Financial Literacy
Kingston Community Credit Counselling
Objective:
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To teach you how to better manage your money.
To help you graduate with less debt.
To provide tools that will help you make better financial decisions.
To teach you skills that will last a lifetime.
To learn about community resources.
The next four years will no doubt be very exciting, very challenging, very gratifying and very
expensive. The average graduate could owe approximately $175,000 when it’s all said and
done! Let’s work together to try and reduce the amount of money you may owe once your
studies are completed.
Some of your money will come from:
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5)
Savings
Summer jobs
Help from your parents
Grants and bursaries
Student loans and Lines of credit
Since many medical students graduate with approx. $175,000 in debt, it is safe to say that most
of your expenses during the next four years could be covered by using loans and lines of credit.
Here is one method of managing that debt.
1) Find out how much the following will cost you over the next 4 years:
School Expenses
Tuition
$11,000 x 8 = $ 88,000
Equipment and Materials
$ 1,000 x 4 = $
Residence
$ 6,000 x 4 = $ 24,000
Total
4,000
$ 116,000
2) Use the 5 steps to create your monthly budget
The budget is the most important financial tool to help you keep track of your spending
and to minimize the amount of money you will need to borrow.
Let’s assume your monthly costs are $1,500. $1,500/month x 48 months will cost you
$72,000. This does not include the cost of tuition, equipment and materials, or
residence.
3) How much will you need for periodic expenses such as:
 Gifts
 Clothing
 Travel
 Car maintenance
 Sports/hobbies
Let’s assume $2,000/year x 4 = $8,000
4) What’s the total cost?
School expenses:
$ 116,000
Monthly Expenses:
$
72,000
Periodic expenses:
$
8,000
Total:
$ 196,000
5) Summer jobs
Summer and holidays present an excellent opportunity to earn some money. While you are
working, you may not need to rely on using credit, which would effectively reduce the total
amount borrowed.
There are about three months available to work at the end of year one, two and three. If you
work those nine months and don’t incur more debt during this time, you can reduce the
amount you borrow by approx. $13,500. At 2.25% interest, this will save you over $300 per
year.
6) So, how much will this cost?
Many of you may have a line of credit at prime. Since today’s prime is 2.25% you can expect:
$100,000 at 2.25% = $2,250/year or $187.50/month
$130,000 at 2.25% = $2,925/year or $243.75/month
$196,000 at 2.25% = $4,410/year or $367.50/month
Interest rates are at an all time low, if you owe $130,000, for every percentage it increases, it
will cost you about $1,300/year or $108/month.
As your debt increases, so will your interest payment. As your interest payment increases…so
will your debt!
7) Where to cut back?
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Don’t buy bottled water
Make coffee at home
Avoid ATM Fees
Avoid late fees
Make your lunch (Example: $5/day saves $25/week = $100/month)
Take public transportation/Walk/Bike
Use online classifieds for big purchases
Check your cell phone package
Skype/Magic Jack
Reduce internet and cable costs
Limit eating out
Additional Resources
FIRST TIME HOME BUYERS – MORTGAGE INFORMATION
How much do you need for a down payment?
Although you can break into the market with as little as 5% down, the amount you put down
determines whether you’ll have a conventional mortgage or an insured, high-ratio mortgage.
With at least 20% of the home’s purchase price as a down payment, you get a conventional
mortgage.
A down payment that’s less than 20%, meanwhile, requires a high-ratio mortgage and has to be
insured by a third party (such as Canada Mortgage and Housing Corporation, Genworth
Financial Canada or Canada Guaranty) and involves you paying an insurance premium, which
could run you thousands of dollars. The premium depends on how much you’re borrowing and
the percentage of your down payments, but premiums typically range between 0.5% and 2.75%
of your total mortgage amount.1
Should I pull my credit bureaus before applying for a mortgage?
Yes. Before trying to get a mortgage, or car loan, you should send for your credit report.
