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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.

For all the uncertainty that the lockdown has conjured, one of the most valuable lessons to come out of this has to be our relationship with money and how we plan for life’s uncertainties. Now more than ever, the COVID19 pandemic has taught us that we need a new approach to financial planning, or for some us, we need a strict reminder to remain committed to our plans. Use the lessons below to assist with financial planning:

Always have an emergency fund

It’s important not to underestimate the importance of an easily accessible savings account to outmaneuver the uncertainties of life. Whether it’s a short term convenience for paying rent when you lose income, buying data for studying online, or assisting family members when life happens.

Many experts advise having 3-6 months’ worth of living expenses set aside. That kind of saving requires discipline but trust me, you will thank yourself for putting away cash regularly for a rainy day.

Spend money wisely

Before the lockdown, you could have probably easily saved a R1000 a month from eating out less and Ubering. Thanks to locking down of economic activities and reduction of disposable income – preventing us from sitting out at restaurants and going out, this has made us realise how easy it is to save money if we can apply a bit of discipline to things we can do without or less of.

Of course, everyone deserves leisure from time to time, but going overboard may be unhealthy. You must remember that cash in hand does not mean cash to spend. Use this time to reflect and evaluate if some spending can’t be re-directed to a savings account.

Gain clarity about your work contract

Retrenchment and pay-cuts have become a reality for many South Africans. If you are a young professional, sometimes asking questions can become intimidating. But it’s important to always ask the right questions regarding employee rights and benefits in case of retrenchments.

Sometimes we often let the excitement of securing employment overlook the fine print, but if this pandemic has taught us anything, it is important to understand employee benefits and rights should any career storm hit you.

Get a passive income/ side hustle

It is no secret that many businesses were put out of operations during Covid19, leaving millions of people uncertain when they would receive their next salary. On the brighter side of things, this has shone a light on the value of having a passive income or starting a side hustle.

If you have a skill that can be monetized, do it! Do you have a creative flair? Make and sell earrings. Become a paid freelance writer. Invest money and earn interest. Stop making excuses and start that business now. Let go of your fears and put yourself out there.

You’re never too young to budget

Our current economic climate has encouraged a lot of people to start budgeting. But you should not only be budgeting in times of crisis. Make it a part of your life. Remember you’re not too young to start forming these healthy habits.

In fact, it is probably the best time to familiarise yourself with budgeting at an earlier stage so that it becomes second nature when you’re older. Keep track of your income and expenditure and pay of debts. Stay committed to sticking to the budget. Your future self will thank you.

It is always empowering to have control over your finances as opposed to your finances having control over you. Getting real and frank regarding your finances can be quite a daunting experience, but if you are transparent with your money, it makes it easier to avoid financial knocks.