Financial Literacy in College: Why it Matters
You may find yourself caught up in the excitement of new experiences and a newfound sense of independence as a college student. However, amidst all the hustle and bustle, it’s easy to overlook one of the most critical skills necessary for a successful future—financial literacy.
In today’s world, where financial decisions can have a significant impact on people’s lives, it’s essential to be knowledgeable and informed about managing money.
In this blog, we’ll explore the importance of financial education in college, the challenges that students face, and strategies to develop strong financial management skills. Join us as we delve into this topic that can shape your life for years to come!
What is financial literacy?
What does financial education really mean? This phrase means being able to understand basic money skills and ideas.
Financially literate people know enough about money and have enough confidence in themselves to make good decisions about it. This allows people to plan for the future, save, and responsibly handle their money.
Now more than ever, knowing how to understand and handle your finances is important.
Both the growth of technology and societal changes make financial matters more difficult to understand. Because of this, college students need to have a solid understanding of money when they graduate.
Financially literate people can use the skills they’ve learned in their own lives to understand the basics of how the financial system works. Here is a list of things that can be thought of as being financially literate:
- Opening a new bank account
- Making sure utility bills are paid on time
- Putting together a budget and keeping track of it
- Learning how credit works and ways to improve credit score
- Using loans in a responsible way
- Saving money for when they retire
- Looking at different kinds of financial tools, like credit cards and investments
Your level of knowledge about money affects every aspect of your life. The sooner students can understand these ideas, the better, especially if they come from families that don’t emphasize financial education.
A lack of knowledge about personal finances can lead to problems like bad spending habits and debt that is hard to handle over time.
If college students make learning about money a top priority, they will be better prepared to deal with these problems and live comfortably in the future.
The Components of Financial Literacy
Congress set up the Financial Literacy and Education Commission to carry out the Fair and Accurate Credit Transactions Act (FACTA) of 2003.
Congress has given the Commission the job of developing policy ideas to help people make smart financial decisions. They put these five basic rules for understanding money on the Commission’s website.
For complete financial knowledge, it’s important to earn money. But more than that, knowing what happens to the money you make is important.
This includes knowing how much money you bring home with each paycheck, what benefits your employer gives you, how much you pay in taxes, and where that money goes.
Before you start working, you must learn about this basic idea of financial education as soon as possible. Because high school is when many students get their first job, it is a great time for parents to use their teen’s first job as a chance to teach them something.
Save and Invest
Saving money is one of the most important things you can do to plan for your financial future. It is one of the most important things students should learn as soon as possible.
This covers everything, from saving money to setting up a savings account, and everything in between.
A key part of financial literacy is that people should make it a habit to save money. This is a lesson that parents can teach their children at a young age. At first, they can do this by giving them gifts. Later, they can do it by helping them save money from a part-time job.
Other important parts of this principle are as follows:
- Paying yourself first
- Keeping an eye on your savings and investment accounts
- Opening an emergency savings account
- Talking to a financial professional
- Putting money away for future expenses
Being able to protect yourself from a financial setback is another important part of having a good understanding of personal finance. Students need to understand early on how important it is to set up and keep up an emergency fund.
Insurance is another important way to protect your money, as is learning to keep your identification from getting stolen.
Managing your money well is one of the most important things to learn as early as possible.
Many young people get their first part-time job in high school or college but don’t have to worry about their money after that. Because of this, they can spend their money however they want.
Even though it’s fine for them to do this at such a young age, it might not teach them how to spend money in a way that will help them in the long run.
This basic principle of financial education is mostly about spending in advance with a budget and keeping track of where your money is going. In addition, it includes living within one’s means and making smart choices about what to buy.
There is no better time than when you are young to learn the basics of good money management. Personal finance requires knowing how to get a loan and, more importantly, how to pay back that loan.
One of the first things to do when applying for credit is to learn about credit ratings and credit reports, two of the most important factors determining whether or not you get credit.
