Adapted from 1st Financial Bank USA's Blog
Being financially literate – or understanding money and the financial world – may help you make better money decisions and reach your financial goals. Here are some ways you can start improving your financial literacy – even as a busy college student.
You may have heard the term “financial literacy”, but you might not fully understand what it means. Financial literacy is the ability to understand financial concepts and use your knowledge to make informed decisions about managing your money. This includes knowing how to create a budget, using a credit card responsibly, paying off debt, saving and investing for your future, protecting your money, and much more.
Although some high schools and colleges offer personal finance courses and resources, financial literacy isn’t typically taught in schools, so it is often incumbent on students to educate themselves on this. The earlier you get started on this educational journey the better. Keep reading for suggestions on how to build your financial literacy and money management skills.
There are many books on financial literacy topics available, even ones designed specifically for college students If you’re not a regular reader or feel like you don’t have the time, you might consider a smaller medium. Try browsing financial blogs, newsletters, or magazines, which may feature various finance-related topics in bite-sized portions. Consider subscribing to a money or finance blog or newsletter. This way you can get finance and business news, financial analysis, and finance tutorials delivered straight to your inbox.
Some people learn best in group settings. If that sounds like you, you may find it beneficial to sign up for an in-person financial literacy class. In a class, you’ll likely have the opportunity to ask questions, follow a set syllabus, and take tests to make sure you understand the material. Alternatively, you could enroll in a financial literacy course online to complete items at your own pace.
Learning about money and making smart money decisions requires time and research – and sometimes life (or procrastination) gets in the way. It may help to have access to a community of like-minded people to hold you accountable. If your current friends have similar goals, consider meeting regularly to share knowledge and talk about what you’re each doing to improve your money smarts, kind of like a book club. Alternatively, you could join an existing community in the form of a social media group.
Trying to wrap your mind around credit scores and credit reports can be complicated, but it doesn’t have to be. Instead, take it step by step. Start by learning what a credit score is and how having good credit can help you reach your financial goals, like renting your own apartment or buying a car with a favorable interest rate. Next, learn what the most common factors are that can affect your credit score so that you can then begin to understand what you need to do to build your own credit score.
Another way to expand your financial literacy is to follow finance-oriented social media posts from your friends, favorite brands, banks, and other sources. For example, follow 1st Financial Bank USA on Instagram (@1fbusa) for information about credit cards, saving money while in college, and other finance-related topics. When you follow banks and other sources that post finance-related information, you no longer have to search for this information. It instead comes to you.
Creating and sticking to a budget is a challenge for many adults – but it can be especially hard for college students who have little, if any, disposable income and who may be relying on financial aid and/or part-time work to cover their expenses. Although it might seem unnecessary now, creating a budget in college will help you track your costs and monitor your spending more effectively and help you develop money management skills you’ll use long after graduation.
Furthering your education at a college or university can be expensive. It can be hard for students to pay for all college expenses upfront, and many students rely on credit cards and student loans to cover the costs. Unexpected expenses, such as medical costs or vehicle repairs, can also play a part in accumulating debt. No matter the size of your debt, you should formulate a strategy to reduce and eventually eliminate this burden. Educate yourself about repayment plans and refinancing options before you graduate and understand how your debt will affect you in the future using. Visit the Department of Education's Loan Simulator to estimate your federal loan payments and compare different repayment options.
A sure sign of financial literacy is understanding the need to save and invest for the future. If you don’t put money away in savings, a financial emergency or a stroke of bad luck could set you back substantially. A common phrase in finance is to invest early and often. By following this mantra, you’ll be harnessing the power of compound interest to help grow your money. Although you might not have the income to invest money now, it’s in your best interest to learn more about investment vehicles for the future, such as Individual Retirement Accounts (IRAs) and employer-sponsored 401(k) plans and the advantages of investing in them as early in life as possible.
When you automate your financial obligations, it’s sort of like putting a plane on autopilot. The plane is flying itself, but the pilot is still in the cockpit to take over when any emergencies arise. The same can be said with your finances. When you take the stress of remembering to pay out of the picture, you also take away the possibility that you might forget to pay. With automation, you are less likely to miss a payment, which will help you avoid late fees. Although setting up automation is a great way to organize your finances, you’ll have to adjust payments from time to time and monitor your accounts to make sure you have sufficient funds to cover those payments.
Knowing how to save money is a key part of becoming financially literate. In addition to setting up automatic bill payments, you can also set up the automatic deposit of your paycheck to your bank account through direct deposit. More important, try to automate a payment directly into your savings account—even a small amount—and commit to not spending it.
By automating a payment into your savings every paycheck, you are less likely to spend that money and you’ll be developing a regular savings habit. To make saving money more fun, try a savings challenge.
Understanding financial risk is another pillar of financial literacy. Financial fraud is scary, but the sooner it is discovered, the lower the financial impact is likely to be. To detect and prevent fraud, you should check your account activity frequently for anything unusual and contact your financial institution immediately if you see anything suspicious.
You should also sign up for email or text alerts from your financial institution that notify you when certain events or transactions occur, such as transactions over a specified dollar amount or transactions made outside of the U.S. Alerts can help you to identify fraudulent activity early and enable you to put a stop to it quickly. Another way to detect and prevent fraud is to sign up for a credit monitoring service that notifies you when changes are posted to your credit report, including new accounts opened in your name.
Everything comes at a cost. For example, if you’re spending your free time watching Netflix, you’ll miss out on the knowledge you would have gained if you chose to listen to a financial podcast instead. This is known as an opportunity cost. An opportunity cost is the cost of what is lost when you make one choice over another. Choosing to keep your money hidden in a drawer at home represents an opportunity cost equal to the interest you would have made on that money had you chosen to invest it. Understanding the opportunity cost of your choices – and that your “free” time isn’t always free -- may help you use your down time wisely.
Sometimes day-to-day life can be a lot to handle. From your college classes and work obligations to hanging with your friends, there’s not a lot of time left to manage your finances. Meeting with a financial advisor – especially after you graduate from college – can not only save you time but it can also help you articulate your financial goals and help you work toward them. While it is often hard to conceptualize abstract financial plans, working with a financial advisor can help you put a dollar amount on your goals and work backward to see what you need to do today, next year, and 10 years from now to pursue them.
Also, while many people tend to think that they don’t need a financial advisor until they have amassed a significant amount of assets or have reached a certain age, most people can benefit from a financial professional’s advice in many different stages of their journey, including when they’re just starting out in their career. You also can set your own relationship with a financial advisor depending on whether you prefer an advisor who checks in on you (and your investments) regularly, or whether you prefer to contact the advisor on an as needed basis when you have specific financial questions.
Improving your financial skills and knowledge will take some initiative and work, but taking the time to improve your financial literacy will pay off in better financial decisions and more confidence with money in college and beyond.