Congratulations! If you’re reading this, there’s a good chance you’re a student at UVic this year. Today is a great time to make decisions and develop resolve. Today is the opportunity to build a foundation for your future. This is my third financial advice column for the Martlet, and I want to use it to tell you that you are doing the right thing to be here, right now.
“Opportunity cost” is chiefly an economic term, but it applies to financial planning as well (and, in some ways, to all our choices). It means giving up something you might benefit from today in order to achieve or gain something else in the future — usually something more lasting, significant or substantial. You are paying an opportunity cost for being in university right now. Your choice to pay the opportunity cost it takes to build up your human, knowledge and intellectual capital in a world that is run on those attributes is both smart and critical to your success.
In financial terms, you may be giving up what you feel is precious time that could be spent doing something else, like trying to be the next Adele or Neil Patrick Harris. You may be letting go of short-term, easy money, like having a job that pays $20 an hour. You may be letting go of being able to buy certain toys and status items, such as a vehicle or the next best thing in electronics. You may be forgoing a trip to Europe or Asia. In fact, you may actually go into debt. This is the cost of an opportunity.
But the debt you incur now is good debt, because what you gain through your education and experience will net you far more money and assets in the long term than if you had not paid this cost of opportunity. Measures for reducing such debt should of course be taken, and having a plan to pay it off after graduation is equally important, but the debt itself, in comparison to other forms of debt, is one of the best kinds. It is your investment in yourself and your ability to work and make money. It’s also an investment that adds to the human and intellectual capital of society, and over time, builds assets worth more than what you paid.
On the other hand, the opportunity cost of choosing not to go to university, trade school or college now applies as well. The longer a person takes to invest in their own intellectual capital, the more challenging and costly it is in the long run in terms of time, money and stress, to say nothing of building up financial assets. Put yourself in the shoes of your 40-year-old self with a spouse, maybe two children, perhaps a house and a few assets. Imagine that you’re caught in the consumer debt cycle, while also trying to go back to school. Many people manage to do this, but the strain is often far greater than if they had started when they were 20 years old. (As an aside, many of us are caught in the consumer debt cycle, whether we earn $40 000 or $400 000 a year. I will address that wider issue in a future article.)
It takes courage and foresight to do what you are doing, and if no one else commends you for it, I will. When you are finished these next four or more years and you begin your career(s), you will be well placed to build a strong financial foundation for the rest of your life.