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Financial Literacy

Understanding Financial Literacy

Financial literacy is the foundation of smart money management. It equips you with the knowledge and skills to make informed financial decisions, from budgeting and saving to investing and managing debt. By building financial literacy, you can take control of your financial future and work toward long-term stability and success.

Web Resources for Financial Literacy

Explore the financial terms dictionary from Federal Student Aid to enhance your understanding and strengthen your financial confidence. Visit their financial terms dictionary to brush up on your financial vocabulary.

Learn to Build a Budget and Manage Your Money

Creating and sticking to a budget can be one of the best actions you can take to maintain healthy finances. Learn more about budgeting and money management by checking this article at Federal Student Aid. There are also many online apps, spreadsheets, and worksheets available to help you.

Apps you might consider:

  • Goodbudget - Helps users budget using the envelope method, where cash is divided into spending categories
  • PocketGuard - Shows users how much disposable income they have after accounting for bills and necessities
  • EveryDollar - Helps users with zero-based budgeting, where expenses are subtracted from income until it reaches $0
  • Mint - Allows users to manage checking and savings accounts, credit cards, and student loans in one place

Common Student Loan Mistakes

Managing your student loans is crucial while you’re in college and after you graduate. Don’t let a lack of knowledge and planning hurt your financial future. Avoid these five common student loan mistakes:

Not Pursuing Grants & Scholarships

Statistics show that two-thirds of all college students take out loans to cover the cost of college. So what about the one-third who don't? A majority of those who do not acquire loans are finding other means to pay for their education. It starts with the FAFSA form – it's free and will tell you what financial aid you can receive. Make sure you fill out this important financial aid form early in the process and seek out as many grants and scholarships as possible before turning to student loans. The federal government gives out more than $150 billion in need-based aid each year. The more free money you get, the less you'll have to borrow.

Borrowing More Than You Need

When students receive their federal student loan offer, they are often surprised by how much the government is offering them in loans. Temptation is part of human nature, and when it comes to student loans, this can lead to the unwise choice to take the maximum amount offered. This is almost always more than you need to cover expenses.

Students should carefully evaluate their actual needs (tuition, housing, and books) and borrow as little as possible, not as much as is available. Giving in to the "free payday" now will lead to regret and hardship when the time comes to repay the loans.

Taking Out Private Loans

Private loans aren’t student-friendly. Students should use all federal loan options before considering private loans from banks or organizations like Sallie Mae. Private loans generally have higher interest rates and fewer benefits. For instance, federal loans let you start repayment after graduation, while many private loans require payments while you're still in school. If you have trouble paying after graduation, private lenders are less likely to help you adjust your payments.

Skipping the Interest Payments

All non-subsidized student loans have interest, and that interest will start to accrue immediately. If you let interest capitalize, it means you will be paying interest on an even larger principal amount when your loan comes due.

While you're likely living on a tight budget, it's wise to squirrel away some money each month to pay toward the interest on your loans. Typically, the interest on larger loans won't be too much. So, paying $50 to $100 a month on interest while you're still in school can substantially decrease what you owe over the life of your loans.

Failing to Calculate Future Payments

After graduation, your six-month grace period ends, and your student loan payments will begin. Many graduates are taken aback when they the significant portion of their post-college salaries that will go toward repaying these loans. This is why it’s essential to calculate your future payments before taking out student loans.

A common recommendation is to avoid borrowing more in student loans than what you anticipate earning in your first year of employment. In other words, do your research and crunch the numbers. Your goal should be to ensure that the median salary for your chosen career is higher than the amount of student loan debt you accumulate. For more information on loan repayment options, visit Federal Student Aid.

Resources

Here is a list of free resources available to all students wishing to become more financially literate: