Life on Credit

The art of borrowing money

Budgeting for Back to School

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The global pandemic has already transformed schooling in Canada and around the world. Boards, teachers, children, and parents prepare for a different school year during which they either stay home or attend classes every other day. Budgeting for back to school has also become important as many parents face financial hardship and challenging times ahead.

How Spending Patterns Have Changed

It does not come as a surprise that Canadian parents spend less on back-to-school supplies this year. A survey by the Retail Council of Canada shows that the percentage of shoppers who spent more than $0 dropped across different categories in 2020 – 81 percent for supplies compared to 86 percent in 2019, 69 percent for apparel compared to 78 percent, and 33 percent for books and movies, down from 35 percent. According to Suzan Krecsy, executive director of the St. Albert Food Bank, parents need about $1,000 to prepare kids for the new school year which is a lot of money for those who are unemployed or have low incomes.

Save Money on Back-to-School Supplies

A new Deloitte survey asked parents how much they would spend on supplies and other items that kids need in grade K-12 this year. On average, parents said that they would spend $316 on online subscriptions and electronic gadgets, $395 on hardware and computers, $216 on clothing and apparel, and $102 on supplies. This is a lot of money. On top of this, parents are stocking on wide-mouth water bottles, facemasks, hand sanitizers, and other items they would have never thought of buying before the pandemic.

Obviously, supplies can be expensive when all purchases add up, from new uniforms and clothes to pencils, erasers, highlighters, and index cards. Shopping out of season is one way to save money as once the new school year starts, retail stores discount all the folders, notebooks, pencil sharpeners, and markers.

To save money on back-to-school supplies, it also pays to shop around, check flyers, use coupons, and make a list of stores to visit and benefit from the best deals they have on offer. Sales are also posted daily online.

If your children need big-ticket items such as a laptop or tablet to do their homework, it also pays to ask the principal if they have a budget for this or electronics that you can borrow. If this is not the case, visit stores that advertise educational discounts or offer refurbished devices.

 Include Your Kids in Back to School Budget Planning

Ask your children to go through what they have from last year as some items can be reused, whether markers, erasers, or pencil cases. Sit together and make a list of all the items they will need, depending on age and grade. In kindergarten, for example, your kids will need things like glue sticks, colored pencils, crayons, and assorted construction paper. Children in grades 1 – 3 use index cards, rulers, pencil grips, pencils, and washable markers. The list is quite long for students in high school and middle school. They need graph paper, loose-leaf paper, highlighters, plastic folders, book socks, etc. Go through all the items that you have at home to find out if they can be reused. If you have children in different grades, you probably have plenty of stuff that younger kids can reuse.

Asking children what they find important can also save a lot of money. They might be more than happy to reuse their backpack or lunch box from last year. This is also a good way to teach them how to budget and handle money. Learning about budgeting, spending, and saving early in life helps children to make informed financial decisions later on. They have the skills for successful financial interactions.

Teach Kids to Manage Finances

Involving children in back-to-school shopping is also a good way to teach them how to manage personal finances. Many Canadians lost their jobs and live with uncertainty but this is not the main lesson that you want to teach your children. Making responsible choices and spending decisions is the lesson that you would like to stick with school-aged children. This is also a way to encourage kids to distinguish between wants and needs.

Teaching children to manage finances also helps them to learn how to delay gratification and wait to buy the things they want. In fact, this concept is difficult not only for kids but for grown-ups of all ages. It pays to start early, and back-to-school shopping definitely helps parents teach kids important money lessons. When going to the store together, only pick things that you have on your list. This helps children learn not to buy things for the sake of buying which is basically splurging. When going to a store to buy a gift for someone, tell your kids that you are not there to buy things that they just spotted but only that gift.

Other ways to teach children about finances are to ask them to set goals, create sharing, spending, and saving jars, and involve children in money decisions and your family budget. Always tell them how much you have for leisure activities and entertainment, be it board games, toys, movies, or anything else. You can also try to come up with a family goal that they like and keep track of how close you are to achieving this goal. You may want to create a progress chart and ask kids to color in so that you can all check where you stand.

Save for Your Child’s Postsecondary Education

Budgeting for back to school also helps save for university or college, provided that you plan to fund your child’s postsecondary education. Unless you run a successful business or are really well paid, you have to give up on something, be it your retirement savings or things that are not worth splurging on. Saving on supplies can also help fund college education, especially if done on a year-to-year basis. To this, it is a good idea to create a back to school budget and compare what you spend and save each year. The first step is to list all essential items and decide what you can buy later and what is a must. You can buy non-essential items when you find good deals /for example, off season/. Next, you should check how much money you have. Add up your monthly income and expenses such as utility bills, rent, grocery shopping, loan and credit card balances, etc. Look at how much you have left after you deduct all expenses and compare this figure to the total cost of school supplies on your list. This will show you whether you might have to put any items on your credit card. If so, go through your shopping list once again to decide which items are must-haves. If you need extra money to buy back-to-school supplies, this shows that you might have to start saving for next year early on.

