A recent news article in The Varsity explored the risks of using a credit card as a student. While the article rightly highlighted the potential problems of credit cards, it is important not to demonize credit cards and companies based on a few negative experiences. Instead, it is a general lack of education about finances, and incorrect use of credit accounts, which often leave students in a hole they can’t climb out of.
To begin with, it is important to understand the basic benefits of a credit card over a debit card. Establishing a good credit history from a young age shows that you are responsible with borrowed money. Furthermore, a good credit score means you might pay lower interest on mortgages or car payments in the future. Without credit history, it is difficult to get approved for these things at all.
Depending on the card and bank, you can also benefit from features that a chequing or savings account doesn’t have. For example, students can get cash back on everyday purchases, or collect air miles. The Royal Bank of Canada offers credit cards with no annual fees, while the Bank of Montreal has a special a student price card integrated with their Mastercards, which gives users various discounts at a multitude of popular stores like Aldo, H&M, McDonalds, and Nike.
Despite these clear benefits, credit cards have an unfortunate reputation. Among students that owe thousands to OSAP or banks, the very mention of credit cards conjures up the image of wealthy bankers luring innocent children into high interest, low payback agreements. However, instead of blaming the organizations that offer credit cards when something goes wrong, we should look to the failure of our educational institutions to teach us financial responsibility, and our own failure to seek out resources.
A recent study by the Investor Education Fund showed that only 40 per cent of parents with students fresh out of high school believe that their child is ready to make important financial decisions, despite 70 per cent of students in the same study saying that they would like to know more about how to handle their money. Given their lack of financial smarts, students — especially first years — are often unprepared for the responsibility of credit cards. Unsurprisingly, then, the Canadian Credit Counselling Society recommends students wait until at least third or fourth year to sign up. This, however, should not be the status quo. Although most students aren’t given much financial advice in high school, the University of Toronto does offer financial counselling and information about financial management. Unfortunately, unless it is mandatory, students likely will not take advantage of the opportunity; in fact, they might not even know of the resources they have available to them.
This problem has a relatively easy fix. Financial counselling should be integrated into orientation during frosh week, and the university should dedicate an increased emphasis on alerting students to these services throughout their undergraduate careers. Much like how new students are matched up with a personal librarian, U of T’s financial services could similarly reach out to students by offering financial advice by setting up a personalized system of financial counselling.
Until then, students should be aware that owning and using a credit card is a real responsibility. A credit card can be extremely beneficial, but not if the cardholder mismanages their finances. If you’re considering making this decision, make sure to actually speak to your bank and find out which type of card is best for you before signing up.
Credit card debt is not a result of evil bankers going after youth in hopes of making a quick buck. Instead, massive credit card debt can be attributed to financial illiteracy and, consequentially, recklessness. With great credit comes great responsibility — so do your research, or risk amassing debt.
Ema Ibrakovic is a first-year student at Victoria College studying social sciences.