Financial literacy is an important skill to have as you grow older, whether you’re 18 or 28, and it’s especially important if you’re about to enter the real world as a new adult with student loans, car payments, and maybe even a mortgage ahead of you. Financial literacy gives you the tools to manage your money effectively so that you can thrive financially now and in the future. This overview of financial literacy will help guide students of all ages through the ins and outs of how to effectively manage their finances without getting overwhelmed by everything they need to know.
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Understanding credit
To manage credit, it’s important to learn about the types of credit and how they work. There are two types: unsecured and secured. Secured credit requires collateral to get a loan, like when you put up your home as collateral on a mortgage. Unsecured credit is given without any type of security and is typically associated with lending institutions such as banks or finance companies. One of the most popular forms of unsecured credit is a credit card.
A credit card can be used to purchase items from stores that accept this form of payment. However, there may be an annual percentage rate (APR) that must be paid if there are unpaid balances at the end of a billing cycle (usually around 18-25%). In addition, interest charges will apply if balances aren’t paid in full each month. Some benefits include cash advances and balance transfers if funds need to be transferred between accounts or cards due to emergencies like medical emergencies or loss of income.
Learning to budget
To start budgeting, it is important to first understand the difference between needs and wants. Needs are things like food, shelter, clothing, and transportation. Wants are things like entertainment, clothes, and makeup. The difference between needs and wants is often what will determine how much money you need versus how much money you want to spend in a given week. Another way of understanding your financial goals: For example, if you know that your goal is to save $200 a month until 2020, then this would be an example of something that would be on your monthly budget. It might also help to create more specific goals such as I’m going to buy a new video game or I’m going to buy myself some shoes.
Saving money
Learning how to manage your money from a young age can give you the best chance at financial success. It’s never too early to start saving for your future. Here are some tips on how to teach kids about money:
- Teach them about earning, spending, and saving.
- Set up a bank account with them and let them see their balances grow.
- Help them understand the concept of delayed gratification by not buying everything they want right now. They will learn that when they save up for something, it feels good because it was worth the wait.
- Encourage them to make a monthly budget so they know where their money is going each month and keep an eye on what’s happening in their checking accounts.
- Sit down with them every month or two and go over the budget together. Have them set goals for themselves – how much do they want to earn in a year? What do they want to spend it on? How much should be saved?
Investing in the future
Financial literacy matters to students because it can help them make important decisions about how to spend and save their money, rather than just relying on their parents. It also helps students learn about different careers and the salaries associated with them, which is really valuable information for those who might not know what they want to do after high school. While the United States has made progress in this area, there’s still a lot of work to be done if we want our children to be well-prepared for adulthood. One study found that students who completed at least one course in financial literacy were less likely to drop out of college and more likely to graduate from college sooner.
The importance of financial literacy
Being financially literate means understanding the difference between needs and wants, how to set goals, how to budget, saving and spending responsibly, getting out of debt, and understanding the value of money. All this might sound tough to do on your own. But it doesn’t have to be. We’ve compiled some resources for you below that will help you get started. Check them out today.
One of the best ways to learn about financial literacy is from friends or family members who are experienced in this field. You can also look into local classes or community centers that offer these services. However, if you’re not sure where to start don’t worry. There are many tools available online for learning about personal finance management.