Money 101: Financial literacy for college students and young adults
Managing money as a college student or young adult can feel overwhelming, but developing smart habits early on makes a big difference. Learn money tips, from budgeting to credit building, that can be particularly helpful if you’re leaving home for a job or college.
Key takeaways
A budget is your best financial tool. Tracking income and expenses helps avoid overspending and prepare for unexpected costs.
Student loans require careful planning. As a best practice, borrow only what you need and understand your repayment options.
Start building your credit as early as possible. Responsible credit use and on-time payments lay the groundwork for future financial access.
Consistent saving supports long-term goals. Automating your savings – even small amounts –help you meet your savings goals.
Leaving home for a job or college is an exciting milestone, but it also comes with new responsibilities, especially when it comes to money. That’s why financial literacy for college students and young adults is so important.
The ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing is called financial literacy. And the sooner you start those smart financial habits, the better. This time of your life is the perfect time to learn how to manage your money and build spending habits that will impact your finances for the rest of your life.
Making even the smallest adjustments to your financial decisions can have a big impact when you graduate or move to the next milestone in your life. Here are five money management and personal finance tips to help set yourself up for financial success.
1. Set a budget
To create a budget, add up how much money you take home each month, list your monthly fixed and variable expenses, and estimate the monthly cost for each. The amount you place in each category is how much you plan to spend in that area. Make adjustments as you go and reset the budget at the beginning of the next month.
Whether you’re using paper and pen, a spreadsheet, or a budgeting app such as YNAB (You Need a Budget) and EveryDollar, tracking your expenses can help you find areas where you’re overspending and make you less likely to rely on credit for unexpected expenses. And if there’s money leftover at the end of a pay period, you can use it to chip away at what you owe or grow your savings.
2. Understand student loans
Student loans are a common way to pay for college, but it’s important to understand how they work. Federal student loans are funded by the federal government, and often offer several benefits, including fixed interest rates and income-driven repayment plans. Private loans are made by banks, credit unions, and state-based or state-affiliated lenders, and can be more expensive than federal loans. Be aware of the terms, interest rates, and repayment plans for your student loan debt. Borrow only what you need and explore scholarships, grants, and work-study programs to minimize your debt.
3. Focus on paying off debt
If you owe money, try to pay it off as soon as possible. Paying more than the minimum due each month will help you pay off credit card debt and other debts faster. Large regular payments establish a steady credit history, quickly reduce your balances, and can lower your debt-to-income ratio.
There are two popular strategies for debt reduction: the debt avalanche and the debt snowball. With a debt avalanche, you pay your highest-interest debts first while paying the minimum on lower-interest debt. With the snowball method, you focus on paying off smaller debts first and work your way up to larger ones. And remember, staying out of debt is easier than paying it off.
4. Build your credit now
People with lower credit scores may be denied financing, job opportunities, and housing - and they pay higher interest rates when they borrow money. Start building your credit now by establishing a record of on-time payments and responsible use of credit with a credit card or secured loan. There are also ways to use rent, phone and utility payments to build credit. Some of these ways are free, others carry a fee. Regularly check your credit report for any errors and dispute them if necessary.
5. Start saving and investing
Aim to save a portion of your income each month, whether it’s 10% or whatever you can afford. Build an emergency fund – kept in a separate bank account – by treating it like any other bill. Determine how much you can consistently save each pay period and add it to your budget. Transfer any extra cash you have to your emergency fund to help it grow faster. Automating your savings through your bank or your payroll direct deposit will help you avoid spending money you intended to save.
Make a plan for your future
Financial literacy for college students and young adults is not just about managing money today, but also about planning for the future. By establishing a few good money habits now, you can develop the knowledge and skills needed to make informed financial decisions. Remember, the habits you build now will have a lasting impact on your long-term financial well-being and set yourself up for success.