Advice for broke students
Author and financial planner Lise Adreana sits down with the Fulcrum
CHECKING THE SORRY state of a perpetually negative bank statement is not something new to the university experience. In fact, it’s generally accepted that as students we’re broke—constantly. While the notion of waiting for payday only to blow through that cash as fast as possible is something we’ve all embraced, financial planner Lise Andreana warns us about our generation’s poor money management in her new book No More Mac ‘n Cheese: The Real-World Guide to Managing Your Money for 20-Somethings.
“The book is to help 20-somethings get a good financial start to their adult life,” says Andreana.
“I think there’s a lack of education about financial planning from parents and from the school system. Financial literacy is a huge issue.”
Although she is a certified financial planner, Andreana started her career with a degree in fashion design.
“I’m the perfect example of when what you study at school may be rewarding, but the work that goes along with it may not be exciting or interesting. Whereas the studying was deadly boring for financial planning, [the] work is fascinating because no two people are the same.”
According to Andreana, one of the biggest mistakes students make when dealing with money is being indecisive and doing what she calls the “ugly dance.”
“[Students] are not strategic enough,” says Andreana.
“They go to post-secondary [school without] thinking [it] out ahead of time.”
“[Students] don’t really have a plan for what they’re going to be doing after they get out, or how much income they’re going to be making and whether there is a position available for them when they graduate.”
To avoid dancing away your hard-earned money, Andreana urges young adults to be strategic thinkers.
“[Students] need, what I call, a GPS for their life. They need to sit down and establish goals for themselves … and then develop a strategy for how to get to where they want to go,” she says.
“You have to do some research, you have to understand what the potential payoff will be, and see if [there] is a market for the expensive new skills [you’ve] just acquired.”
Graduation may seem like light-years away for first years in university, but it’s important to start thinking about finances long before you don your cap and gown.
“The average graduating student can afford to allocate five per cent of gross income to service their debt once a year and their debt should not exceed 50 per cent of their first-year’s income [at a job]; otherwise they’ll be paying for it forever,” states Andreana.
“If [you’re] earning $40,000 of gross income once you graduate and [you] have $20,000 of debt, at an interest rate of four percent, it’ll take [you] 13 years to pay off the student loan.”
One of the best pieces of advice Andreana can give any 20-something is to curb their spending habits and have a money chat with their parents.
“Students [need] to budget very carefully and to distinguish between [their] needs, [their] wants, and what are [their] total thrills,” says Andreana.
“Students should talk to their parents. Parents have been paying their bills for many, many years, and I think they need to sit down and have a very respectful conversation and ask the parents what’s that like and ask for their input.”
Andreana says it’s important for everyone to understand money management changes with the times. Just because our generation may be more educated than the last does not mean we’re financially set. Our parents graduated college, bought homes, got married, and established equity a lot earlier than us.
“Today 20-somethings are starting with a negative net worth,” she says.
“They’re better educated, and they have better career options available to them, but [a] huge amount of debt will put them behind, so they need to be very careful about the debt level.”