Feb 10th

Overview of the Class Discussion

  • The session involved students presenting their judgment words regarding the creditworthiness of subjects Austin and Britney.

  • Concepts discussed include GDS (Gross Debt Service), TDS (Total Debt Service), capacity, collateral, and other financial metrics.

Student Presentations

  • Student Group 1:

    • Result: Austin and Britney had a bad score of 800.

    • Judgment word: Splendid.

    • The instructor agreed it was correct but felt it didn't feel quite right without a specific reason.

  • Student Group 2:

    • Result: Their GBSR (Gross Borrowing Service Ratio) was 25.6%.

    • GDS computation was revisited, emphasizing rent inclusion as an obligation for calculating GDS, even for practice purposes.

    • Judgment on collateral: They only had their vehicle for collateral.

    • Common error shared about collateral choices; new car as usage for collateral was acknowledged as acceptable.

Financial Assessment Parameters

  • GDS (Gross Debt Service):

    • Calculation involves rental costs divided by gross monthly income.

    • Result for GDS noted as 13.8%, confirmed as correct by instructor.

    • Discussion highlighted the simplicity of calculations and the need not to overthink them.

  • TDS (Total Debt Service):

    • TDS should include student debt, credit card debt, new payments.

    • Noted TDS calculated as 24.85% was acceptable as long as it remained under 40%.

    • Banks might consider exceptions above 40% but generally frowned upon.

Important Financial Concepts Discussed

  • Creditworthiness Assessment Factors:

    • Definitions and implications of financial capacity and collateral.

    • Importance of understanding the financial environment and job volatility concerning the approval of loans.

  • Budgeting and Debt Management:

    • Discussion on the necessity of having an emergency fund to mitigate unforeseen financial issues, emphasizing the importance of discipline in saving.

    • Importance of addressing how many Canadians are financially unprepared, with concerns that 51% of Canadians are just $200 away from financial distress.

Student Loans and Financial Planning Insights

  • Rationale behind student loans as not necessarily being a bad investment, particularly when they lead towards high-paying jobs (e.g., debt of $88,000 leading to a job that pays upwards of $350,000).

  • Critique of student debt management:

    • Challenges faced by students managing a high debt load and suggestion for fiscal responsibility.

Critical Discussion Points on Credit and Loans

  • Interest Rates:

    • Discussion of payday loans showcased an extreme example of high-interest rates and ethical considerations around such loans, where reaching rates like 300% APR was highlighted as a warning against poor financial choices.

  • Bankruptcy Issues:

    • Definition of bankruptcy as severely detrimental to personal finance, showcasing the high rates and the stigma that accompanies financial distress.

    • Important insights into naming such as public welfare versus individual responsibility in financial decision-making.

Recommendations for Financial Literacy

  • Importance of making sound financial choices, effective borrowing, and understanding loans' implications, especially with respect to consolidating debts and avoiding high-interest loans and credit cards.

  • A call for the balance of enjoying life today while saving for future needs.

Conclusion

  • Essential reminders about project submission deadlines and reviewing critical concepts that affect financial well-being, urging students to internalize the lessons presented.

  • Emphasis on seeking professional financial advice when disorder arises and recognizing the value of budgeting and self-discipline in financial management.