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People work hard for their money, but don't make their money work hard for them. It's time to fix that. Economist whips your income into shape with smart, practical advice.
Photo by wvs from the Torontoist Flickr Pool.
While on vacation, Economist overheard a man talking about his experience at Purdue: "In America, you have to do four years of university. It's not cheap either. It's like $2,000 a year." The Economist almost choked on pool water. Of course, the man looked in his late-thirties, and a quick peek at the Purdue website shows that current fees and tuition are at a more reconcilable $8,000 a year.
Ostensibly, most students (and their parents) put a large financial investment into university with an expectation that the education will prepare them for a career after graduation. But universities usually fail in preparing their students with the financial know-how to help pay back those hefty student loans. According to Statistics Canada, only half of students aged 18 to 24 have any money saved for post-secondary education. We can talk until we are blue in the face about rising tuition fees, but the most practical and applicable thing is to shape up the lacklustre budgeting skills of most students. With limited income and time to work with, the task can be daunting—but it isn't impossible.
A good diet focuses on minimizing calories while increasing exercise. Similarly, the best fiscal diet consists of minimizing costs and increasing income. The first thing to do is to physically limit the amount of money you have to spend. One way to do this is to automatically move money into a high-interest savings account that you won't touch. However, there are day-to-day instances too. For example, before a night out, it sounds good to bring a little extra just in case cash. But how often does that money end up going toward extra drinks? By limiting your access to cash, it'll be easier to keep in mind your budgeting efforts, whether you're heading out to a bar, a restaurant, or a mall.
Photo by laffy4k.
University will be the first time that many frosh will be away from their parents. It's also a good time to distance themselves from how their parents spend too. Consider that people can spend over $1,000 a year on mobile costs. With constant access to a computer, combining a VoIP like Skype with a prepaid mobile service like Virgin could save hundreds of dollars. Another easy expense to cut is television: between studying, going out, legally streaming television shows, watching DVD boxsets, Wii-ing, and on and on, is cable really worth it?
Working during university is also a worthwhile venture. Each person gets $9,600 of non-taxable income, which means that each and every dollar under that amount stays in his or her pocket. A student with a $10-an-hour job has the same spending power of a full-time worker with a $13-an-hour job (assuming most people pay 25% in taxes). This strategy applies for more than undergraduate students: for graduate students, stipends and scholarships are non-taxable. A stipend of $20,000 is thus worth $27,500. If they can make money as a teaching assistant or through a part-time job to earn the $9,600, their post-tax income is equivalent to a full-time worker's pre-tax income of over $40,000!
If all of this saving stuff sounds serious, it should. The good economy for the last few years has allowed many people to get accustomed to overspending, and this sharp downturn will catch many off-guard. Still, there are ways to have fun with your finances. Lucky for students, Toronto has a lot of places that offer discounts for students. And, here's a novel idea: divide the stores between you and your friends, have each person pick up a part-time position, then share the 50% off. And, if, ahem, anyone is inspired by this, remember that Economist loves the fit of H&M.
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American tuition is getting pretty insane for the top-tier private universities. $8,000? Try more like $50,000 including room and board:
http://snurl.com/3mn1r [www_nysun_com]
Granted, the US system is very different than Canada's so apples=to=apples comparisons are tough (for example, it's much easier to graduate from an Ivy League school with fewer loans than from a Canadian university because of massive grant programs). But the numbers are indeed pretty wild.
uskyscraper: The number of students applying to the top-tier private universities grows each year. That seems to indicate the high tuition/room and board costs are not the barrier that the media would have us believe they are.
James: You can earn more than $9,600 because you can claim tuition as a non-refundable tax credit. Even more tax free income :)
Saving money is a great a idea, but it's not necessarily the cost of the tuition and room and board that is the problem. It's having to pay it all at the same time.
I firmly believe that many families can afford to finance, fully or partially, their child's post secondary education if they are given the choice to make monthly, bi-weekly or weekly payments to the educational institution.
OK....but families or, more importantly, individuals could also finance their post-secondary education by putting away money on a monthly, bi-weekly, etc. basis in the years before the term begins. Planning ahead is a better option.
The tips in the article are great! Keep it up Economist!
Why should people 18-24 HAVE savings towards post-secondary education?
People in that age group should be spending down their education savings, since they are at the age of going to school. After factoring in the %ge of people who go to tertiary education, the number seems inappropriately high, actually.
It's almost as stupid as saying that people 75-80 aren't saving much for retirement.
RealityCheck: There are plenty of opportunities in that age group to save. Take the summer, for instance, I can easily can make enough money during that time to pay off 50-75% of my expenses for the next year. Working during the holidays or reading week can make you even more money to save for your education. If you're a super industrious college or undergraduate student you could also work a few hours during your studies; even as a full time student. There's no reason why students can't also be savers.
yes, PickleToes, you're right. During my undergrad I was able to find summer work that pad for about 2/3 of my expenses for the next year. That still means that once the year starts, and especially by the time you're into later years and have accumulated debt, you don't have any savings for university. What money you had saved is gone.
To look at savings FOR university, you'd have to pick a younger age bracket - but since you're not really supposed to be working before you're 15 or 16, and chances are, you will not have a great job with lots of hours while you finish high school with the grades you need to get into a decent school, there isn't much room for savings there, either.
Some students don't have great budgeting skills, but most have never had the chance to develop them.