Despite Canadian household debt ratios heading towards all-time highs and warnings against over spending hitting the headlines every week, credit card use among young people continues to be on the rise. While there are benefits to using credit responsibly, there is also a dark side that young people can find themselves particularly vulnerable to.
Using credit gives young people the ability to pay for essentials that may otherwise have been beyond their reach. According to Lyle McClelland, branch manager at Envision Financial, it is also necessary for building a positive credit score and learning valuable money management skills.
"In recent years, more and more young people have started out using low-limit credit cards," says McClelland. "Getting a credit card early can have benefits, like creating a good credit history and achieving a positive credit score, which become increasingly important when applying for a loan or mortgage. Responsible credit card use can also promote responsible cash management."
McClelland warns that while building a positive credit score is a must, young people can be susceptible to developing a buy-now, pay-later mentality and may start to engage in unnecessary spending.
Buy now, pay later
"There is a significant change from previous generations who saved first and then spent, says McClelland. "While gaining good credit is a necessity in life, it's easy to overspend when we can't see the money disappearing from our wallets or purses. It's also increasingly easy to spend with online shopping gaining in popularity. It's as simple as a "click" to purchase a product."
Bad spending habits are what lead to the real dark side of using credit cards, the dreaded "debt cycle" - a situation where people find themselves unable to pay for their purchases and have to borrow more to stay afloat.
"The best advice is always the simplest - don't spend beyond what you can afford to pay off at the end of the month," says McClelland. "As with any debt, you need to make sure you don't over-extend yourself. As soon as you find yourself struggling to pay off a good chunk of your credit card balance every month, or you need to borrow more to pay your original debt, you need to rethink your financial plan."
McClelland says young people are often more susceptible to excessive credit card debt because they don't have the same level of disposal income as older people and they don't have the same experience in managing their finances effectively.
It's a skill
"Money management is a skill and managing borrowed money is an even greater skill," says McClelland. "As we get older we hone these skills and become less inclined to fall into financial strife. The best chance young people have to avoid learning those skills the hard way is through education and support."
About Envision Financial
Envision Financial is a division of First West Credit Union, B.C.'s third-largest credit union with 37 branches and 29 insurance offices throughout the Lower Mainland, Fraser Valley, Kitimat and Okanagan, Similkameen and Thompson regions. Led by Launi Skinner, First West has approximately $6.6 billion in assets under administration, over 169,000 members and nearly 1,400 employees. For eight years running, Envision was named one of the 50 Best Employers in Canada. Envision is designated a Caring Company by Imagine Canada.
