When I was 17 years old graduating from St Mildreds and headed off to Laurier University, it dawned on that not only would I would be living on my own, but I would also be in charge of my own finances. As a young person, this was a startling revelation. Up until that point, I had always lived at home and was fortunate my parents paid my way. I can't even remember if I had a bank account. This was well before the days of debit cards and decades before ApplePay. I went to the bank with my father, since I was a minor, opened an account and got my first credit card - which he had to co-sign for since again I was under 18. I was so excited I'm pretty sure I did cartwheels out of the bank. I felt so in control and powerful with my new Visa, or, as I used to call it, my "pay-later-money" card. I had no idea what credit was or the ramifiations of having a poor credit rating. Nor did I understand about collection agenies, the importance of saving, and I certainly had no idea about how real estate markets worked.
Thankfully, today's youth seem to have a few more resources at their fingertips. Some schools teach the basics of housing markets and principles of banking and mortgages in their curriculum which is vital information for students who are about to leave their parents home and embark on the journey we call adulthood. They also have the luxury of the internet. I realize I am dating myself here but many young people today don't understand how life used to be before we had fancy smartphones with endless apps for banking, calculating mortgages and a vast array of others. For a number of years, a colleague and I have been invited to address the Grade 11/12 classes at SMLS along with a local Mortgage Broker. We explain the fundamentals that we never learned at their age. It is part of their math program and it's incredible. They often have more questions than we have time to answer and the result is an engaging experience that will better equip them once they leave the comfort of their family home. From these experiences, I have a list of things that young people ought to know yet have found they often do not.
1. Banking and Credit:
When people become 18 years of age, many will apply for a credit card because they want access to more money. Some won't as they are under the impression it may get them in trouble if they overspend so they elect to simply use the money in their checking or savings account. The reality is, credit cards serve a very important function - albeit they do require some self control. Using a credit card to pay bills or make purchases helps to establish your credit rating. If you pay your monthly minimum or preferably the entire balance on time, you will have a higher credit score than someone who is often late with their payments. When the temptations to go on a trip, buy new shoes, or eat out frequently strikes, many do not realize that failure to come up with the funds to repay these debts can impact their future in that when they want to lease a car, rent a condo or buy a home they may have less than stellar credit. They simply aren't thinking ahead and perhaps aren't aware they should be. Basic lessons on how establishing and maintaining credit work are so important and I wish I had of learned it in my teens.
2. Housing Costs
Ask most young people or first time home buyers what a house or condo costs per month and most will be incorrect. Most often they are under the impression that a rent payment or mortgage payment is all it costs. When living at home, many young people don't have to pay gas, hydro, cable, internet, telephone, or condo fees. Monthly fees can end up being significantly higher than just rent or mortgage payments. When teaching them how to budget, it is important they realize what they can afford once these extra costs are considered. The same applies when discussing mortgages as they often neglect to factor in their other monthly obligations, whether it be servicing credit card debt, a car lease, or other financial obligation.
3. Location Considerations
Everyone is familiar with the old real estate cliché, "location, location, location". A seasoned buyer knows that certain locational criteria will affect what they can afford and where. Being near railway tracks, for instance, will negatively impact the value of a home as it will be noisier and often a more densely populated area, while a home near the lake will be significantly more expensive as it offers a peaceful setting that is more rare and highly desirable. When talking to students about where they wanted to study after high school, many failed to consider that different geographical settings also impact price. A condo rental in prime downtown Toronto will be much smaller and likely older than one for the same price in Halifax. Many students planned to rent luxurious condos in presitgious neighbourhoods on a shoestring budget. They quickly learned that geography is a key factor when deciding on a location.
4. Banks vs. Brokers
Many people automatically think to go to the bank where they or their parents do their personal banking when looking for a mortgage. Not that there is anything wrong with this as many people are quite happy with the product offerings. Many, however, are misinformed or uniformed about the benefits of using a Mortgage Broker. When you go to a bank, they run a credit check which impacts your credit. If you aren't happy with their products or rates, you may go to another bank and try again. This means another hit to your credit. A Mortgage Broker runs a single credit check and is able to shop the products of multiple lenders to find one that best suits your needs. They have access to non-traditional lenders and often are able to offer more unconventional financing solutions when required. Often they place mortgages with banks but not before researching if another lender may be more suitable.
Learning the basics of credit and housing are of vital importance to today's youth. Failure to establish and protect your credit from a young age can have lasting implications and can hamper your ability to do many things. Knowledge is power. If you have teenagers or young adults, make sure they are as savvy as possible in these areas so as to prepare them for their future. If you would like any further information, please send me an email at aimee@!aimeekain.com and lets connect!
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