4.1 Financial Literacy

What is Financial Literacy?

Financial literacy is the ability to understand and effectively use financial skills such as saving, budgeting, and investing. The earlier you start learning the skills that encompass financial literacy, the better you will be at making well-informed decisions regarding your finances. Since the cost of higher education can be a significant financial burden, it is important for students to learn wise budgeting practices, set financial goals, and to be aware of various options to pay for the tuition and fees associated with attending college.

For example, when saving for education or retirement, managing potential debt, running a business, and more.

If you are interested in learning more about financial literacy concepts, check out this EVERFI training course!

Financial Literacy in College:

A study conducted in July 2023 by the SPARK Institute found that many college students do not practice or are not aware of financial literacy skills. When asked 5 multiple questions regarding credit scores, loans, retirement savings, investing, and interest accrual, only 39% of college students got over half of the answers right.

It is also important to note that racial identity is a factor of how students receive their initial financial advice. The study found that of the respondents of the study, 72% of White students and 75% of Asian students were more likely to turn to the parents for advice, while social media was more likely to be used by Black students. Interested in learning more? Click here!

Racial Disparities in Financial Education:

Minorities tend to face systemic barriers in attaining financial literacy. Many marginalized groups do no have the proper foundation on which they can build wealth, such as a lack of capital to utilize and also an insufficient understanding on how to build wealth. This video focuses on the experiences surrounding financial education for people of color living in the United States.

Budgeting:

A budget is a financial plan that will help you make smart decisions today while planning for tomorrow. This video breaks down budgeting basics. To learn more about how to create a budget, visit Student Aid Budgeting.

Here are some general tips in budgeting:

Separate your needs from wants -- make sure that you allocate enough funds for necessary costs such as rent, food, and utility bills.
Stay organized -- this might mean creating a spreadsheet or utilizing an online budget template to track your month-by-month spending. Note that your budget may not necessarily be the same each month -- you might experience a drop or rise in income/expenses, so it is important to make adjustments to your budget as needed.
Put your savings first -- aside from your current necessary costs, make sure you allocate funds towards your savings first before spending them on leisure/fun activities. Overtime, your monthly savings will accumulate and they can be used towards your emergency funds -- aka, money that you set aside for unforeseen dilemmas -- that may happen, investing, or any future financial goals that you set for yourself
Factor in retirement -- it might still feel way in the distance, but the earlier you start putting money in a retirement account, the more you'll have further down the line! A common retirement account to get started is a Roth IRA
Treat yourself out once in a while -- it's important to celebrate the small milestones in your budgeting and financial journey!

Responsible Borrowing:

Grants, work-study, and scholarship might not cover the full cost of school. When more help is needed, loans come in. Watch this video to learn more about responsibilities as a borrower and what students should consider when taking out loans for college.

Financial Literacy Strategies:

Self-study
- YouTubers such as Ben Felix, reading the Wall Street Journal, and Women and Money Podcast
Formal education and awareness classes
- ex: MGT 12 (personal finance), nonprofits such as Financial Literacy Coalition
Seeking professional advice
- financial advisors/planners
Networking and learning from peers
- check out student orgs such as Women in Business, Undergraduate Economics Society, The Investor's Club

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