Hello and welcome to this Financial Literacy webinar presented by Student Financial Services. My name is Sarah Brennan, and I am a Financial Aid Counsellor at the University of Guelph. I will take you through this webinar today.
Today we will cover a number of financial literacy topics starting with a definition of financial literacy. We will discuss budgeting and how to create one that works for you. This will transition into a conversation about needs vs. wants followed by ways to cut your costs. We will then discuss interest and credit cards before providing some best practices on how to keep yourself safe online. We will also provide some helpful resources along the way.
The best definition of financial literacy comes from the Financial Consumer Agency of Canada. This agency was established in 2001 by the Canadian government to help keep consumers of financial services safe and educated. 2020 marks the 10th anniversary of Financial Literacy Month. The FCAC is an excellent source of financial literacy information and resources. They define financial literacy as having the knowledge, skills and confidence to make responsible financial decisions. They further break the definition down into more detail where knowledge refers to a person’s understanding of financial matters, skills are the ability to apply that knowledge, and confidence is the sense of self-assurance you will want when making important decisions. Responsible financial decisions are the product of these three aspects coming together when it’s time for you to make choices that will work for you.
Financial literacy can help you make smarter, more informed financial decisions, which will allow you to stay on top of your financial obligations. It will help you avoid negative repercussions or penalties, help you prepare for your future, help you navigate what can be complex or confusing financial systems, and allow you to discover helpful resources that can benefit you, not just as a student but continuously throughout your life.
Our first topic today is budgeting. A budget is a financial tool that allows you to track your income (which is the money that comes in) and your expenses (which is money going out) in order to determine if you can meet your financial goals or obligations. It’s a plan for your money. The process of making a budget can help you set spending limits, find ways to reduce costs and put more money into your savings, and help you live within your means. Continuously tracking your money can help you find areas where you may be overspending or spending unnecessarily.
The process of creating a budget can be broken down into 4 easy steps:
Step 1: Figure out what you are typically spending on various items. Go back through your banking history for 1 to 2 months. If you aren’t sure or if you use cash, you will need to start now and start tracking every dollar you spend. Even small things such as $2 for a coffee can really add up, so it’s very important that you count every dollar spent for a period of time to have an accurate idea of where your money is going.
Step 2: Start by listing out your income and expenses. Use your bank statements and your personal tracking to help you. You can use prepared budget planners to help you think of all categories. For example, FCAC has a Budget Planner tool on their website. Our Student Financial Success Guide also has a budget template broken down by semester. Often you will have to add categories so that your budget will work for you.
You should set up your budget according to income frequency. If your income is only by semester (such as OSAP or bursary disbursement), you will need to set your totals for 4-month intervals. If you receive a bi-weekly paycheck, your budget should be bi-weekly. You should set aside equal amounts of your monthly expenses from each paycheck to ensure your budget limit stays consistent each time, and you’ll be less likely to have to rely on credit to help make ends meet. Think ahead to sporadic events that have financial impacts and try to set aside some money in each pay in preparation. These would be things like tuition and holidays that are not occurring on a monthly basis. A good budget will have a plan for emergencies or unexpected events.
Step 3: Review your results and adjust as needed. Compare your overall totals to see if you have a surplus (that is, money left over after all expenses are paid) or a deficit (which is not enough money to meet your expenses or goals). The FCAC budget tool will give you alerts to signify categories where you may be overspending based on averages. If you have a surplus on paper but find you are constantly short in practice, look back on your spending history to try to pinpoint where the gaps are coming from. Use any surplus to put towards future financial goals either short or long term. If you have a deficit, look for areas where you can cut costs or seek out other financial resources to help fill the gaps.
Step 4: Revise as needed. A budget is not a one-time activity. You must continually compare where your money is actually going to what your budget plan is and make adjustments if you have strayed from your plan. Your budget will change over time as life’s circumstances change. See what categories you tend to overspend in and focus your attention here. Are you constantly overspending on groceries for example and, as a result, not putting aside as much as you’d like in savings? Identify any problem areas and use this to do a thorough review of your spending in that category. Ask yourself if every purchase you made was absolutely necessary.
