Financial advice 101

Fill care packages with credit card know-how for campus-bound young adults

September is here and so is the time when your young adult children have left for college or university.

As exciting and positive as this is, the financial realities associated with the experiences that await them can be daunting. Findings from the Canadian University Survey Consortium’s 2015 study show that students graduating with debt owe on average more than $26,000 in loans and other sources of debt. The same survey reports that the average credit card balance owing on graduation by these students is $2,224.

As Commissioner of the Financial Consumer Agency of Canada and as a parent myself, I understand the concerns tied to the question: Are they ready?

If you haven’t done so, then, it’s not too late to have a discussion with the young adults in your family about how to prevent or minimize debt beginning, in particular, with credit card debt. Once they arrive on campus, they will have ample opportunities to apply for a credit card which is why it would be wise to prepare them with clear information and advice.

There are definitely advantages to college- and university-bound young adults having a credit card. Credit cards provide convenient access to funds. They also offer important lessons about financial management. And they enable them to begin building a solid credit history which will be beneficial in the future, if ever they apply for credit in its different forms.

According to findings from the 2015 Canadian survey, 77 per cent of students with a credit card pay off their balance each month. While this is a positive finding, there remain 23 per cent or so who do not.

In addition to debt itself, there may be other consequences to using credit cards that all young adults should be aware of. Regularly making late payments or missing payments entirely could not only hurt their credit score, but could also be recorded on their credit file for several years. Moreover, if they fail to pay their balance by the due date, they will be charged interest thereby increasing the cost of everything they purchase with their card.

When this happens, the likelihood of them slipping into a cycle of credit card debt increases. This is one of the hardest debt cycles for Canadians to break.

Financial consumers are those who use the products or services of banks and other financial institutions. Clearly, like all financial consumers, young adults should understand the appropriate ways to use a credit card. This boils down to a few simple guidelines:

•Always pay your credit card balance in full and on time.

•If you cannot pay in full, try to make more than the minimum payment.

•Only use a credit card to buy what you can afford.

As a parent, you can help as well. For instance, during the application process, you can request a low credit limit. You can also set up a joint credit card. Be aware, however, that in doing so, you are agreeing to cover any outstanding balances your son or daughter fails to pay.

FCAC is committed to providing Canadian financial consumers with clear, straightforward information and easy-to-use online tools so they can understand and navigate the financial marketplace with confidence, every day and at key milestones in their lives.

I encourage you and your family to look up these materials and try out some of these tools most notably, the Credit Card Selector Tool, Budget Calculator and the Credit Card Payment Calculator. They can be found at this address: canada.ca/money.