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Lessons In Finance: Teens You Are Richer Than You Think

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Take into account your non-discretionary spending to take control of your financial future, writes Greg Cawsey

Gregory Cawsey
Guelph Mercury
Tuesday, December 18, 2018

One of the top excuses for young people not taking their finances seriously is they believe they don’t have that much money to manage. They think they can worry about money management when they are older and are working full time.

They need to realize that in high school they are richer than they will be for quite some time. Get high school students to look at their discretionary income levels and they soon realize how rich they are. Let’s take a look at a high school student who nets $5,000 in a year working both part-time after school and during the summer.

If that student lives at home, rent-free, with their parents or guardians, all of their $5,000 is theirs to spend however they wish. From deciding to go to the movies or buying tickets to the dance, if you have a job and live at home, it’s your choice where to spend your money.

Now, fast forward to when you are out on your own making the big bucks and you have increased your annual income tenfold to $50,000. You may think you would be living the high life, but you will soon realize your real days of financial freedom are right now, in high school. $50,000 gets eaten up pretty quickly by income taxes for starters. Your tax-free holiday ended when you started making big coin. At $50,000 you’d be looking at approximate tax bill of $9,000 under current rates. Add your Canada Pension and Employment Insurance deductions and that’s 11 grand gone. It’s taken right off the top and you haven’t spent a dime yet.

The next hits to your wallet are all big and they are all for things you need — not want. It was great when your parents let you crash at their place for free. Sadly, those days are now over. It’s not unreasonable to expect to pay $1,250 each month for a roof over your head. There goes another $15,000 out the door for the year and you haven’t even been to the movies yet.

“No worries,” you say. “I still have $24 Gs to spend where I please.” You’re right, but there is one problem — you haven’t eaten yet.

Take a look at the following summary for a list of all your nondiscretionary or (non-fun) spending. Using Statistics Canada’s survey on household spending as a guide, here are other big yearly budget hits one would encounter: food ($4,500); transportation ($5,500); utilities such as phone and internet ($2,300); and, clothing/furniture ($1,700). Note that this list doesn’t include possible student debt payment.

Of course, every situation is different and we can quibble over these estimates. But the point is clear. After all the deductions, you are left with much less of your gross income available to choose where to spend it. In the scenario I’ve painted, it would leave you with about 20 per cent of it — $10, 000 of your $50,000.

Consider that many high school students pay nothing toward necessities. So, all their revenue can be spent as they would like. Many will later see how their best days of financial freedom might have been in high school. In fact, as long as high-schoolers have someone paying the major bills, they’ll never have more discretionary income as a percentage of their total income than they do now.

Working high school students must appreciate how rich they are or can be. They possess the potential to have an incredible amount of financial freedom and power. But just like with Spider Man, “with great power comes great responsibility.” All that free spending some may be doing now is developing habits that will be with them for their entire lives.

Working high-schoolers should be able to note now whether they are savers or big spenders. Marketers are spending millions targeting them and all their discretionary income. The key is for them to take hold of your financial future today!

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Gregory Cawsey is Director of Business and Financial Literacy Education at John F. Ross CVI. He can be contacted and on twitter @gregcawsey

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