Many young Canadians find it difficult to save toward long, short, and medium-term goals because they have student loans to repay, their incomes are lower than middle-aged employees, they have young children to look after, and so on. Some people have mortgages and auto loans to repay in addition to covering basic necessities.

Employment Opportunities

The job market has become more competitive which means that young Canadians must put an extra effort to find decent employment. The fact that young people are often paid less also makes it more difficult to save. Wage and salary levels depend on educational level, field of education, years of experience, region and location, and other factors. Some industries and fields pay more than others, like engineering, IT, law, medicine, and more.

Education

Today, college students pay higher college fees and are often forced to use a student loan to cover tuition, room and board, and related expenses. This means that they have a loan to repay in addition to utility and living expenses. Students who meet the eligibility criteria for a government loan are better off because they are offered low cost financing. Others, however, are forced to resort to personal and student loans offered by banks and other private issuers. The rate depends on one’s credit history and score, but many students have no credit exposure. This makes them risky borrowers for banks.

Other Expenses

While young Canadians have lower income, those who are single often have no one to share expenses with such as rent, food, utility bills, etc. Even couples with low incomes find it difficult to save money and meet living expenses, utility bills, and medical and auto insurance.

Loans

Young Canadians with low incomes are often forced to apply for auto loans, personal loans, and other financial products. The problem with unsecured loans is that they have a shorter term than secured ones and go with higher interest rates. What is more, many young people are unable to save a decent amount toward the down payment which makes it more expensive to borrow. This is especially true for auto loans and other types of financing that require a down payment. Young people with less credit exposure are often offered unfavorable terms and rates, which is yet another reason why it is more difficult to save. Those with less or no credit exposure are offered credit cards, mortgages, and other products with more unfavorable terms as well.

Budgeting and Planning

Many young people find it difficult to budget and plan because they have less experience with money and credit management. Some people tend to make unnecessary expenses, and this makes it more difficult to save for a rainy day or emergencies. Bad spending habits and poor financial literacy partly explain this.

Payday loans are offered by local and regional providers and go with very high fees and interest rates. Unless you face an emergency such as hospital treatment or medical bills, it is better to look into other options such as unsecured consumer loans, credit cards and lines with affordable rates, etc.

Obviously, the high interest rate means that you pay a lot in charges, making borrowing very costly. Another issue is the short repayment period which can be as short as 2 weeks. You only have this long to pay off the balance, plus interest and additional charges. Another reason to avoid payday lenders is that there are some loan sharks that use illegitimate means and con victims to pay extremely high charges. Sharks are also known as predatory lenders and use extra-legal activities to make money. While most payday lenders are legitimate and can be trusted, it pays to check whether they are licensed to offer short-term loans in your province or territory. Some providers also charge hidden fees which add to the cost of borrowing. You can be charged up to a cap of CAD $300. Hidden fees are usually assessed on top of interest charges and the actual loan amount. Not only are payday loans very expensive but some providers use aggressive collection and lending practices such as threatening borrowers with garnishment and prosecution (which is actually illegal). Young people are especially vulnerable because they have a more limited experience and many are new to credit. Students usually work part-time jobs or are unemployed and in need of money. A short-term payday loan may look like a good solution in the short term but you may find yourself unable to pay off the balance. There are other vulnerable groups that are often targeted by loan sharks, including the elderly, new immigrants, illegal immigrants, single parents, and the working poor.

If you want to avoid payday lenders and you have bad credit you should start thinking how to get out of debt first and how to improve your credit. One of the easiest options to start building your credit score back up is to apply for a secured credit card. This will give you the option to improve it over time and gradually get out of debt.

Alternative Solutions

There are plenty of alternative solutions to look into, depending on your credit score, payment history, employment and income level, financial situation, loan amount and purpose, and other factors. One option is to apply for a credit card with a low interest rate and a long introductory period to save on interest charges. If you don’t face an emergency of any sort, another option is to apply for a consumer loan with your local credit union or bank. This is actually the first thing to do if you are a regular customer with one or more debit or credit account. And if you need urgent cash, you may ask your employer for a cash advance which is basically a salary advance. While this is not a wise decision in the long run, drawing on your retirement account is yet another option to consider in case of financial emergency. Payday loans, on the other hand, can be used when all other options have been exhausted and you are in a very tight financial situation. If you need money to pay your utility bills or hospital expenses and have poor credit, for example, then it may make sense to take a small payday loan. Just shop around because some providers charge over 300 percent in interest.

