Everyone says save when you’re young. Here’s why that’s not always a good idea


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In fact, 49 per cent of college graduates and 54 per cent of university bachelor’s degree graduates have student debt at graduation according to the last Canadian National Graduates Survey. Average debt for college and university graduates was $15,300 and $28,800 respectively.

Young people are encouraged by their elders, the media, and the financial industry to save, or feel guilty if they do not. Many open Tax Free Savings Accounts (TFSAs) or Registered Retirement Savings Plans (RRSPs) to begin to save for their future. Young people with debt, especially high-interest-rate credit-card debt, are often better off paying it down with their extra cash flow instead of investing.

When a young person with debt makes the decision to invest in a TFSA instead of paying down debt, they may not come out ahead

Canada Student Loans are currently issued at prime or 2.45 per cent. Provincial loans range from interest-free for qualified borrowers to prime plus 2.5 per cent or 4.95 per cent depending on your province of residence. Credit card rates generally range from 10 to 30 per cent.

When a young person with debt makes the decision to invest in a TFSA instead of paying down debt, they may not come out ahead. As a financial planner, I typically assume a rate of return between two and six per cent for most long-term investment projections, based on an investor’s risk tolerance and investment fees. As a result, if someone is paying interest on a debt between two and six per cent, and especially if the interest rate is more than six per cent, debt repayment may provide a comparable or even better guaranteed rate of return compared to investing.



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