The banks are gearing up for their annual marketing blitz aimed at students. The charm offensive typically involves freebies or cash bonuses if you sign up for a student credit card or student line of credit.
It’s easy to see what’s in it for the banks: newbie customers with whom to build an (ideally) lifelong relationship.
But for students?
Don’t get me wrong, both credit cards and lines of credit can come in handy when you’re a student. For one, building a credit history early on is more important than ever in today’s hyper competitive rental market. Landlords in Toronto, for example, are routinely asking to see prospective tenants’ credit scores. Not having a credit history can make the house-hunt even harder.
That said, students should tread carefully. Here are three tips to help you choose whether and what to sign up for:
Forget the rewards. If you’re on a shoestring budget, you probably won’t spend enough to make the points program worthwhile. At this stage, simply focus on developing the habit of paying off your balance in full and on time every month.
Choose no fees and lower interest rates. Rather than chasing points, choose a card with no annual fees and a lower interest rate. Ideally, you’d never have to worry about paying interest because your payments are always on time but … life happens.
Know your debt. If you’re choosing between a student line of credit and government student loans, do a full comparison. Lines of credit often have a lower interest rate, but there are more pros and cons to consider.
Lines of credit are flexible: As with a credit card, you only borrow what you need and as you pay it back, you free up more room to borrow. However, you typically have to pay at least the interest on what you’re borrowing while you’re in school (you can often continue to make interest-only payments even six to 12 months after graduation).
In contrast, with government student loans you don’t have to worry about payments while you have your nose in the books. And after you graduate, you also get a six-month payments-free grace period – although sometimes interest accrues during that period.
Also, if your income is low enough, you’ll be eligible for repayment assistance, an option that isn’t available with a line of credit. Finally, you receive a tax credit on the interest you pay on your government student loans. With a line of credit, you forgo that tax perk.
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Erica’s personal finance reading list
Investors and the housing market
Soaring interest rates and stagnating or declining home prices are squeezing some individual investors out of the real estate market. But what about deep-pocketed institutional investors? CBC’s Chris Arsenault looks at whether the current housing market represents a buying opportunity for the likes of hedge funds and private equity giants. One all-too-familiar takeaway for Canada? A dearth of data makes it hard to track the phenomenon.
New details on the Tax-Free First Home Savings Account (FHSA)
Remember the new tax-advantage account for first time homebuyers proposed in the 2022 federal budget? And remember the speculation about whether non-first-time-homebuyers would be able to take advantage of it as well? We finally have more details about how the new account will work.
Disinherited children
Michael McKiernan at Investment Executive certainly aced this first paragraph: “Bigger estates and blended families are a recipe for will challenges from disinherited adult children, but their chances of success depend largely on where they live.” Need I say more? Read up the rest here.
The labour shortage? Get used to it
“Even if the job market eases somewhat in the year ahead, we believe the unemployment rate will remain structurally lower than in recent decades,” reads a recent report from BMO. Here’s why.
Tweet of the week
Who’s buying in the current housing market? Read the responses to this tweet by Toronto real estate broker Nasma Ali for some insights.
What should a financial adviser do for you?
It’s one of the most common questions I get from readers. Here financial planner Robb Engen chats with portfolio managers Ben Felix and Cameron Passmore about exactly that.
Listen to this
NPR’s The Indicator podcast dives into two recent studies that find that cross-class friendship is a key to upward mobility in the U.S. Call it “friends in high places.”
Calling all readers
Globe reporter Patrick Egwu is looking to chat with workers who have been forced to leave their company after they were required to return to the office. If you feel comfortable sharing your story, please e-mail pegwu@globeandmail.com.
ICYMI
Personal finance-related content from around the Globe
- Canada Pension Plan reports $23-billion loss in June quarter as markets churn
- The Great Resignation has arrived in Canada
- Don’t want to return to the office? Here are the industries with the highest share of remote job postings in Canada
- As more Canadians choose common-law relationships, experts urge estate planning
More Rob Carrick and money coverage
Subscribe to Stress Test on Apple podcasts or Spotify. For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group.
Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Is the middle class dead for millennials and Gen Z? • Gas prices are soaring. Are electric vehicles an affordable solution? • Crypto is booming, but should you invest? • How are young Canadians dealing with soaring rents? • Inflation is squeezing our finances. What can we do about it? • Is a hot housing market squeezing Canadians out of their small towns?
- ✔️ The housing file: How bad is housing affordability? Even a crash won't help • Sell the family home to lock in profit and then rent? Better not • Why young adults can't afford houses: Hard work got you more in the past than it does now • Five reasons you should not buy a house till you're at least 30 • Now more than ever, owning a house is not a retirement plan
- 📈 Investing: The 2022 ETF buyer's guide: Best Canadian equity funds • The 2022 Globe and Mail digital broker ranking: Does the zero-commission revolution flip the script on who's best? • With bonds sinking, conservative investors are waking up to risks they never saw coming • A five-step plan for dealing with the sad fact that almost every investment is falling lately • The best financial advice in advance of retirement? Work on your marriage • One-year GICs are the best deal in town for safety seekers • What to do if the financial plan you paid thousands for disappoints
- 💰 Your money: Are you prepared for the pandemic wealth boom to blow up in our faces? • This hard-working 24-year-old is nailing it financially. But where's the happiness? • Who should and shouldn't worry about the wave of rate increases this year, and what every stressed-out borrower should do right now • Don't make this potentially costly assumption about the CPP Survivor's pension
Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for Carrick on Money here.
Erica Alini