Once a person has enough of a financial history to qualify for loans and credit, they must understand the loan terms, such as the annual percentage rate (APR). Lastly, learning how to pay bills on time and knowing how much debt a person has are very important.
How can financial literacy be beneficial to college students?
What are some ways that college students can benefit from financial education? If you want to be financially successful in the future, you need to know the basics of money and how to handle it.
Financial knowledge is the basis for all adult responsibilities, like earning money, keeping a budget, paying off debt, and saving.
Personal finance knowledge is important at any age, but it is especially important for college students for several different reasons:
Student loan debt is increasing
One of the biggest financial problems college students face today is the debt they have to pay off. This disturbing pattern doesn’t look like it’s going to stop, which makes it even more worrying.
There is a good chance that the amount of student debt will only keep going up unless big changes are made to how student loans and the cost of college are handled.
Retirement income is not guaranteed
Pension plans, which used to be one of the most common types of employee benefits, are going out of style quickly. Instead, more and more people are responsible for saving their own money for retirement. And since wages haven’t gone up fast enough to keep up with inflation, young people have less money to spend on other things.
Incomes are stagnating or falling
Even though they have a higher level of education, college graduates do not make more money than their parents and grandparents did when they were the same age.
When the inflation rate is considered, the annual salary of a worker with a college degree is about the same as it was for people with college degrees in the past. But if you look at the young people of today, who only have a few college credits or none at all, you’ll see that they make less money than their parents did when they were young.
Because most jobs for young people pay less, they need to learn how to budget their money even more. It is important to know how money works.
Four Benefits of Financial Literacy Classes
It’s never too early to start learning about money and how to manage it. The Financial Industry Regulatory Authority (FINRA) found that people who knew more about money were more likely to spend less than their salary and to have at least three months’ worth of expenses saved up in case of an emergency.
When you learn how money works at a young age, you will be able to make good financial decisions as an adult. Let’s look at four reasons colleges need to offer courses on financial education.
Better financial decisions
The FINRA Foundation found that students who knew more about money were less likely to get late fees, pay only the minimum on their credit cards, and apply for payday loans.
Understand the consequences of student loan debt
When students take classes on financial education, they learn more about how their student loans work. This is another benefit of these classes. Most college students have to take out loans to pay for their education, but few of them fully understand what they are getting into or how much debt is reasonable.
Knowing the importance of saving
Students who take classes in financial education learn how important it is to save something, even if it’s just a small amount.
Students will also learn what cumulative interest is and why it is good to start investing at a young age. It’s interesting to note that even instructors who teach classes on money management tend to save more money for themselves.
Financial literacy has a positive ripple effect
One thing that a lot of people don’t think about is that their financial situation affects every other part of their life, both for the better and for the worse.
Many people’s biggest source of stress comes from money worries. People in a lot of financial trouble often have health problems, like weakened immune systems, intestinal problems, high blood pressure, and other problems.
If you know about money, you will be better able to deal with the ups and downs of life as they happen. This will be good for your physical and emotional health and the quality of your relationships.
How can students save money?
How can students cut back on their spending? As a college student, you can save money in five different ways:
1. Avoid Paying Full Price for Textbooks
There are many different prices for textbooks. Instead of buying brand new copies, you could get them from other students, buy used copies, rent them, or use digital images.
You can look through websites like Amazon, Chegg, AbeBooks, and BookFinder to find cheaper versions of what you want.
You might even be able to find PDFs of older editions of textbooks published online, but you should be aware that these books might not have the most up-to-date information you need for your class.
2. Explore Prior Learning Assessments
If you are an adult who worked for at least a few years before you decided to return to school, you probably already have some work experience. Think for a moment about what it would be like if you could turn this real-world experience into academic credit.
Previous learning evaluations are classes or programs that determine if a person already has the skills and knowledge needed for college-level work. With these programs, you won’t have to take as many classes to get your degree, so you’ll spend less money overall.
Because colleges and universities accept different kinds of evaluations of prior learning, you should talk to an academic advisor before making this choice.
