Avoiding the Credit Trap: 4 Tips for a Richer Future You
When it comes to managing money, young Canadians are smarter than they’ve ever been. Growing up after a financial crisis and surviving a global pandemic have helped shape Gen Z into a cautious and patient generation. Yet, there are still many pitfalls. Online shopping, teen-targeted marketing, and corporations eager to attract thrifty young people have made spending money easier than ever.
But it’s a trap. What’s designed to seem like easy access to spending power comes with high interest rates—and adds up at a surprising pace. A growing debt load becomes harder and harder to repay, especially before you’ve had a chance to develop good budgeting habits. The worst part is, mistakes you make now will stay with you a long
time. A poor credit report or an account in collections can make it impossible to buy a house, finance a car — even rent an apartment or get a good job!
When you are just getting started in life, these impacts are seldom worth the short-term gain of having things before you can pay for them (Or even know HOW you’ll pay for them!). Here are some tips to get off to a great start, while minimizing future regrets:
- Live within your means. This is one of the most valuable rules you can set for yourself, and the earlier you master it, the farther ahead you’ll be in the long run.
If you spend less than you make on a consistent basis, your extra money not only adds up—it earns interest. (More on that in a minute.) Constantly building a
nest egg may not deliver the adrenaline rush of a flashy new purchase, but you’ll sleep better and will get plenty more of what you want before long. Remind
yourself of this every time you are tempted with an offer to have something now and pay later!
- Learn about compound interest. As Albert Einstein (one of the smartest people who ever lived) said: “Compound interest is the eighth wonder of the world. He
who understands it, earns it. He who doesn’t pays it.” Compound interest is the way that interest itself earns more interest. And that interest earns even more
interest! It’s exponential growth that works in your favour on savings — and against you on debt. Because interest on money you OWE can be over 40 times
higher than on money you OWN, it’s even more of a no-brainer. Businesses setting credit traps are betting you won’t figure this out.
- Understand long-term contracts. Despite that it’s the simplest way to purchase that new iPhone or save on data, a multi-year contract is a REALLY long time.
And a contract is legally binding. Committing to monthly payments puts you under pressure to have ongoing income. And when the next release arrives
before this one is paid off, you’ll be itching to upgrade. Hot tip: Save up in advance to avoid locking into long-term contracts.
- What you want today will be different tomorrow. It can be hard to predict years (or months) ahead, but what’s certain is your needs and wants will change.
To set yourself up for a richer future, establish some personal rules. Rule #1: Never buy anything over $100 without sleeping on it first. Rule #2: Don’t buy
take-out or spontaneous treats without having predetermined a monthly limit for these things. Little expenses easily end up costing more than the Levis jean
jacket you’ve always wanted.
The entire future is yours to shape, and you’ll never again have time on your side the way you do right now. Being credit smart — and having a richer future — is fully within your grasp. It’s a mix of common sense and forward thinking as you make your own decisions around the things you want.