It can sometimes be difficult to determine whether a purchase is absolutely necessary. When creating your budget, think of what is absolutely required or essential in life – typically these are “categories” such as housing, clothing and food and these are what we call needs. Wants on the other hand are not absolutely essential to living but rather are things you may like for one reason or another. Wants and needs can be different from one person to the next based on circumstances. For example, if someone lives in an area without public transit, and they cannot use alternative means of transportation, a car may be a need for that person to travel for work or to purchase necessities to live. Whereas another person may reside within a city or town, and therefore a car is not necessarily required for that person to live and work.
We have provided some examples of wants vs. needs within the major categories we mentioned. For example, groceries would be an essential need whereas wanting to go to a restaurant or get take-out would be considered a want. For clothing, the basics are necessary whereas designer labels and name brands are not. Even a telephone would be considered a need with basic service; however, extra data features and plans can be more expensive and not required.
Society can sometimes make it difficult to determine what is a need and a want. We are constantly bombarded with advertisements for the latest trends and technologies. It is easy to think that something is a need when advertisers point out features of a product that seemingly will make your life easier or better in some way.
Try these tips to avoid spending on wants:
- Shop from a list of items and buy nothing else. Adding in a chocolate bar or sale items when you don’t need really need it can add up over time.
- When you feel the urge to buy an item, make yourself wait 30 days before buying it. Often you will discover that your interest was just momentary
- Be creative – see what items you already have that serve a similar purpose to avoid the need to purchase something else.
- Be careful of window shopping – both in person and online. It is a good idea to check grocery flyers for sales but endless browsing on shopping websites or on other flyers will undoubtedly lead you to items you likely don’t really need. Try to avoid shopping as a social activity – find other ways to socialize that won’t lead to mindless spending or impulse buying. Let your circumstances determine what you need to seek out.
- Plan ahead – carry a reusable water bottle or snacks with you will help you to avoid overspending on food and drink when you are away from home. This last point is an excellent segway to our next topic on cutting your costs.
Any spending category where you are able to cut costs will help you stay on track and avoid accumulating debt. We have just discussed needs vs. wants. Often just taking the time to think about a purchase will help you make better decisions. But here are some helpful tips to use when making your necessary purchases.
- Separate your needs from your wants by being honest with yourself about whether you truly need a purchase.
- Shop off brand – you can often find similar products for lower cost minus the name brand attached to it.
- Look for products that are multi-purpose to avoid having to buy more items.
- Check flyers for sales on items you need. You can use apps to help with this, such as Flipp or Reebee.
- Take advantage of companies that allow you to price match so that you can save on items that are not on sale that week at that store.
- Bring reusable bags – many places now charge you a fee when you need to use their bags.
- Avoid convenience foods – there is temptation to add extra items in at the last minute but these convenience foods come at a price.
- Buy in bulk.
We will provide some examples of these last two points in more detail.
Buying in bulk means buying a larger quantity of an item but usually comes with some savings. Try to determine the cost per unit of any item you are buying. Some price tags will identity the unit cost for you but if it doesn’t, you can easily calculate it by putting the price into a calculator and dividing by the quantity or size of item you are purchasing. When you are buying in bulk, pay attention to expiry dates and ensure you will able to use all of the product before it expires. Any money you save on buying in bulk will be a loss if the product expires before you can use it. Buying in bulk is also an environmentally friendlier option since overall packaging can be less than buying multiple smaller quantities of an item. Bulk buying can lead to savings in other categories as well – for example, you can save time and money by needing to make less trips to the store, which can also mean less opportunity for impulse buying.
We will now take you through a few quick examples of buying in bulk. In these examples we are not endorsing any product or stores in particular. Items or brands are provided for examples only. The lessons gauged from these examples can easily be translated to many aspects of life with any type of product you may use or prefer.
Our first example of buying in bulk and the savings you can achieve is dryer sheets. A pack of 80 dryer sheets costs $4.97. You will notice that the advertisement also contains the cost per item which in this case is 6 cents per sheet. The same product also comes in a pack of 200 for a cost of $8.97. This lowers the cost of each individual sheet to 4 cents. You will also see a deal on a competitor brand where you can purchase 2 boxes of 80 sheets for $8.00. However, when you calculate the cost per sheet, you will see that it is not the best deal of all the options. In this case the box of 200 is the best value.
