As a student you may be hearing a lot about financial literacy and have no idea what it means. And, as a result, it’s easy to ignore financial terms. But your finances can also become a source of anxiety when you’re not prepared.
Breathe. IGNITE’s got you!
Essentially, financial literacy is the ability to understand and use financial skills. Like, “What do I need for my taxes? What’s a TFSA? An RRSP? What’s a credit score and why should I start building credit as a student?”
You deserve to understand what’s happening with your money. And IGNITE can help you take the first step by breaking down these eight common financial terms every student should know:
1. Annual percentage rate
Your Annual Percentage Rate (APR) is the yearly interest rate you will have to pay when borrowing money (like your OSAP loans).
2. Compound interest
When you put money into an account, you’ll earn interest. Later, you’ll earn interest on the total in your account (i.e., what you originally put in and the interest that your initial deposit accumulated.)
That’s compound interest. Simple, right?
3. Credit score
A credit score is a three-digit number that indicates how you manage your credit. You begin to build a credit score when you borrow money or apply for a credit card.
And don’t worry—your credit score doesn’t really care about your late-night Amazon purchases or back-to-back bubble tea adventures.
Your credit score is judged based on how responsibly you manage your credit, which you can do by:
- Paying your bills
- Paying your bills on time
- Staying below your credit limit
- Paying more than the minimum owed each month
As a student, you can start building up a good credit score by using a credit card for smaller purchases—like your bubble tea runs—to ensure you can pay more than the minimum each month.
Building good credit can make future financial decisions easier—especially when it comes time to rent an apartment or buy insurance.
“But I haven’t built any credit! How am I supposed to buy insurance?” we can hear you ask.
When it comes to credit, starting is the first step. And, under IGNITE, you’ve got plenty of time.
Tax-Free Savings Accounts (TFSA) allows Canadian residents 18 and older to put money into an account and allow it to grow. The money in a TFSA is not taxed.
This is a big advantage for students.
That’s because you can save money in your TFSA for free; however there is a limit on how much money you can put in your TFSA that changes each year (In 2021 it’s $6,000). But that’s just the max for this year—starting a TFSA now can save you big bucks over time.
A Registered Education Savings Plan (RESP) is a specialized savings account set up by a parent or guardian to assist the beneficiary (usually their child) with financial post-secondary education costs.
Took a gap year? No worries—an RESP can be applied until you turn 35.
A Registered Retirement Savings Plan (RRSP) is set up through a financial institution like a bank or insurance company to ensure you have money to live off of when you retire.
You might be scrolling through TikTok, eating microwaved eggs and asking yourself:
“What’s the point of setting up an RRSP now? I have my whole life to save!”
And that’s true—but the earlier you start the better. Some of the benefits to starting an RRSP now are:
- The money you deposit is tax deductible
- Your savings grow tax-free
- Financial security in the future
- You can use your RRSP to buy a home
Moreover, did you know your RRSP can be used for education? Under the government’s Lifelong Learning Plan (LLP) you can borrow up to $20,000 to continue your studies.
Retirement may be a long ways away; but every little bit helps. Think of an RRSP like a piggy bank: it might not seem like much at first but, over time, the weight will become more and more significant.
Crack it open and the savings come spilling out.
Seaside retirement in Halifax, anyone? Lakefront view in Kingston?
7. Tax deductions
Tax deductions are items you can claim on your income tax to avoid overpaying your taxes.
If you aren’t making claims, you’re giving away money that you could be saving. And who wants that? Not us.
You’ll want to see what deductions you’re eligible for to save that cash (and have enough money for chicken nuggets.)
8. T2202 and T4A
These are the two documents you’ll get from Humber or UofGH.
The T2202 Tuition and Enrolment Certificate indicates the maximum student tax deduction you can receive. Your T2202 allows you to make claims on your income tax return.
The T4A slip indicates any scholarships, bursaries, or awards that you received from Humber or UofGH.
We know tackling your taxes can seem scary. Luckily, the IGNITE Tax Clinic has your back!
Every March, you can meet virtually one-on-one with IGNITE and CRA–trained accounting students who will prepare your tax return for free! Plus, our tax clinic is available for both domestic and international students—no matter your circumstances we’ve got you covered.
At the end of the day, the best way to be stress-free is by taking initiative to improve your financial literacy. Take advantage of IGNITE’s financial resources—like workshops, bursaries and emergency financial assistance.
Even as a student, you can begin planning your financial future and decisions—one step at a time.
It’s tempting to spend money on takeout and Ubers. So, this IGNITE writer tested out three budgeting apps to learn how the heck we’re supposed to start saving.