Note: There are two active credit bureaus in Canada, Trans Union and Equifax. You should send
for both.
There is no cost to send or your credit report and it is considered a soft enquiry, so does not
affect your credit score. You will be able to see what information lenders are looking at; how
you did with payments in the past to other creditors, etc.
There is a difference between a Credit Report and a Credit Score. A Report is based on fact; it is
based on your previous history; whereas a Score is a mathematical formula that assesses what
kind of risk you are. It is a fluid, three digit number based on activity.
Credit scores range from 300 to 900, with 600 considered the minimum required by financial
institutions to gain access to a loan or line of credit. To receive the best possible interest rates,
consumers typically require a score of 700 or more. Indeed, 50 or so points on your credit score
could make the difference between a higher mortgage rate and a lower one that would save tens
of thousands over the life of a loan. While your credit score isn't the only thing lenders evaluate
(income is a big factor), it's hugely important.2
Should you select a fixed rate or variable rate mortgage?
With a fixed rate mortgage, the mortgage rate and payment you make each month will stay
constant for the term of your mortgage. With a variable rate mortgage, however, the mortgage
rate will change with the prime lending rate as set by your lender. A variable rate will be quoted
as Prime +/- a specified amount, such a Prime - 0.45%. Though the prime lending rate may
fluctuate, the relationship to prime will stay constant over your term.
Fixed and variable mortgage rates compared
Fixed Mortgage Rate
Set for the duration of the mortgage
Description term. Mortgage interest rate and
payments are fixed.
Pros
Cons
Variable Mortgage Rate
Fluctuates with the market interest rate,
known as the 'prime rate.' Mortgage
payments either fluctuate with fluctuations
in the prime rate, or the interest portion of
the payment varies.
Can essentially 'set it and forget it',
regardless of whether rates rise or
Examined historically, variable rates have
fall. Eases budgeting anxiety and
proven to be less expensive over time.
offers stability.
If the difference between the variable Consider the financial uncertainty:
and fixed rate is significant, it may significant increases in the prime rate will
not be worth paying a premium for increase your interest payable and, thus,
the stability protection of a fixed rate. financial burden.3
MOVING EXPENSES
On average it can cost over $1,000 to move a one-bedroom apartment at the end of the month,
and more than $2,000 for a three-bedroom house. If however, you end up using a shady mover
who damages your property or charges you more than the estimate, it can make matters much
worse.
If you plan to hire a mover/moving company
You can check the reputation of any company by checking the Ontario Ministry of Consumer
Services’ Consumer Beware List, a searchable public record that shows if a company has had
any consumer complaints filed against it, and what action the ministry took.
You can also check if the company is in good standing with the Better Business Bureau, or get a
recommendation from the Canadian Association of Movers (CAS).
Ensure that you get the estimate in writing. While the estimate should indicate the number of
hours the move will take to complete, the quote should show the total cost of the move, not just
the hourly rate.
Make sure you insure against damage. A moving company is required by law to have insurance,
enough to cover the value of the cargo it’s carrying. On top of this, movers can offer the
customer what’s known as “replacement value protection,” which covers the full cost of
replacing your goods in the event of damage or loss. Note however, that the mover is not
responsible for damage of your goods if you packaged your own boxes.4
INCOME TAX
Tuition fees paid during medical school or a residency program are not deductible but may be
eligible for the “tuition tax credit”. Obtain Form T2202A from your university to determine
allowable tuition costs. Keep in mind that fees paid for admission, application, use of library or
laboratory facilities, examinations and diplomas, as well as mandatory computer service fees and
certain academic fees qualify as eligible tuition fees. Other tuition fees may also qualify for the
tax credit. These can change from year to year so it’s best to refer to the link below to ensure
you have the most current information.
