”
So now that OSAP is available, students need to consider the long-term. School can be stressful and sometimes, students may feel they just need that extra Tim Hortons coffee or just need that new phone to make themselves feel better. However, to think in just the now can lead to surmountable debt in the future. So, when faced with window shopping at the Devonshire Mall, ask yourself this question: will that item be worth the hundreds of thousands of dollars in debt I will have collected by the time I’m 30?