Financial literacy is the knowledge and ability to understand and then apply different finance skills. These skills include personal finance management, budgeting and saving, making investments, protecting private data, and understanding interest rates, etc. And in a world where economic value is mostly represented by monetary currency, it’s the much-needed foundation to support your relationship with money throughout your life – on campus and outside of it.
Financial well-being is the basis that helps improve your life and afford a lifestyle you want for yourself. In order to navigate the financial waters, and by extension, the business world, financial literacy is fundamental life skill.
The significance
A lack of financial literacy might force us towards unsustainable money troubles, an unfavourable credit history, increased chances of falling victim to financial fraud, and eventually, place a negative impact on the ability to live life happily.
For tertiary education students, financial literacy is key because the discipline of managing money while also being focused on your studies is tested in different ways after graduation (i.e. an academic success).
Student success shouldn’t be limited to the classroom and only be defined by academic performance. A holistic approach to success of students also relies on the provision of quality learning and development opportunities that improve their lives, both in class and in the workplace.
Ways to improve your financial literacy skills
Budgeting
Planning how your money will be spent such that you can meet all your needs is a tough balancing act. This is because tracking your spending and deciding needs from wants is challenging even in adulthood. This simple exercise will give you a clearer picture of how you use money, how you can allocate more money towards savings, or an emergency.
If you do not already have a budget, you need to start your financial literacy journey with this foundational financial skill that you will be carrying with you beyond being a student. Considerations such as: how much money do I earn (i.e. income); what exactly are my needs (i.e. accommodation, food, transport, clothes, etc) and how much do they cost; what are the nice to have things (e.g fancy phone) I want and how much will they cost, and lastly how much do I need to survive in case of an emergency are all guides in coming up with a budget.
Identity and data protection
In a digital economy, it’s expected for identity theft to rise to widespread levels.
Understanding this reality (i.e. data vs digital literacy), and having preventive measures, such as generating strong passwords and sharing your private information online sparingly can be the difference in the maintenance of safe accounts.
Prioritize Saving
Learning to save early on in life can help you gain knowledge, practice, a develop a skill set that you’ll need for the rest of your life.
Beginners can work this concept in the simplest sense, like saving money on a monthly basis for a pricey item that they want to own or a travel destination you always wanted to visit. Working towards a financial goal requires focus, and patients, which is something that can be cultivated while still being a student.
Understand interest rates
It’s important to understand different elements of finance, such as interest rates. If you have a student loan, you’ll likely deal with interest rates used in calculating how the loan will be paid back. The interest rate is the cost of borrowing money (i.e. the loan) which is payable until the loan amount is paid back in full on a monthly basis.
It’s helpful to read up on interest rates, especially the different types of interest, namely: simple interest and compound rate as they have bearing on how much it costs to pay a loan back in a given period. This is also a foundational principle to understand as it forms part of the purchase of other important things like a house (i.e. home loan) or a vehicle (i.e. car loan).
Understand debt and credit
The majority of tertiary students and inexperienced professionals often don’t carry a sharp understanding of how easy it is to ruin their credit record or credit score. It can also be difficult to build up a financial profile that enables you to access debt. In simple terms a credit records in a financial barometer on how well you can manage your personal finance (i.e. budget) and service debt.
When your personal finances are managed very well, credit can be a useful instrument to acquiring some dream assets (i.e. car or house). That’s why rushed financial decisions made as a young person can inconvenience you throughout adulthood. Hence the importance of becoming financial literate to learn and understand the concepts and tools that will help you towards responsible credit habits early in life.
Take Away
In conclusion, it is important to start your financial literacy journey while you are still young and studying. Starting early allows you to make mistakes so that you are better prepared for the big purchases in life and enjoy your hard labour.
There are different parts to financial literacy, and they evolve according to the different stages of your life. That’s the biggest reason that your financial education needs to keep evolving. Refined financial literacy skills make you aware of the implications of the money choices that you have to make.
