Editor’s note: This week features a special Gen Z edition of #MillennialMoney.
At 19, third-year nursing student Priya faces a lot of uncertainties about her future. In the back of her mind, she’s thinking about how she’ll pay off her accumulating student loans, which are especially high because of her field.
Because of the COVID-19 pandemic, she’s been studying from her home near Milton and not from the student residences where she usually lives and pays rent.
Priya has kept her job working at a cafe throughout the pandemic, making around $ 1,000 a month working just weekends.
The cafe is near her family home, so before COVID-19 she took transit to and from school Friday afternoons and Monday mornings.
“When it’s good traffic, it’s about an hour one-way,” she says. Other days the commute could take an hour and a half to two hours, twice a week. “That’s around three hours of my time that I could be studying or having some time to myself between constant studying, school, classes and work,” she says.
That’s why she’s hoping to purchase a car — once she gets her licence. “Once I get my G2, I want to eventually get a car, which would cut those commute times. But that also comes with insurance and gas expenses too,” she says.
On a typical school day, she’ll pack a lunch of leftovers from the dinner she cooked the night before. “I will do all my groceries for the week with my parents when I go home on the weekend and then cook for myself all week,” she says.
Now that it’s a summer, Priya is working weekdays and weekends, but she very rarely packs a lunch for her work shifts. “I usually eat food from work, for free.”
With lockdown restrictions loosened, after work she’ll hang out with friends at home, go for food, bubble tea or coffee, or watch a movie at a friend’s house to keep costs low.
Priya wants to start saving to be better prepared to tackle her OSAP when she graduates in two years, but with the hurdles of maintaining her grades, keeping a job and commuting, she needs some direction.
We asked Priya to share her daily spending to get a better idea of her financials.
The expert: Jason Heath, managing director at Objective Financial Partners Inc., shares some advice for Priya.
- Priya is living pretty lean as a student with a part-time income of about $ 12,000 per year. She is doing all the right things now from a spending perspective by keeping discretionary spending low, packing lunch during the school year and cooking so she has leftovers. She’s lucky to be able to eat for free at work. Credit cards can be pretty enticing to other young people in her position as a means to supplement spending. She has done well to live below her means.
- I note she comes home from school in order to work on the weekends. One way for her to boost her cash flow could be to find work closer to where she rents and goes to school so she can pick up a few hours of work during the week more easily without having to commute to work. Rent eats up 60 per cent of her income, so she doesn’t have much left to spare.
- She has lots of OSAP student debt to pay back, but as long as she has at least 60 per cent of a full course load her loan should be interest-free. Any extra cash she can save in the interim should be deposited to a Tax Free Savings Account so whatever interest she earns is not subject to tax. An RRSP account would not be appropriate for her, as her income is so low that it is tax-free, making RRSP tax deductions useless for her right now. I would keep her savings in a TFSA or very conservative investment with little to no exposure to stocks. She could need her savings on short notice, so that does not lend itself well to riskier long-term investment options, despite the potential temptation.
- When Priya completes school, OSAP repayment becomes a more enticing option for extra cash flow. This is because the potential return she can earn on saving and investing may not be as high as the interest rate on her OSAP loan, especially for conservative or even moderate risk investment options.
- Once she gets her G2 licence and can drive on her own, she wants to get a car. I remember that dream myself. G2 licences were introduced partway through the year I turned 16, so my friends with early calendar year birthdays got full G licences and could drive on their own without a parent. But the reality is that cars can be a luxury for even those working and earning a good living, let alone a young person with student debt. These days, ride-sharing services make it easier to get around and avoid the monthly payments to have a car at your disposal.
Result: She spent less! Spending in Week 1: $ 156. Spending in Week 2: $ 30
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How she thinks she did: “This was pretty light!” Priya says. A big part of why? Ever since she started this exercise of recording her spending it’s made her much more conscious. “I am really trying to be mindful of the money I spend now that I can see it right in front of me.”
Also, living at home since pandemic restrictions has shown her that eating meals at home and working more — as it’s summer and she’s closer to work — helps save a lot of unnecessary costs.
She does note, however, that outside of COVID-19 times she’d be spending at least $ 100 more a week. “I’d probably be going out a lot more, which means more on food and drinks with friends,” she says.
Take-aways: After reading Heath’s advice on finding a job closer to school Priya has decided to live at home and commute to school daily instead of paying rent for student residence. “Rent was getting expensive,” she says. After doing the math, spending more on commuting made more sense especially if she can live and eat at home. “It’ll also give me more time to slow down and do things I want to do.”
Another realization? “A car is such a luxury.” Priya admits that even though she’ll have to take public transit more, she probably can’t afford a car for at least a year.
Finally, it’s time that she opens up a savings account. “I was never taught this during school and it is important because I know I’ll have a lot to pay back,” she says. She’ll be asking her older siblings for advice on a TFSA and how she can start preparing to pay off OSAP sooner rather than later.