Today’s millennials are more in debt than any other generation. With record levels of student debt and rising healthcare costs, Canadians in their 20s and 30s are facing new and unique challenges when it comes to managing their finances. The average Canadian debt rose to $72,950 , recent Equifax figures show. However, Canadians between 24 and 39 years saw their levels rise a record 12.3 percent, taking the debt to income ratio over 200 percent. As this level climbs for millennials, so are their stress levels. Almost 7 in 10 millennials admit to being stressed about their credit card or student loan. However, developing money-smart habits early on in your daily life can not only help you control your debt, but also help you avoid crucial future planning mistakes .
End the trend of lifestyle comparison and being a social media influencee
The social media era continues to grow from strength to strength—particularly amongst millennials. The news and social media feed for many 20 and 30-year-olds are now filled with influencers and brands illustrating the lucrative life filled with parties, designer clothing, and luxurious holidays. By doing this, younger consumers are feeling more pressured to imitate this lifestyle – and end up getting into debt to do so. According to a survey by Manulife , a worrying 33 percent of millennials said they are spending more simply to keep up appearances. For those between the ages of 20 to 39 years old, almost half of them are using their credit cards to pay for that debt.
However, if you are to avoid the all too common debt spiral in your 20s and 30s, separating wants from your necessities is crucial. While it may be difficult to avoid the pressures of social media and the mirage it presents, limiting your time on such platforms can help. For those that are fearful of missing out while on their debt journey, leaving space in their monthly budget for fun/dining out or miscellaneous purchases can help restore that balance while helping you make progress on your repayments. You can also flip the effect of social media by curating your social feed with inspiring and educational content while on your debt journey. In recent years, social media accounts dedicated to personal finance and debt management has grown tremendously, providing useful information to all those who need it.
Cut the over-reliance on credit cards
Credit cards are one of the highest costing debt options but also, one of the easiest to access. Many younger consumers start with a clean credit slate but quickly find themselves racking up unmanageable credit card debt- and damaging their credit score in the process. Continuous years of this and the impact on your credit score can end up affecting your mortgage approval chances (and rates), approval of business financing and even, your chances in employment.
Some kinds of debt are good while some are not. It is important to make a distinction between the two. While it may seem inviting to apply for multiple credit cards and take advantage of having a clean credit slate, it does not mean you should. Instead, apply for a credit card that aligns with your intended use and when you are confident that you can pay the balance at the end of the month. Lastly, make it a habit to practice good credit habits like keeping your credit utilization below 30 percent, setting payment reminders to avoid late payments, and regularly checking your credit score. By doing a quick search online, you can find opportunities to generate your credit score for free .
Don’t just draft a budget, stick to it and hold yourself accountable
Approximately 49 percent of Canadians had a budget in 2019. While this shows an improvement from 2014 (46 percent), there is the issue of sticking to the pre-drafted budget. It turns out a significant portion of millennials plan their finances (75 percent) but rarely stick to it; opting to splurge on travel, dining out, and experiences. In 2019, consumers in their 20s and 30s dined out more than the rest of Canadian consumers, including British Columbia. Whether it is the use of digital budgeting tools or old school writing down your spending, the use of budgeting has been shown to improve financial awareness and confidence when it comes to money management.
Lastly, remember that practicing good debt management should be a lifelong commitment. By taking small, steady steps towards financial security you can incorporate healthy financial habits that will help you stay ahead of the debt trap now and in the future.
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