In addition to the tuition tax credit, students may also claim an education tax credit. Generally,
Full-time medical students can generally claim a federal education tax credit of $400/month
($120/month for part-time students). There are certain circumstances when you cannot claim the
education amount. Unused portions may be transferred to an eligible person or carried forward
to be claimed on future tax returns. For further information please refer to the following link:
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/323/menueng.html5
THE COST OF RAISING CHILDREN
The average cost of raising a child to age 18 is approx. $243,660. Break down that number, and
that’s $12,825 per child, per year or $1,070 per month. This does not include their postsecondary education.
What about maternity/paternity/parental leave?
Employment Insurance will only give you a maximum of $485 per week, or $45,900 a year -and you have to pay income tax out of that amount -- so it’s important to think about how your
household will deal with the loss in income during the first year of your baby’s life. In order to
become comfortable with your reduced household income, calculate how much money you
might receive in maternity leave benefits and try creating and living off of a reduced budget
while or even before you are pregnant.
Will you require daycare?
If both parents work full-time, the cost of day care will most likely be the biggest expense in
raising a child, with costs ranging anywhere from $700 to $1,100 per month, per child,
depending on where you choose to live. It can pay to do your research and get on waiting lists as
early as possible. Note that day care is a tax-deductible expense, and the spouse with the lower
income can claim up to $7,000 per year. So make sure to keep receipts for all child care-related
expenses, such as nursery schools, nannies and day camps.
There’s no question that having kids comes with a hefty price tag, but most parents wouldn’t
trade the experience of raising their children for anything in the world. Starting to save as soon as
you can, collecting cost-cutting advice from other parents and planning far in advance of your
due date will mean less financial stress for you once the baby comes -- and more quality time to
spend with the newest addition to your family.6
SAVING FOR RETIREMENT
A new report says that despite high average salaries, physicians aren’t saving enough for a
comfortable retirement.
New research from Fidelity Investments found that the average physician, despite having an
average salary of just under $300,000, will only have retirement income of 56 percent of their
pre-retirement earnings, compared to the 71 percent Fidelity recommends.
Years of medical school followed by low-paying residencies mean that doctors start saving for
retirement an average of seven to 10 years later than other people in their age bracket.
Many new doctors are also burdened with six-figure med school loans, said Dyken, a former
doctor himself. “Even though they make good salaries, they have a lot of debt they have to take
care of,” he said.7
REPAYMENT OF STUDENT LOANS
Cap on debt for full-time students
No matter how much you borrow, Ontario limits the amount you need to repay after you
graduate or are no longer a student.
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$7,300: the most you will need to pay back for a 2-term academic year.
$10,950: the most you will need to pay back for a 3-term academic year.
You are automatically considered for this debt relief through the Ontario Student Opportunity
Grant – one of the grants that is part of OSAP. But you need to:
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complete your academic year
file your income tax return
make sure that anyone else who reported income on your OSAP application also files
their income tax return
6 months grace period
For the first 6 months after you graduate, finish your studies, or stop being a full-time college or
university student:
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you don’t need to make any loan payments
no interest is charged on the Ontario portion of your student loan
interest is charged on the Canada portion of your student loan
How to repay
Within 6 months of leaving school, you will get a package in the mail from the National Student
Loans Service Centre that tells you:
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how much you owe
the expected monthly payment
the interest rate
You start to repay your loan at the end of the 7th month, after you leave school.8 It's your
responsibility to contact your loan provider(s) to set up a repayment schedule before you have to
start making payments after the 6-month non-repayment. Loan providers will try to contact you
via mail or phone, but it’s up to you to set up and manage your loan payments should they not be
able to reach you.