To take this example further we have provided a store brand pack of dryer sheets which reduces the cost to 4 cents per sheet. We have also provided an example of an alternative product that can be cheaper and is multipurpose. In this example a 2 pack of dryer balls sells for $8.88 and can be used up to 1000 times. This calculates to 0.009 cents per use and comes with residual benefits of saving money on electricity for faster dryer times and can replace the need for fabric softener.
Another example of buying in bulk and saving money can be found when looking at laundry detergent. This example is a good reminder to pay attention to the unit measurements as they can be deceiving. The laundry detergent is measured in cost per 100ml whereas the detergent packs are measured in quantity. At first glance the packs appear to be the cheapest option when you compare $0.22 to $0.17 to $0.14; however, when you compare the cost of the item to how many loads of laundry they will do, you will see that the best example is actually the off-brand laundry detergent. This example is also a good reminder to make sure that you are using the correct quantities of an item to maintain your savings. If you are using twice as much product per load than is needed, you are not saving as much as you think.
We also explained how convenience will cost you. In this example, if you purchase bottled water at a price of $2.27 for a 24 pack, and assume you will drink 4 bottles of water per day, a case will last you 6 days. At this rate it will cost $138 per year for bottled water. Instead you could purchase a reusable water jug, filters and a refillable water bottle for $60 and it will last you one year and three months. It is also a more environmentally friendly option.
Another example can be a daily coffee purchase. Let's assume you buy two medium coffees everyday from a popular chain at $1.85 each, this will cost $1,350 per year. If you switch to making coffee at home, you could purchase a coffee maker, a travel mug and seven containers of coffee for a yearly total of 108 dollars. These savings add up to over $1,200 per year. Think of what you could do with $1,200!
We will now switch topics and discuss the concept of interest. Interest is the cost of borrowing and is charged when you use money from resources that are not your own such, as loans, credits cards or mortgages. Products will often have multiple interest rates depending on the purchase type. Interest rates can be fixed (meaning they remain the same) or variable (meaning they can fluctuate up or down).
When you are charged interest, you are paying more for an item than you would have if you had purchased the item with cash or in full. Whenever possible, avoid using credit to make purchases or look for interest-free options. The best example we can think of here is to compare a bank loan or line of credit to pay for school vs. a government loan such as OSAP. Whereas a bank will begin charging interest as soon as funds are accessed, OSAP loans are interest-free while you are a full-time student. Therefore, if you must access loan funding to help pay for school, OSAP would be the better option of these two examples.
If you have a credit card, it is always best to charge only what you can pay off in full by the due date. If you don’t, you will be charged interest. It often comes as a surprise how long it can take you to fully pay off a credit card once you begin accruing interest on a charge. Typically, your credit card statement will show you this calculation if you look at your statement in the fine print. FCAC offers a Credit Card Payment Calculator on their website to show you some comparisons.
For example, let’s say you charge $800 for one semester’s worth of textbooks to your credit card on a card that charges 19.9% interest. If you charge nothing else on the card and make a minimum payment of $30 each month, it will take you 3 years to pay it off, and you will pay $1,064.91 in total. This means you paid over $260 in interest. If you pay the minimum payment plus an additional $5 each month, this reduces the time to 2 years and 5 months, but you end up saving over $50 in interest. If you double the monthly payment, you reduce the time it takes to pay it off by almost 2 years, and you’ll save over $150 in interest. Of course, if you had budgeted for the expense and saved up, you could pay off the charge by the due date in full, saving yourself all interest charges.
When it comes to OSAP, or other out-of-province loans, National Student Loans Service Centre has a repayment webinar to provide tips on how small changes to your loan repayment can add up to big savings. Some of these tips include:
- Making payments earlier and more often to reduce overall interest charges. Take advantage of the 6-month grace period to reduce your principle loan amount. You can make payments to your student loan at any time without penalty.
