6 Principles of Financial Literacy for Students

Mia Mattsson | July 21, 2023

Edited by Hannah Locklear

Financial literacy is a fundamental life skill that is often overlooked in the standard curriculum. It encompasses understanding and effectively utilizing various financial skills, including personal finance management, budgeting, and investing. These skills are essential for students who will soon venture out into the world, starting their careers and managing their own finances.

Being a student is time-consuming, and you might feel like you don’t have the time to think about your financial literacy. Services that specialize in writing papers for students can help you stay on top of your studies while also working to improve your financial knowledge.

We might not like it, but money rules the world, and we must learn to play by its rules. So, let's delve into the six core principles of financial literacy that every student should master.

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1. Make a budget

Budgeting is a basic yet essential skill in managing finances. It involves understanding your income and how it should be allocated to meet your various expenses. A well-structured budget helps to guide your spending and saving, ensuring you live within your means and avoid unnecessary debt.

To create an effective budget, start by listing all sources of income, such as allowances, part-time jobs, or scholarships. Then, detail your expenses, separating them into fixed costs (like rent, phone bills, or tuition fees) and variable costs (like eating out, entertainment, or personal needs). Next, subtract your monthly costs from your monthly income, and then track your expenses, ensuring that you don’t spend more than your fixed costs.

It’s also helpful to evaluate your budget each month because life can change quickly, and if you take on new expenses, your budget needs will be adjusted. Using a spreadsheet can help you keep track of your spending from the past and present and set financial goals for the future.

2. Build a savings account

Saving is a habit that all students need to cultivate. Having an emergency fund can save your life if any unexpected expenses arise.

Even while still studying, it's wise to allocate a small portion of your income to savings. This can help you get into the habit of setting aside money and understanding its importance. Start small and gradually increase the amount as your income grows.

3. Make your money work for you

Investing may seem daunting to many students, but it's a fundamental part of growing wealth. Investments, whether in stocks, bonds, or mutual funds, can generate returns that outpace inflation, increasing the purchasing power of your money over time.

As a student, you might not have a large amount to invest, but starting early gives your money more time to grow. Even investing a small amount can yield substantial returns over the long run, thanks to the power of compound interest.

4. Build your credit score

Your credit score measures your reputation in the eyes of the bank; it’s based on your previous loans and how you managed to repay them. It's important even for students because it affects your ability to rent an apartment, get a mortgage, or even land some jobs in the future.

To maintain a good credit score, always pay your bills on time, avoid maxing out your credit cards, and keep your credit utilization ratio low. Make sure that you’re not exceeding your credit limit.

5. Shield yourself from financial risks

Insurance is an often overlooked yet crucial part of financial planning. As a student, you might not feel the immediate need for insurance, but understanding its importance is a key principle of financial literacy. It serves as a financial safety net, protecting you from unforeseen incidents that could lead to heavy expenses, such as medical emergencies or loss of personal property.

Consider health insurance as an example. With the rising cost of healthcare, having a health insurance policy can save you from overwhelming medical bills. Similarly, renter's insurance can safeguard your belongings in your dorm or apartment.

Remember, the goal of insurance is not to make a profit but to protect you from possible financial loss. So while the thought of paying for something you may never need seems off-putting, remember that it's a small price to pay for peace of mind and financial security.

6. Manage your debt

Not all debt is bad. Strategic borrowing can help you achieve goals that might be otherwise out of reach, like pursuing a degree. However, poorly managed debt can quickly spiral out of control, leading to financial instability and stress.

Understand the terms and conditions of any loan you consider, including the interest rate and repayment schedule. Aim to repay debts as quickly as possible to minimize interest. If you have several loans, consider strategies like debt snowball (paying off smaller debts first) or debt avalanche (paying off high-interest debts first) to effectively manage and eliminate your debts.

Debt management isn’t easy. If you’re one of the many people who has already lost control of their debt situation, SoloSuit can help you get back on track. Our software can help you request debt validation, respond to debt lawsuits, and settle your debt accounts for good.

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In conclusion

Mastering these six principles of financial literacy can equip you with the skills necessary to navigate the financial challenges and opportunities you'll encounter as a student and beyond. Financial literacy is a lifelong journey, and the earlier you start, the better off you'll be. It's never too early to start educating yourself about money. Remember, knowledge is power - especially when it comes to your finances.

Just as you would turn to the best dissertation writing services to ensure your academic success, similarly, financial literacy will ensure your financial success in the future.

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