Credit Canada

Students Graduate With High Expectations, Loads of Debt

Mama, don't let your children grow up to be junkies. Credit junkies.

The pain and suffering of easy credit, coupled with skyrocketing costs of post-secondary education, where cellphones and credit cards are plentiful, can be seen everywhere.

Take Joe. He's 24. He just graduated from university with a bachelor's degree. And he's now drowning in debt, owing $30,000 for a student loan and $10,000 in credit card debt.

Joe was hopeful for a good-paying job, which would make repayment easier.

But, like so many others, he ended up in a job that pays a lot less. With a $35,000- a-year salary, Joe's finding it difficult to keep up. In fact, he's so desperate he's using credit cards to keep his student loan up to date.

Joe is one of Canada's 1.6-million student-loan borrowers who owe a whopping $10.6 billion, after students' cost of living jumped 372.8% in the past three decades, while tuition fees jumped 678%.

To put it into perspective, a student today must work 660 hours at a minimum wage job to pay for tuition and associated costs, compared to 235 hours in 1977.

NOT JUST YOUTH

So is it any wonder more and more students, like Joe, are seeking help from non-profit, credit counselling companies, like Credit Canada?

The reality is, though, it's not just struggling young people in trouble.

A growing number of people from all walks of life -- low-income seniors, high-paid executives, middle-class families -- walk through the doors of Credit Canada and other credit counselling firms everyday as the burden of record household debt in Canada, now at $1.1 trillion, becomes unbearable.

"We're a good barometer of what's going on out there," said Laurie Campbell, executive director of Credit Canada. "The numbers are worse, the stories are worse and the situations are worse."

A recent survey by Credit Canada showed Canadians are feeling more in debt than ever and underscored a worrisome trend with half not having a household budget and 80% not knowing their credit score, which can affect lending rates. The survey also showed 43% of Canadians have three or more credit cards, 40% do not pay off their credit cards in full each month, and 37% only pay the minimum required. Another 26% don't consider what impact rising interest rates would have on their borrowing costs. A study by the Financial Consumer Agency of Canada (FCAC) in Ottawa showed 31% don't know the annual interest rate they're paying on the card they use the most.

NO MONEY COURSES

These startling statistics, plus lack of personal finance studies in our educational system, motivated Credit Canada to launch the first-ever Credit Education Week in Canada, sponsored by Capital One.

It kicks off Tuesday, with a launch ceremony at Hart House at the University of Toronto, starting at 10 a.m. Then on Thursday, there's a full day of "free" one-hour financial seminars from 9 a.m. to 5 p.m. at the Four Seasons Hotel at 21 Avenue Rd. In Yorkville. My seminar, entitled Teach Your Children Well, is at 1 p.m.

Bottom line is, Canadians have become credit junkies, with savings rates in the negative zone, credit cards maxed out and an increase in people borrowing against rising home equity to prop up lifestyles. If parents aren't practising financial fitness, what are we teaching our kids?

"If adults aren't educated in money management, then it's easy for their children to follow in their footsteps," said Campbell, who adds the goal for this first-ever program is to help students avoid falling into the debt trap.

An essay writing contest for Grade 12 students was aimed at helping. The winner was 17-year-old Ellen Bleaney of Kitchener.

Luckily for Joe, he's not facing bankruptcy. But inconsistent payments have hurt his credit rating. Campbell warns unless he curbs spending and pays down his debt, his troubles will get worse.

Meanwhile, with one in seven graduates facing debtloads of $25,000 or more and a quarter of graduates having difficulties repaying these loans, here's some advice:

- Avoid financial disasters:

Start investing in RESPs (Registered Educational Savings Plans) as early as you can. Parents and students sit down, work out and budget and plan to stick to it. See if a part-time job is optional.

- Find the cheapest money:

Government loans are the best deal. Students can chose between a variable loan rate, now at 8.75%, which is 2.5% above prime. Or they can choose a fix rate, which is prime plus 5%. However, Julian Benedict, founder of the Coalition for Student Loan Fairness, points out these rate are the highest rates in the G-8 nations. He also points out in Germany and New Zealand, students pay no interest.

Stats Can reports the median government loan is $5,000, so one in five have to borrow elsewhere. Shop around for the most flexible, low-option credit available. After harsh criticism, many banks are offering credit cards, lines of credits and special savings accounts for students. Check out pre-paid credit and debit cards.

- Know your rate of interest:

The rates on credit cards can be obscene, when stacked against a prime lending rate of 6.25%. Retails cards charge 28.8%, while the annual interest rate on a standard credit card is 18.9%. So, if you have a balance of $5,000 on a retail card, you're paying $1,425 in interest, while on a standard card, $932. Moving that debt to a low-rate card, let's say at 1.9%, will cut interest to $94, meaning a savings of up to $1,332.

- Don't fall for the cellphone trap:

Many can lock students into three-year contracts that are difficult to get out of it, and charge hefty cancellation fees. Try pre-paid plans.

- Don't run and hide:

If you are in financial hot water, meet with your lender and see what arrangements can be made.

- Keep track of your credit rating and score.

- Come out and take part in Credit Education Week. Go to crediteducationweekcanada.com or call 416-228-3328.

*Reproduced with permission - Sun Media Corp.