- Pay more than the minimum monthly payment. Even adding an additional $20 can make a huge difference over the long run.
- Make lump sum payments whenever you are able to.
- Switch your payments to a bi-weekly or weekly frequency. This makes it easier to match with your budget and pay frequency.
- You can also adjust the term of your loan to pay it off in a shorter amount of time.
Here is an example of how much money you could save if you use their recommendations. This page comes from the National Student Loans Service Centre repayment webinar. Here we see an OSAP loan of $25,000. Making no changes and paying only the minimum, it will take 114 months and cost over $8,000 in interest before it is paid off. Increasing the payment by $20 each month, cuts 8 months off the term of repayment. Making 1 yearly lump sum payment cuts off 9 months. The last example is simply switching to bi-weekly payments. You’ll pay of your loan 1 year faster. We strongly encourage you to view the webinar info to see just how much you could save with minor repayment adjustments.
In today’s digital world, many tools and resources that can help you navigate financial products and services are online. For example, most banks offer online banking websites or apps for your phone. Canada Revenue Agency has online services where you can access your tax return information and tax slips. National Student Loans Service Centre has online services where you can monitor your loan balance, repayment details, apply for repayment assistance, update your contact information and more. While these services are convenient, you must remain vigilant. Fraud, scams and phishing are all dangers to be aware of. In fact, as of September 30, there were close to 40,000 Canadian reports of fraud totaling over $67.2 million in income lost.
GetCyberSafe.ca is a public awareness campaign to inform Canadians about cyber security and provide tips to keep you safe online. Some of the tips offered by GetCyberSafe.ca include:
- Securing your accounts: Use complex and unique passwords for every account and never reveal your passwords to anyone. This means using combinations of numbers, letters, symbols and cases.
- Enable multi-factor authentication. This would mean that your device has password protection but also uses secondary locks such as touch ID.
- Keep private information private. Never reveal your passwords, PINs or account numbers to anyone. This also includes not revealing travel plans in advance of vacations or posting pictures while you are away.
- Protect your documents. Ensure all of your documents are securely shredded when you are finished with them, as opposed to being tossed in the regular trash.
Phishing is something you need to be aware of. Phishing is an attempt to trick you into providing your personal information online. Commonalities of phishing attempts include content that is too good to be true, such as you have won a contest or lottery that you don’t remember entering. Embedded links that direct you to other sites. Errors in spelling and grammar. A sense of urgency in the request that is being made. Email addresses that do not match the business or organization. When in doubt, don’t! Always take the time to look into the request to determine if it’s legitimate. CCS at the University of Guelph has a website to track recent scams that are affecting University of Guelph students. Further, the Canadian Anti-Fraud Centre also has an A-Z index of scams on their website.
Here are some tips when using credit and debit cards.
- Always keep your PIN secret. Make sure that you change your PIN often and ensure that you are covering the keys when you enter a PIN to prevent others from seeing it.
- Keep your daily limits low.
- Do not carry a lot of different credit cards.
- Avoid giving your credit card number out over the phone and always keep your credit card secure and in sight at all times when making a purchase.
- Make sure that you sign the back of your card as well.
- Do not enter your credit card on public computers and always notify your bank immediately if you have misplaced your card.
We began this webinar by defining financial literacy as having the knowledge, skills and confidence to make responsible financial decisions. The intent of this webinar was to provide you with a brief overview of some financial literacy topics and help identify some resources and tips to get you started. But there is a lot more to learn to help you make responsible financial decisions.
We encourage you to reach out. Access other resources, such as the Financial Consumer Agency of Canada, GetCyberSafe.ca and the University of Guelph Student Financial Services website.
When it comes to financial literacy at the University of Guelph, we strongly encourage you to view the Student Financial Services website. Here, you can access our Student Financial Success Guide; use our award search tool to find scholarships, bursaries and travel grants; and review our tuition and fee pages to help you to complete your budget and plan for future semesters. You will also find information about payment dates and deadlines to help with your planning. You can learn more about OSAP, out-of-province assistance and US loans, view a video tutorial of your WebAdvisor Financial Profile, access Frequently Asked Questions on many financial topics, and more.
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