Students frequently question the importance of certain classes; but, what they really want to know is are they being equipped for life after they leave high-school. Once they graduate, are students ready for the ‘real world’ where autonomy can be either a great solace or, if not sufficiently prepared, a horrible nightmare? This is part one of the series that will delve into the intricacies of finance for teens entering post-secondary life and beyond.
By | Helen Yu
PART 1: CREDIT
Money, money, money. Regardless of age, ethnic background, and social status, every individual is and will continue to be significantly influenced by money. Although many secondary students do not currently need to worry about this daily necessity, understanding personal finance, in the long run, will lead to a more financially secure, independent, and fulfilling future.
Financial literacy yields a myriad of benefits, and a good place to start is by applying for a credit card as soon as possible. In Canada, depending on the province, the age of majority is a minimum requirement for credit cards. For BC, this age is 19. Once a credit card is approved, individuals will be able to start building credit and begin developing positive money management habits.
First of all, what is credit? Credit, in simpler terms, is the ability to make purchases with borrowed money and repay the lender at a later date. This can be in the form of borrowing money from a financial institution (a personal loan) to buy a car, for example. Why use borrowed money instead of saving? Although it is possible to save up for expenses such as groceries and clothes, big-ticket items such as homes and cars can take years to afford.
Unless a large reserve of cash is available at your disposal, with inflation and an ever-changing economy, individuals may never be able to catch up to the market. By utilizing credit cards for small purchases and making repayments on time, positive data in credit profiles will increase, and in turn, lead to a rise in credit scores. The higher your score, the better your credit, making you a lower risk for the lender.
Credit scores are a three-digit number based on information from credit histories. They indicate an individual’s capacity to repay a loan and is used by lenders to evaluate the probability of a timely payment. The number of open accounts, total levels of debt, repayment history, types of loans, length of credit history all factor into the calculation of credit score.
The higher the score, the more likely it is to be approved for major loans at favourable terms if approved at all. This will prove useful when applying for expenses such as a rental apartment, and student loans, or a phone plan on your own; also, lower interest rates save money. Having a good credit score and access to affordable loans will offer more opportunities to enjoy an autonomous, desirable lifestyle.
Although it may be difficult to establish trust for potential lenders at a young age, the demonstration of responsible financial behaviours will be reflected in an individual’s credit score over time. Start building a good credit history and take advantage of the available long-term benefits.
As you leave the friendly confines of Notre Dame and enter a post-secondary institution, you will be bombarded by credit card companies looking to add clients. Accept your due diligence responsibility and research what card might be best to start you on your path to strong credit.