Why Is Financial Literacy Important for College Students?

In the shuffle of sending college applications, writing scholarship essays, and applying for student loans, the one thing that goes overlooked is the importance of financial literacy. This is a huge mistake that can have far-reaching consequences. Financial literacy is the most important thing a student can learn to ensure their financial stability over the long term.

So, what exactly is financial literacy and why is it so important for college students? Here’s what you need to know. 

What Is Financial Literacy? 

The term refers to a range of basic financial concepts and skills that set the foundation for long-term financial stability. This in turn improves the whole family’s standard of living. 

Core concepts of financial literacy include knowing how to manage debt, create a budget, track personal spending, save for emergencies, and plan for retirement. In other words, it teaches you how to make money work for you. The best time to embark on this empowering journey is even before you start college. 

As a college student, you’ll already be starting off with thousands of dollars in student loan debt. Making wrong decisions and mismanaging your money at this time will only push you further into debt. This can lead to years of stress and anxiety when you have to pay back your student loans after graduation. The earlier you get started with obtaining financial literacy, the more empowered you’ll be to make smarter financial decisions. 

6 Reasons Why Financial Literacy Is Important For College Students


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1. Effective Debt Management

Better debt management is the single biggest benefit of financial literacy for college students. The importance of this cannot be emphasized enough. 

During your four or more years in college, you would have taken several federal and private student loans. Each of these loans works differently in terms of interest rates, loan terms, conditions, and repayment plans. Even among federal student loans, subsidized loans work differently from unsubsidized loans. Each of these loans would also have different consequences if you default on your payment.   

Financial literacy teaches you how to manage your debt smartly by giving you a better understanding of how student loans work. You’ll have a better understanding of how to borrow and return money, how interest accrues, and how different repayment plan work. You’ll also learn how to differentiate between types of interest rates and how to choose the best loan for your needs. 

One of the most important things you’ll learn is how you can leverage your student loans to establish good credit. You’ll also learn the consequences of defaulting on loans and how to avoid making common mistakes that can push you into a disastrous debt trap.

2. Improved Budgeting and Saving

As a college student, you’ll soon realize that budgeting and saving are drastically different when you’re living away from home. You are now solely responsible for managing your money and making sure you have enough every month to cover your rent, groceries, and utilities. This is in addition to your education costs. This is where you will be able to leverage your financial literacy knowledge to help you make the right decisions. 

You’ll have acquired the skills you need to stretch your limited finances and curb frivolous spending. You’ll learn to prioritize expenses that must be paid off first, cut back on unessential subscriptions, and spend your money wisely. Financial literacy also teaches you the skills you need to make a solid budget that allows you to keep a record of where your money is coming from and where it is going. This is key to making adjustments in your budget as and when you need to. 

3. Smart Credit Card Usage

Getting and using a credit card as a college student is the best way to get your credit history started. But only if you use your card the right way. Unfortunately, the majority of college students use credit cards the wrong way. They use it to pay for big purchases on a whim and let the due date slip by because they don’t have the money to cover the bill. This can be a slippery slope leading to mounting debt. 

Financial literacy prevents you from making this mistake. As a financially literate college student, you’ll know that credit cards have the highest rate of interest. You’ll learn the importance of using only the credit you need and paying off the balance in full and on time every month. These two actions are key to establishing your credit history and building your credit score slowly but surely even while you’re in college.  

4. Credit Report Monitoring

Your credit report contains your entire debt history. This includes a record of all the student loans and credit cards you hold along with the payment histories of each. Sometimes, even if you’ve been punctual with your payments, a lender may submit a wrong report or they may fail to report a payment. These inaccuracies can damage your credit score. 

Learning to build and monitor your credit history are important aspects of financial literacy. You’ll have a better understanding of why you should focus on building credit and how it can impact your ability to get a low-cost loan later on. You’ll also learn how to obtain your credit report, what to look for in the report, and how to file a dispute in case of any inaccurate or missing entries. 

Monitoring your credit report may seem unnecessary while you’re in college. But you’ll pay for it when you apply for a mortgage or vehicle loan after graduation. 

5. Better Investment And Retirement Planning

Retirement may seem like a long way away. But anyone who’s reached retirement age and they’ll all unanimously advise you to start planning early. As a financially literate college student, you’ll benefit from understanding how to invest your money wisely to achieve your short and long-term financial goals. Depending on your goals, this could mean building funds to start a business, saving for a down payment on a home, or building a retirement fund. You’ll be equipped with the tools you need to plan and work towards achieving your goals. 

6. Be Better Prepared In Case Of Any Emergency

The pandemic caused havoc in terms of millions of people losing their jobs and livelihoods. This is the most recent example that highlights the importance of being prepared for any emergency. You never know what shape or form an emergency may take, when it may strike, or how long it may go on for. But when it does, there’s some comfort in knowing that you have the finances to get yourself and your family through the uncertain time. Implementing your financial literacy knowledge will help you be better prepared to face any emergency Whether it is losing a job or having to bear unexpected medical expenses. 

There’s no doubt that financial literacy is an essential life skill for college students. Learning how to manage debt, budget, save, use a credit card, and invest wisely are skills that will benefit students well beyond their college years. 

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