There is no question that this year’s crop of high-school grads is moving into a consumer world that is getting scarier all the time.
The numbers don’t lie about the risks of plunging into a debt pit, even if those organizations selling debt, including the big banks, do. Canadian household-debt levels are at an all-time high, with Statscan reporting that Canadians have $1.68 in credit-market debt for every dollar of disposable income.
Kids moving into the adult world, anxious to begin to flex their independent-living muscles, are easy targets for financial offers that imply: “Why wait until you have the money to spend it on those things you always wanted!”
The whole idea represented by “if you can pay the interest, you can afford the loans” is especially intriguing to kids starting out at the low end of the income scale.
To make matters worse for today’s kids, the ratio between income and the basic costs of living, shelter, food, transportation and tuition, no longer looks the same as the ratios that guided the financial decisions of their parents, much less their grandparents.
A new report suggests that even tuition fees are becoming less affordable for many young Canadians, forcing an increasing number of students to take on heavy debt loads before they earn a first paycheque.
The report from the Canadian Centre for Policy Alternatives shows that since 1990, average tuition and compulsory fees for undergraduates have risen by 6.2 per cent annually — three times the rate of inflation.
Fortunately, financial-literacy concepts will become mandatory for children in math class as part of B.C.’s new math curriculum.
Even the kindergarten curriculum begins with identifying the value of coins and role-playing financial transactions (using coins and whole numbers), while integrating the distinction between wants and needs.
By Grade 10-12 math (the Grade 11-12 curriculum is expected to be implemented in the 2019-20 school year) will include considerations of income and savings, compound interest, taxes and deductions, investments and loans, and, thankfully, an introduction to the complexities and temptations of personal budgeting, investing and borrowing.
And not before time. It is this last activity, borrowing, that will cause the most long-term stress for fledgling consumers.
A poll done for insolvency firm MNP identifies 51 per cent of those responding to the poll as fearing that rising interest rates could affect their ability to repay their debts.
Even more troubling, 33 per cent of respondents agreed that rising interest rates could possibly push them toward bankruptcy.
Forty-seven per cent who responded said they were not confident that they would be able to cover all living and family expenses in the next 12 months without going further into debt.
The Financial Consumer Agency of Canada advises: “Financial literacy is a vital skill for individuals’ financial well-being, and can also have broader economic implications: Poor financial knowledge and decision-making can affect both the individual’s future and the national economy.”
That, seemingly, describes a financially dystopian future for our kids.
Beyond that, internet technology directs young consumers to more market access.
Young consumers can be victims of subtly devised consumer pressure because of their lack of experience and knowledge in terms of consumption and purchasing pressures — not to speak of lifestyle expectations.
The realists among today’s kids point out that the previous generation, somewhat critical of the spending habits and lifestyle expectations of their children, had eventually themselves arrived at a version of financial security more by good luck than good management, thanks to a time of steadier economic and wage growth.
Excluding that bump in the late 1970’s, growth in house prices was not fuelled by exterior forces such as offshore investment, and so there was a lower and more manageable house-price-to-income ratio.
So it is an irony that this background probably made my generation poorer money managers that our kids will have to become.
Financially speaking, the very best that this year’s crop of high-school grads can hope for is that they will, at the least, be able to emerge from the next few years of tertiary education and training relatively debt-free and ready to be financially responsible consumers — a hope that for some is seeming less and less likely without some solid education in financial literacy.
Geoff Johnson is a former superintendent of schools.