If you don't make contact, your loan payments may start to be automatically withdrawn after the
6-month non-repayment period from the same bank account where your loans were deposited (if
you had arranged for direct deposits).9
If you do not repay your loans
If you don't make your loan payments, you will be in default which means;
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your debt will be turned over to a collection agency
you will be reported to a credit bureau
you could be ineligible for further OSAP until the default is cleared
it can affect your ability to get a car loan, mortgage or credit card
your income tax refund and HST rebate can be withheld
interest will continue to build up on the unpaid balance of your loan
Your OSAP debt will only be erased when you have paid it off in full. It does not expire.8
Repayment Assistance
The Government of Canada has repayment assistance options that may be able to help. Contact
the National Student Loans Service Centre (NSLSC) and your provincial or territorial student
financial aid office to discuss repayment options.
If you have a provincial or territorial government student loan, contact your provincial or
territorial student financial assistance office to find out about their repayment assistance
programs.
If you have a Canada Student Loan, one of the following measures may be right for you:
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Through the Repayment Assistance Plan (RAP) you may qualify for a reduced monthly
payment or no monthly payment.
Through the Repayment Assistance Plan for Borrowers with a Permanent Disability
(RAP-PD) you may qualify for a reduced monthly payment (or no monthly payment at
all) and receive financial help with expenses related to your disability.
You may be eligible to have your loans forgiven through the Severe Permanent Disability
Benefit if you have a severe permanent disability.
Under the Revision of Terms measure, you can ask to have your student loan payments
decreased if you are having difficulty repaying your student loan debt or increased if you
wish to pay off your loan debt more quickly.
If your Canada Student Loan is in collection, Canada Student Loan Rehabilitation may be
able to help you.
You may be eligible for Canada Student Loan Forgiveness for Family Doctors and Nurses
if you are working as a family doctor, resident in family medicine, nurse or nurse
practitioner in a designated rural or remote community.9
DISABILITY INSURANCE
If you lost your ability to earn an income, you could also lose the lifestyle you’ve created. An
accident or serious illness can happen when you least expect it, leaving you unable to work and
earn money. Your provincial health plan can help with the medical bills, but to replace lost
income you need disability insurance. Disability insurance is designed to protect you from the
possible loss of income.
What's the possibility of this happening?
Chances of becoming disabled for 3 months or longer before age 65*;
Percentage 58% 54% 50% 48% 40% 30% 23%
Age
25
30 35 40 45 50 55
* Derived from 1985 Commissioners Individual Disability Table A.
Why should you consider a personal disability insurance plan?
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Worker's Compensation only covers work related accidents.
Unemployment insurance only covers 15 weeks.
Canada Pension Plan is a Government benefit that can change.
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Group and association coverage can fill a valuable role in long-term disability protection.
However, the benefit may be limited by the definition of disability and coverage amount.
Remember, a custom designed individual disability insurance plan will provide you with
guaranteed coverage and guaranteed premiums.10
Ontario Disability Support Program (ODSP)
The Ontario Disability Support Program helps people with disabilities who are in financial need
pay for living expenses, like food and housing. The program provides income and employment
support to people with disabilities.
It is helpful to know that someone on ODSP can have $100,000 invested in a segregated fund
and it isn’t included in their allowable asset limit. Then they can draw $6,000 per year (or $500
per month) as income and not lose any of their ODSP.11
SOURCES
1. Gail Johnson – http://ca.finance.yahoo.com/blogs/insight
2. Debbie Gillis – CTV - Ask the Expert & MSN – Money Sense
3. www.Ratehub.ca
4. Ryan Starr – www.thestar.com
5. Canadian Medical Association
6. Krystal Yee – Canadian Living
7. Martha C. White – www.nbcnews.com
8. http://www.ontario.ca/education-and-training/pay-back-osap
9. http://www.canlearn.ca/eng/loans_grants/repayment/help/index.shtml
10. http://www.sunlife.ca/Canada/sunlifeCA/Health/Disability+insurance?vgnLocale=en_CA
11. Mary Huntley – Certified Credit Counsellor at K3C Credit Counselling
Five Steps to Creating a
Good Budget
Step 1:
Spending Habits
Your budget should be based on your current spending habits, your values and your priorities. In order
to have a better understanding of where your money goes, record every penny you spend for one month.