Money and Motivation: Is Your Consumer Behaviour Driving You into Debt?

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There are a number of strategies you can make use of to find out what your “financial” personality is like, so that you can get out of debt and start learning some responsibility. Statistics show that household debt is skyrocketing, reaching new and new heights year after year. Consumer debt comprises around 30% of the total debt.

Market Principles vs. Individual Principles

We live in an age when supply is almost endless. We can buy practically anything we can imagine, and in wondrous variety at that. When you think of the traditional supply and demand graph, you would expect demand to plummet. Perhaps this can be seen as a challenge to the age-old economic principle. Not only is demand not plummeting, it is rising and rising and the state of debt testifies to this. It seems we want things so much that we no longer care that we can’t afford them. However, we should be careful when we assume that macroeconomic principles transfer to microeconomic ones. In other words, market principles do not always reflect individual ones.

Personality Balance Sheet

Experts advise debt-ridden consumers to create what they call a personality balance sheet. The idea is to make a list of your personality traits as they relate to your behaviour as a consumer and define them as advantageous or disadvantageous. What motivates most of your purchases? Granted, this is a difficult question to answer. There are many factors that motivate purchases apart from personality traits, such as age, sex, even location. Naturally people in sparsely populated areas will have a whole different set of criteria when it comes to purchasing goods or services compared to people from big cities.

How Commercials Influence Behavior

Before you can understand how your personality may be driving you into debt, you have to understand the psychology of advertising. What are producers actually going for when they advertise their products? You may have wondered how they possibly get returns on commercials, what with there being so many. Advertising’s main function is informative, true, but it also serves to educate. By advertising expensive luxury products, they work on your system of values, artificially creating demand for something costly and prestigious that you don’t need. If you are especially vulnerable to that sort of “propaganda”, as would be someone with low self-esteem who wants to be respected and admired, you’ll fall for this. You may take out a loan to get the latest BMW or Mercedes model instead of sticking with your trusted Volvo or Pontiac.

If you tend to be on the impulsive side, make sure you stay far from temptation. Take all your credit cards out of your wallet, do not go into stores if you don’t actually NEED anything, and even curb window-shopping. This is not going too far. Do you want to get out of debt or don’t you?

Main Money Personality Types

According to experts, there are several money personality types – the spender, hoarder, avoider, and amasser.

  • Spenders tend to buy on impulse and buy things they don’t need, whether jewelry, groceries, or anything else. They find it difficult to prioritize and save for a rainy day. Spenders are often knee-deep in debt.
  • Hoarders, on the other hand, usually have a budget and prioritize their purchases and long-term and short-term financial goals. For hoarders spending on travel, dining out, magazine subscriptions, and entertainment is a waste of money (and time). Hoarders usually have an emergency fund and prefer to save for college education, retirement, or just in case.
  • The avoider tends to put off things like paying bills on time or doing taxes. He has a hard time saving, planning, budgeting, and dealing with financial matters. This money personality type has a nonchalant attitude towards financial planning and things like retirement income, investment, or insurance. If you are an avoider, it is a good idea to talk to a professional to get in control of your financial life. Always shop with a list, create a budget, and stick to it.
  • The amasser is a different story – for him money means power and enhanced self-esteem. Lack of money, on the other hand, may result in depression and poor self-esteem and feelings of worthlessness and failure. The money monk is the exact opposite, feeling that money and consumption are the root of all evil. A steady paycheck or inheritance money will actually make him feel insecure.

There are three more personality types – the flyer, security seeker, and risk taker. The risk taker, for example, tends to make risky investments such as real estate investment trusts, options, currency trading, and high yield bonds. Risk takers aren’t too worried about financial matters and details. They actually get excited about potential returns, risk, and possibility. Security seekers, on the other hand, prefer low-risk investments such as bonds, savings accounts, and certificates of deposit. They like to be prepared for anything, be it a natural disaster, depression, or apocalypse and humankind vanishing from the Earth. Security seekers usually have an emergency fund for a rainy day. For them, life is about careful planning, budgeting, and saving for the future. The flyer also has a distinct way of thinking. He feels content and happy with life as it is. The flyer has a nonchalant attitude toward financial matters and as long as he is independent, free, and making his own choices, that’s all that matters.

