Financial literacy, or in simpler terms, understanding some basic financial concepts like how to save your money, debt, investing, and loans is important for everyone to be familiar with. By understanding these financial concepts, you are setting yourself up for financial success, both now and in the future.
But, why does becoming financially literate matter? For starters, Americans could only answer 52 percent of the financial questions correctly on the 2020 TIAA Institute-Global Financial Literacy Excellence Center’s Personal Finance Index questionnaire. Understanding these key concepts such as saving, debt, investing, and loans can give you a leg up, and confidence about how to best save, invest, or spend your money.
Key Concepts about Financial Literacy
- How to save your money –
In reality, saving your money has a lot more to it than simply putting money into a savings account at a financial institution. You can save this money in various ways like opening a share certificate account, money market account, or retirement account like an IRA.
Each of these different types of accounts comes with its own terms and interest rates, which makes it important to familiarize yourself with the options available.
2. Debt –
In simple terms, debt is an amount of money that you owe. Some of the most common forms of debt include credit card debt that has not been paid off from the outstanding balance of your credit card, and also student loan debt, which is typically paid back monthly after graduating from a university.
If you have debt but neglect to meet your monthly payments, this can negatively impact your credit score and your availability to get future loans from lenders (such as a home mortgage loan or auto loan when you need a new home or car).
3. Investing –
Investing attracts many people because it can offer higher return rates than simple savings accounts. Common investment portfolios include stocks and bonds. A purchase of a stock represents you purchasing a share of that company while a bond is issued by an organization when they want to raise money, and the organization is agreeing to pay you back the bond amount by a specific date.
When investing, you can take a conservative, moderate, or aggressive route depending on how much risk you want to take with your invested money. There are countless stocks and bonds out there that you can invest in, so take your time doing research.
4. Loans –
It is very likely that you will need a loan at some point in your life. Personal loans, auto loans, and loans for home mortgages are some of the most common types of loans.
While taking on loans may be inevitable in order to meet your financial needs, it is important that you pay the monthly payments on the loan on time in order to maintain a healthy credit score and stay on track to get the loan eventually paid off.
Free Resources for Financial Literacy
Gaining financial literacy may be easier than you think. There are many free resources available on the internet:
- The Consumer Financial Protection Bureau offers free online consumer education topics on everything from debt collections to money fraud, reverse mortgages, and everything in between.
- The National Foundation for Credit Counseling offers a variety of budgeting and savings calculator tools online for free to help you plan monthly savings and payments based upon your income. They also have their signature programs called “Sharpen Your Financial Focus” and “MYMONEYCHECKUP.”
- The Financial Planning Association, which is a membership organization run by financial planning professionals, offers free resources online to the public. These free resources cover topics related to major life events and finances like divorce, planning to save for retirement, and student loan debt from college.
If you are still searching for additional information about financial literacy or how you can apply financial literacy concepts to your personal finances, consult with a financial advisor or member advisor to create a personalized financial plan.
Do you need help managing your finances? Let us know!
It can be challenging to balance your savings, loans, and other accounts all in one place. However, we offer many ways to manage your finances at Camino Federal Credit Union through our branch location, online banking, and mobile banking app. Please give us a call at 800-835-3400 to speak with one of our Member Advisors, or contact us online at caminofcu.org for more information.