This step will illustrate what your spending behaviours are and will help you adapt your budget based on
your current lifestyle.
To help you monitor your daily expenses. Use a notepad and designate a page for each category. For
example, put the headings GROCERIES, GAS and ENTERTAINMENT at the top of each page and every time
you spend in that category, record the amount on that page.
Carry the notepad with you and record everything you spend for a whole month. Purchasing a coffee on
your way to work may seem insignificant at the time, but add it up and you might be surprised at the
monthly total.
Continue spending as you would; do not avoid purchasing something because you have to write it down.
Step 2:
Get Your Money’s Worth
Once you have figured out where your money goes, put the totals on the budget sheet provided. Please
feel free to make copies for future use as your budget will change.
Examine each and every category. Are you getting the best bang for your buck?
Consider your banking fees. Could you be paying less by asking for a banking package that better meets
your needs? Do you use ATM machines that cost money to withdraw your cash?
How much do you spend purchasing coffee at your local coffee shop? $4.00 per day, five days a week is
$80.00 a month! We are not suggesting going without your coffee, but making it at home and using a
travel mug will cost less.
Groceries are another way you may be able to reduce your expenses. Shopping at discount grocery stores
will be less expensive than brand name stores. It also helps to shop once a week with a list instead of
picking up supper on the way home. You will likely buy more then you need.
Changing your routine can save $$$$$.
Step 3:
Prioritize Your Expenses
The goal of the first three steps is to balance your budget. Now that you have eliminated some of the
excess in your spending, was it enough to balance your budget? If you have not reached your goal yet, it
is time to prioritize your expenses.
Some items in your budget sheet are considered necessities. You might be able to reduce your grocery
bill, but you cannot eliminate it.
The goal is for your “Remaining Funds” to be zero. It you find yourself having to borrow more than you
planned, review your non-essential expenses and reduce them accordingly.
Remember, your overall goal is to graduate with the least amount of student debt.
Step 4:
The Envelope System
Now that you have balanced your budget, how are you going to keep track and maintain control of your
spending? You need a system that will link your cash to your budget.
One method is the Envelope System. It works like this:
1. Get at least one envelope for each of the spending categories in your budget that requires cash
(food, gas, entertainment, haircuts etc.). Write the category and the amount that corresponds to
your budget on each envelope.
2. On the first of the month, transfer from your line of credit to your chequing account the amount
you need for the month.
3. Withdraw the total amount of cash stated on your budget and put the allotted amount into each
envelope.
4. When it is time to buy groceries or gas, for example, take the cash you need from the envelopes,
and leave your bank card at home.
The Envelope System will allow you to control of your spending. You will know how much you have
available to spend in each category, how much you have spent, and how much is left.
When you run out of money in a certain envelope, stop spending!
Step 5:
Annual Periodic Expenses
A major cause of financial stress is the inability to save money. We, as a society, tend to live pay cheque
to pay cheque and overlook putting money aside for such things as car repairs, clothing, gifts and travel.
We rely on credit when we do not have enough money in our savings account every time something out
of the ordinary happens. A car repair, Christmas and back to school should not be considered
emergencies; they are facts of life that can be planned for. Continuing to use credit for these expenses
will eventually lead to maxed out credit cards and increased financial stress.
To do this, estimate how much you will spend to maintain your car. If you estimate $1500/year, that’s
$125/month. Gifts and clothing are more controllable expenses. If you budget $600/year on gifts, that’s
$50/month and if you budget $1200/year on clothing, then that’s $100/month. On these three items
alone, you should be putting away $275/month!
Start a payroll deducted Canada Savings Bond, or talk to your bank about what product they might
recommend to help you automatically save money. Do not use a savings account with bank card access
as your money is too easy to get at.
Make it easy to deposit and difficult to get at.
The Result:
Peace of Mind and a Sense of Control