A Final Word to the Wise

At its core, consumption is a social habit. We buy what others buy or encourage us to buy, even though we may not realize it. It follows that you should surround yourself with positive people who realize that there is more to life than shopping.

Is It a Good Idea To Save Money?

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There are plenty of reasons to save for a rainy day, especially if your income is low or average. If you don’t have a stable job but are paid commissions or bonuses or have a seasonal job, this is yet another reason to save to be financially independent. The unfortunate truth is that bad things and emergencies can happen to everyone.

Why Save Money

It is a good idea to have an emergency fund to meet unexpected expenses and pay for basic necessities in case of loss of income or loss of employment. At the same time, the decision to save or not also depends on the current economic situation. When rates are at historic lows, which is the current situation, savers are literally punished and pay to keep money in their checking and savings accounts. At the same time, inflation is eating away their savings and many choose to keep their money under the mattress.LOC27

Is Borrowing Better Than Saving

Again, this depends on the current economic situation and interest rates. In some cases, taking out a low rate loan is a cost effective solution and more people can afford to borrow. They have more cash to spend on everyday and big-ticket purchases and improved purchasing power results in higher inflation and economic growth. The recent drop in oil and gasoline prices is one of the main reasons for the current state of affairs. When the pace of inflation eases over a longer period and interest rates are still low, this is a good time to borrow at a low cost.

Is It Always Good to Have an Emergency Fund

This depends on your income level, whether you have additional sources of income, number of children and household members, your age and short- and long-term financial goals, retirement goals, and other factors. There are some arguments against having an emergency fund, and one is that most financial institutions which advertise savings accounts offer a low rate of return. In this case, having an emergency fund is a particularly bad idea if you hold multiple, high-interest debts. Debt balances sitting at 15, 20, or 30 percent will cost you dearly, regardless of the earn rate on your savings account. Holding cash in a savings account may make sense but this depends on the amount deposited, the earn rate, and the state of the economy. Many consumers opt for a savings account because of the fact that this is a liquid, low-risk product. There are other ways to invest free cash such as bonds, stocks, certificates of deposit, money market accounts and riskier investment strategies such as Forex trading. In general, consumers save money to meet unforeseen expenses, pay for home and car repairs, and other major repairs. It is also a good idea to have an emergency fund in case of a sudden job loss due to an accident or another unfortunate event. Many people save for retirement, but there are better ways to grow your money than opening a savings account. Some people also use their emergency fund to pay for vacations and to make a down payment for a vehicle or house but again, this depends on inflationary pressures and rates and this is not what emergency funds are meant for.

How to Make Sure Your Savings Are Not Eaten Away by Inflation

LOC26There is no straightforward answer to this question but basic investing tips can be of help. When inflation is high, your savings are menaced because interest rates are also low. Unless you are offered a high-interest savings account, the purchasing power of your money is steadily declining. One way to protect your savings against inflation is to take more risk with the goal of getting higher returns. Financial advisers recommend investment strategies that are medium-risk and bring higher returns. One option is to invest in inflation-bearing bonds and the best part is that you benefit from tax-free returns. The rate also increases over time. Another option is to invest in stock but this is a riskier solution for seasoned investors. You may want to look at alternatives, for example, stock and shares ISA which is one way to secure income from shares and stock. It is also a relatively safe investment vehicle that brings inflation-beating returns. Basically, this is a type of ISA that allows some degree of flexibility. The returns depend on the types of investments customers choose to buy. Some businesses pay regular dividends and offer the opportunity to get decent returns. There are other investment vehicles such as annuities, mutual funds, commodities, equity, and others. Other options to protect your savings against inflation include money market mutual funds, savings bonds, corporate stocks and bonds, state-sponsored tuition plans, and education IRAs. You can also look into investment vehicles such as treasury notes, bills, and other securities and exchange-traded funds.

Conclusion

Whether it is a good idea to save or borrow depends on many factors, including your personal and financial circumstances and the state of the economy and global financial trends. One way to protect your savings when inflation is high is to use different investment strategies such as dollar cost averaging, portfolio diversification, and allocation of investments. Some investment instruments are safe and low-risk but bring low returns. They are also more liquid meaning that customers are allowed to withdraw their money without penalty and at any time. Other instruments are riskier or less liquid and offer higher returns. Whether it is a good idea to save depends on your financial goals, i.e. early retirement, buying a new vehicle, a college fund for your kids, and so on. Think of your mid-term and short-term goals as well (holiday purchases, travel, paying off debt faster, etc.) Saving can also help become financial independent and live a stress-free life.