Building your credit while young opens many doors and gives you access to an array of financial solutions, from affordable LOCs and specialty cards to unsecured consumer loans, mortgages, and others.

Start Building Credit in Steps

Step 1 – Learn More about Credit

It is important to understand how FICO works. There are several factors that affect your score, including length of history, payment history, and utilization. Your payment history is the most important factor for financial institutions. If you are late on your payments, this will cost you in additional interest charges and fees and your score will suffer. Another factor that loan providers look into is credit utilization or how your credit limits relate to your debt balances. It is important to keep your ratio below 30 percent to build a good score over time. The types of accounts used also determine your score, i.e. secured and unsecured cards and loans, LOCs, and other financial solutions. The age of your history also matters and is based on the average age of all accounts and the age of your oldest and newest account. Obviously, borrowers with a long payment and credit history are viewed as trustworthy and offered an array of attractive financing options. New credit also pays a role, and too many applications for card accounts may ruin your score. Learn more with these back to school financial tips.

Step 2 – Apply for a Secured or Department Store Card

If you are new to credit, there are some options available to get you started. One is to apply for a department store or secured credit card aka and make on-time payments. Make sure your payments are reported on a regular basis to Equifax and other major bureaus. If you don’t meet the requirements, you may ask your parents for help. They can add you as an authorized user on an unsecured card. Again, it is important to make timely payments because bad financial decisions will affect both of you. As an alternative, your parents may cosign for you to increase your chances of getting approved. Applications should be kept to a minimum because they show up on your file. Even if you get approved, you may be tempted to splurge and overspend.

Step 3 – Diversify

The next step to building credit is to apply for a small unsecured loan. This is a good way to diversify your payment history and prove lenders that you can handle different types of credit. If you are a union member and regular customer, you may want to check with them. Unions usually offer attractive loan terms, repayment schedules, and rates.

Step 4 – Pay all Bills on Time

Make sure you pay all bills on time, including utilities such as gas, phone, water, internet, and others. Being late on payments is not the way to build and keep a healthy score. Credit bureaus collect information from a variety of sources, not only financial institutions. Late and missed payments will affect your score eventually even if they don’t go to collection. It is important to keep up with payments and use your account regularly. If you don’t use your account, your financial institution may close it after a certain period. This means a shorter payment history and a higher utilization ratio, both of which will affect your score. Finally, you may want to check your report on an annual basis to make sure there are no omissions or errors that can bring your score down. Inform the credit bureaus promptly if you find any discrepancies.

Canadian youth is more educated, equipped with essential skills, flexible, and goal-oriented, but young people face challenges that older generations didn’t. In particular, many struggle to find meaningful, well paid, and lasting jobs once they graduate. Young people live in a constantly changing world, with changes in civic life, social relationships, family, the work sphere, and society in general. To this, some young people fall in vulnerable groups while others face social inequality, a significantly lower income level, and excessive debt load. Canada’s aging population is also an important factor that exerts a huge pressure on young people.

Unemployment

The unemployment ratio for young and older Canadians is very high, and reports show that 20 percent of young Canadians in the age group 15 – 24 are unemployed and never held a job. It seems that getting the right education and diploma or degree is no longer enough. Students who work while in college have better chances of finding meaningful employment while those who don’t easily get caught in the vicious no-experience-no-job, no-job-no-experience cycle. To this, many students graduate with student debt to repay, and some are heavily indebted. Student debt is estimated at $20,000 on average, but some studies peg average debt at $26,000 – $27,000. This is a huge burden for unemployed and underemployed Canadians, especially young people with children.

Vulnerable Groups

Some young Canadians fall in vulnerable groups such as the working poor, adolescent mothers, Aboriginals, and marginalized groups on the fringes of society. Single parents with no support from family members or partner are also at risk.

Prospects for Canada’s Youth

Some experts note that demographic decline will gradually result in more job openings and opportunities for career growth. Good employment prospects and more job opportunities also mean better quality of life and increased social mobility. There are important factors in play that can help Canadians find meaningful employment, one being key economic events that drive upcoming employment opportunities. Other factors include employment opportunities on regional labor markets, which industries and sectors are growing and hiring at present, and how much you can earn in your niche. It is a good idea to compare average wages by region and industry and be flexible and optimistic about job prospects. Job snobbery is certainly a thing of the past in times when education is no longer a surefire ticket.