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4 Aspects of Financial Literacy Every Student Should Learn
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4 Aspects of Financial Literacy Every Student Should Learn

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About This Lesson

School requires a variety of classes to graduate and go off into the world of adulthood. One aspect of becoming a fully-functioning and independent adult is learning how to handle and manage finances. However, this is not one of the required classes in many high schools and colleges. Getting a basic handle on how to manage money may save students from future financial mistakes. Discover these four components of financial management that schools should require students to know before graduating.

1. Create a Basic Budget

Running a household can be stressful and expensive. With living costs rising and paychecks not necessarily doing the same, getting a basic plan together for how much money you have to spend is crucial. Teaching students how to construct a budget in a logical and impactful manner may keep them out of debt longer. It can help them live within their means by taking into account their income and then subtracting out bills. Doing this may help young adults keep a level head when shopping for vehicles, apartments and clothes. Learning how to balance a budget is a giant leap in the right direction of financial responsibility.

2. Understand How Credit Works

One of the first things that a student may encounter is a credit card signup table at orientation. Sure, the gift looks good, but how will that card impact the credit score? What is a credit score? Establishing credit is, unfortunately, a critical part of becoming independent. Unless a person can afford to pay for everything in full and in cash, financing will have to come into play to help. Things like cars, homes, and even apartments rely on credit scores and creditworthiness. This is the rating given by the three leading credit companies that tells businesses if a person is likely to pay back a loan. The higher the credit score, the more financially responsible the person is deemed.

The credit score is calculated using information such as:

  • The length of credit history

  • Debt to open credit ratio

  • Late payments

  • Court records (bankruptcy, liens, judgments)

A financially responsible person with 10 years of credit history, a vehicle loan, a mortgage, and two credit cards may have a high score if the balances are manageable and all payments are made on time. However, someone who does not understand how credit works may become engulfed in credit card debt and take out high-interest loans at the detriment of their financial future.

3. Become Familiar with Investing

Learning how to invest money is a life skill that students should possess before going out into the working world. The practice of investing money is usually left to professionals because of the lack of knowledge and understanding that is pervasive among adults. Things such as retirement accounts are integral to the financial health and wellbeing of students as they grow professionally and personally. The stock market and how stocks and bonds are traded can assist when it comes to creating a varied and beneficial financial portfolio.

4. Learn How To Save

When a student receives the first pay stub, they may wonder where the money went. Understanding how to read a pay stub and what each line item may mean can help with short and long-term budgeting. Finding out ytd meaning (money earned year to date) may help when it comes to estimating tax liability. Figuring out how much money to spend, give and save each pay period is aided by calculating how much income a person should make. Figuring out the ratio of savings to spending can alter the way students behave when it comes to using credit cards versus waiting to purchase until there is cash in hand.

Giving students a basic understanding of how to handle money can help keep bankruptcies and loan defaults at a minimum. People who understand how to budget, save and invest typically do not find themselves in crushing debt or poor financial decisions. Teaching students the intricacies of financial literacy can benefit everyone in the long run.

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4 Aspects of Financial Literacy Every Student Should Learn.docx

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July 15, 2020
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