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What's Financial Literacy?

Financial literacy is the knowledge and skills necessary for students to manage their finances and make informed financial decisions. For most traditional college students, who generally enroll right after high school around age 18 (start of young adulthood), it's also the beginning of their financial independence. At its core, it means understanding financial aid and loans, building their credit score without incurring high-interest debt, managing a positive cash flow, and starting to invest early. For college students who may lack the necessary resources to understand financial literacy, they can quickly fall behind in budgeting, credit, and loan management.


Managing money can be overwhelming because it affects many aspects of daily life. Students face numerous high-stakes, low-clarity financial decisions every day. Furthermore, the economic landscape is constantly changing, with new information arriving faster than students can absorb. The Five Principles of Financial Literacy provide a solid foundation for making informed decisions and optimizing your finances to achieve personal and financial goals:


Earn

Income is the foundation of your financial situation. It is the money you earn from your job, commissions, financial aid, or business. It is essential to earn money before thinking about the other four principles. To understand how to budget your money, you need to know how much you earn after taxes. Maximizing your take-home pay requires upskilling yourself to improve your earning potential and increase the number of income streams.


Spend

When you start earning money, consider following a strict budget plan. Abiding by a plan will prevent you from overspending and using your money on unnecessary spending. Your main goal is to minimize unnecessary spending. Especially in college, there are numerous new expenses, and managing them is crucial to avoid high long-term debt.


Save & Invest

A significant part of your budget will determine how much of your income should be set aside for savings and investments. Your goal should be to save as much money as possible from a young age to earn as much compound interest as possible. If you understand the time value of money, you will gain more value through your money's growth.


Borrow

Borrowing money is a vital tool to achieve your financial goals. A massive example of this is college tuition. Understand perpetuity, interest rates, and credit before taking out student loans. But for everyday decisions, understanding the purpose of a credit card is essential. The main goal of borrowing money is to access funds you don't currently have to invest in opportunities, cover expenses, or build credit, while planning to repay responsibly.


Protect

To protect your money, it is essential to understand how insurance works to safeguard your financial well-being. Having all of the other principles is not enough, but it is necessary to ensure your money is safe when unexpected expenses arise. Purchasing insurance protects you and your belongings from risk. Also, creating an emergency fund that can pay three to six months of expenses is your last line of defense.


Mini-History of Financial Literacy in the United States