3. Take Classes Online
One way to achieve financial literacy is to take classes online. Adults trying to get degrees can reach many of their educational goals by studying on the internet.
If you choose to live off campus, you won’t have to pay the fees that come with living on campus or driving to and from class every day. This will save you money.
Also, if you want to work full-time or even part-time jobs while going to school, being able to make your own class schedule can be a real blessing.
4. Don’t Use Credit Cards Carelessly
It’s natural to want to put your education payments on a credit card, but before you do, you need to think about how the interest on that debt could grow over time. It might seem reasonable right now, but it may take you longer than you think to pay it off.
Also, remember that the longer you wait to pay your bill, the more interest you’ll have to pay. Before using your credit card to pay for education-related costs, you should prioritize looking into grants, scholarships, and other ways to get money.
5. Use a Budget
You’ve probably heard that making a budget for your money is one of the best ways for college students to track how much they spend.
But what is budgeting, exactly? Budgeting means making a plan for how to spend your money that takes into account all of your income and expenses. Keeping track of your money will help you keep your spending in check, avoid going into debt, and plan for the future.
How to Create a Budget?
The hardest part of making a budget is sticking to it. College students can better manage their money by following these six tips:
1. Determine a Time Span
You can make a budget for any length of time you want, but one month is one of the most common options.
As a student, you can make a separate budget for each term by thinking carefully about how your costs might change during the semester. If you make a separate budget for each term, you can keep track of how much money you spend on school-related costs, and this will effectively teach you financial literacy.
2. Break Down Your Income
For your budget to work, you need to know a lot about your finances. Include any financial aid you get that can be used to pay for tuition, fees, and other costs, as well as any income you get from a job. Find out how much money you think you will make during the period your budget covers.
3. List Your Expenses and Track Your Spending
Looking at your past bank and credit card statements gives you a rough idea of how much money you will need. Prepare your finances for the costs of your classes, textbooks, equipment, and transportation, among other things.
You need to write down everything you buy over the next month and add it to your budget. If you need to, you should also change your original predictions. It might help to divide your expenses into different groups, like food, housing, entertainment, and school.
By putting your spending into two categories—necessities and wants—it will be easier to find places where you can cut back.
4. Do the Math
Subtract your total income from your total spending, ensuring that both sets of numbers are for the same period.
You should ensure your costs aren’t more than what you get in. If you have a negative number after subtracting all of your expenses from your total income, you are running a financial deficit.
Look over your variable costs and think of ways you can cut back on spending that isn’t necessary.
5. Save Your Money
Pay close attention to how much you spend each month. When making day-to-day purchases, keep an eye on your budget and ask yourself if you need the things you’re buying.
Spending less on things like coffee, eating out, and entertainment can help you reach your financial goals in a big way.
6. Revisit Your Financial Plan
A big part of budgeting is making sure you spend time every now and then going over your budget and making any changes you need to.
It’s important to have a plan for handling any costs you didn’t expect or that came up out of the blue. Make a new plan for your investments that considers your current financial situation.
In conclusion, financial literacy is a crucial life skill that college students should acquire to achieve financial security and success. With the increasing cost of education and the burden of student loans, it is more important than ever for college students to understand the basics of budgeting, saving, investing, and managing debt.
While financial education may not be a core part of the college curriculum, numerous resources are available for students to learn about personal finance, such as workshops, online courses, and financial planning tools.
Students can also seek guidance from financial advisors and professionals to develop a sound financial plan.
By developing this skill, college students can manage their finances effectively and make informed decisions about their career choices, investments, and long-term financial goals. Ultimately, this investment in oneself can yield significant returns over a lifetime.
Are you a student looking for a way to jumpstart your college journey and set yourself up for financial success? Look no further than AdmissionSight! Our expert college advisors will help you navigate the complex admissions process and guide you toward colleges that prioritize financial education.
Don’t miss out on this opportunity to set yourself up for financial success. Book your initial consultation with us today!