Being young there is so much potential and opportunity. Universities and colleges to pick and careers to consider. But there are also a lot of bills and expenses ahead as well. University can be $28,000. New vehicles $35,000. Down payment for an average $400,000 house is $20,000 for 5% down not to mention the other $380,000 still owed. Vacations and trips. Life is expensive, but luckily being young has the most valuable assist. Time.
Student Loans
Student loans have become the norm for most college and university students, with 55% to 60% of undergraduates signing up for them. The standard repayment period is 10 years; however, the actual time to pay off student loans can often extend to 18 to 20 years on average. This prolonged debt can significantly delay your earning potential as a substantial portion of your income is diverted to loan payments. It's like an anchor dragging you down, slowing your financial progress for years. The worst part is, you cannot run away from it, as student loan debt is nearly impossible to discharge, even in bankruptcy. This financial burden can linger well into adulthood, impacting your ability to save, invest, or make major life decisions such as buying a home or starting a family.
High School Jobs
What if you can forgo student loans and all the stress and anxiety of the debt weighing over your head for 20 years. Most teenagers enter the workforce at 16 working a part time for minimum wage. My first job was at Wendy's working one weekday and one Saturday shift. Minimum wage is $15 per hour in Alberta and I worked 12 hours a week. Working approximately 36 weeks (school year) that equates to $6,195.12 after deductions. Assuming two years of work from 16 to 18 that equals $12,390.24. The year before going to university is a great time to work full time and earn even more. Working landscaping is an easy job with lots of hours that is always hiring every summer. Working 10 hours a day, 6 days a week for 10 days. Assuming 10 weeks of work (time between high school and university) at $15 an hour (minimum wage) that equates to $8,523.35 after taxes.
Grand total: $20,913.59
Cost of University: $7,000 per year
Now you might be saying life is expensive with food, rent, clothes and phone but luckily for most students in high school they have very few expenses if any. Every dollar earned can be stashed away.
Summer Job
Each summer between semesters university students are off for 4 months giving an opportunity to top up savings or earn money for living expenses for the next year. Even with only earning minimum wage that equates to $9,077.69 after deductions. With some luck and wages increases an longer hours that amount can be doubled.
Cost of Living
Around half of students move out on their own while in university acquiring a much higher cost of living. According to ChatCPT the average cost of living not including tuition is $13,700 a year for those who don't live at home. Throw in tuition and you are looking at $20,700 a year which is about double the amount earned working minimum wage for a single summer. For those in this situation (not living at home and only earning minimum wage) it would require a part time job to break even on expenses. But for the majority of students (those living at home or those earning higher than minimum wage during the summer) it is within the realm of possible to make all the money necessary to pay for school and living expenses only working in the summer. Luckily I was able to not only break with my expenses but have extra left over each year, which I would use to invest.
Tale of Two Students
Lets imagine two students named Dave and John. Dave wants to focus on his academics in high school opting to not get a part time job. John, eager to enter the workforce, finds a part time job for grades 11 and 12 making minimum wage working 10 hours a week. John is up to $12,390.24, Dave $0.
Dave wants to enjoy his last summer while he is young and since he has not saved up while in high school he decided to get student loans. John, wanting to save up some extra money to avoid student loans, works the summer before post secondary. John earns an additional $8,523.35 or $20,913.59 total.
John focuses on his studies during the school year only working during the summers and Dave wanting to enjoy it while he is young decides to not work during the summer.
Looking strictly at school expenses after 4 years at $7000 per year, Dave has $28,000 of student debt. John would have earned a total of $48,146.66 (after taxes) and have $20,146.66 (after taxes) after paying for school, being completely debt free. This is if John only earned minimum wage and never received a raise and worked only during the summer. Of course there is rent, food and books. But that would apply to both John and Dave equally.
The tale of two students is to illustrate the wealth gap that can begin even before individuals enter their career. Dave would have interest although quite low that would add even higher costs to his debt load. Dave would be that much further behind for paying a car or house or paying for a wedding since his early paycheck will be siphoned for loan repayment.
Investing
Many wait until they are in their 30s or 40s to start saving, losing out on the valuable early years when compound interest can work its magic. By starting in high school, young investors can build a substantial financial cushion before even entering the workforce. This early start not only reduces the pressure of future financial burdens like student loans but also sets the foundation for long-term wealth accumulation. The key is to recognize the power of time and make it an ally in your financial journey.
Time
By taking advantage of the time you have in your youth, you can set yourself up for a future free from the shackles of debt. The choices you make now—whether to save diligently, invest wisely, or work strategically—will have a profound impact on your financial freedom later in life. While the road ahead may seem daunting with all the expenses and challenges, the foundation you build today can lead to a future of stability and prosperity. Don't underestimate the power of starting early; it's the key to unlocking a life of financial independence and success.
If you found this helpful and would like help budgeting or investing please email me at taylormckeecoaching@gmail.com
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