What is Financial Literacy?
Financial literacy refers to one's ability to understand and manage their finances in a responsible manner. This includes having a high level of understanding when it comes to the topics of handling money, budgeting, dealing with credit, investing, protecting your identity, and debt.
Why is Financial Literacy so important?
Understanding your finances enables you to make sound decisions both now and in your future. In a college environment there are many complicated, difficult financial decisions that are often being made for the first time. By making the choice to stay informed and seek out resources to understand the impact of their financial decisions, students are significantly more likely to succeed and avoid common financial pitfalls. Having strong financial literacy can decrease and eliminate debt as well as help you to build credit and achieve financial stability.
Financial Literacy Topics
While the income you make is very important, how you spend that money is equally important. You should always have a planned, well-thought out budget to control your spending and keep you from overspending. Always keep track of how much money you are spending and set limits on how much money you spend on certain things (for example limiting yourself to $150 per month when dining out). Prioritize spending your money on your costs of living, which typically includes your rent, food, utility bill, and any other expense that you need to pay to sustain your standard of living. Also make sure you have money to pay your tuition and other related fees every semester. To help you get an estimation of your average annual expenses while in college, check out our Net Price Calculator and Budget Worksheet.
For more information about managing your loans, click here.
College is a good time to start building your credit because having a long history of good credit improves your credit score and makes it easier for you to get approved for loans and receive lower interest rates. Although credit cards are a good way to build credit if used responsibly, there are also other ways to start building up credit while you are in college. For instance, your rent payments are reported to the credit agencies and impact your credit score. The 3 major credit reporting agencies you should be aware of are TransUnion, Experian, and Equifax. Here are some tips for building credit and managing it responsibly while in college:
- If you apply for a credit card, use it only to make small purchases and never max out your allowed spending amount.
- Always make your payments on time. If possible, pay the full amount on your statement each month so you will not have to pay any interest.
- Regularly check your credit score. There are a variety of free resources online to check your credit score, just make sure the tool you use performs a soft inquiry, which does not hurt your score, as opposed to a hard inquiry, which does. For more information on the differences between the times of credit inquiries, click here.
The following are measures you should be mindful of at all times to protect your identity:
- Never give out your social security number or bank account information to a person or website that you have not thoroughly verified
- Never click on links from a suspicious email from someone asking you to verify your personal information. If you get an email from a bank or other similar institution claiming there is a problem with your account, go to their website or call the bank directly but do not follow the links given in the email
- Frequently check our bank account to ensure there is no suspicious activity on it
- If you see suspicious activity on your account or payments you do not recall making, contact your bank immediately to freeze your accounts until the issue has been resolved
How can I learn more about Financial Literacy?
The following provide several good resources for understanding how you can take control of and improve your financial situation: