A new study shows that student debt continues to climb at a swift and steady pace in Canada.
According to a report from Strategic Insight:
- Student debt has risen consistently every year for the last ten years by 6.2 per cent annually to reach a staggering $42.9 billion
- Parents are using RESPs more commonly, but the amount of savings is lagging far behind the debt being taken out. The report quotes Stats Canada to say that in the households in the top 20 per cent of net worth, average RESP holdings were at $18, 750 for 2015. This pales in comparison to Stats Can’s estimated costs to just under $25,000. That’s a big gap to fill and it’s being done with debt
With consistently low interest rates and high real estate prices in some areas of the country, parents are routinely maxing themselves out with debt during a period in their lives when they should be focusing on paying debts down. Typically, their earning power has increased by this stage in their lives and they are getting closer to their own retirement. Plus children are getting older and will need assistance to pay for post-secondary education.
Don’t pass debt down to the next generation
“Debt loads are ramping up instead of down, which is preventing parents from saving adequately to help their kids avoid (or at least minimize) their student debt. The debt cycle continues and is now being passed from generation to generation. Is that the legacy that you want to pass to your children?” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
“To rein in student debt, parents need to stop accumulating their own debt and focus on savings. Kids need to be more active in paying education costs. The easiest way to avoid student debt is to limit what you take out. This can be accomplished by managing expenses, getting part time work, and living like a student,” says Schwartz.
Parents need to lead by example
You are your child’s first and most effective teacher and this continues well into their teenage and young adult years. This is especially important when it comes to money, because much of your child’s attitude towards credit use, spending and saving will come from your own attitude.
Put your money where your mouth is-literally. Commit to paying down debt and ramping up savings, making full use of savings tools like RESPs. Set a budget and live a cash-only lifestyle.
Students need to help keep costs down to reduce debt
Students have a vested interest in trying to reduce student debt, because graduating with high debt loads will effectively delay other financial milestones that most people hope to achieve in their lives- like buying a car and a home. Minimizing student debt before and during college or university years is your best bet to being able to achieve your goals.
When trying to get more mileage for your money, it is helpful to engage creative solutions. Students can create cash flow and amass savings in a number of ways; take a year off between high school and university or college and save; work part time throughout the year; investigate all available assistance, scholarships, grants and awards. Check with school and within your community as well. Live at home to save on rent money.
Just like their parents, students need to set a budget and commit to living it.