Importance of Financial Literacy for College Students
Contributed by Robert Everett
11 July, 2019
In September 2018, the Bureau of Consumer Financial Protection published a report called Pathways to financial well-being: the role of financial capability. The study found that an individual's financial behavior was strongly associated with their financial self-efficacy and skill. Financial wellbeing is defined as "your perceived financial security and freedom of choice." It depends on the objective facts of your financial life, but it also depends on your capacity to manage your finances. Employed and retired people understand the need for financial literacy. We often see tax tips for seniors and employees from all industry. But what happens with students? They have to learn how to manage their budget and plan expenses, but that's not what money literacy is limited to.
Why is financial literacy important in this case?
Being Money Smart Now Affects a Student's Future Behavior with Money
The Federal Deposit Insurance Corporation analyzed the effects of financial education on the self-confidence about managing money and the actual behavior. After attending the program, 69% of the participants reported that they improved their savings after learning how to do that. 78% reported they had a checking account, which was 12% more when compared to the results of the participants before taking the program.
This example proves that financial literacy for students doesn't come naturally. Proper training affects the financial behavior of a consumer in future. Academic writing, for instance, is a situation that often encourages students to spend money. They will rather pay for an essay online than invest the needed effort in the assignment. But this is a significant expense that affects their monthly budget. On the other side, they also gain advantages: they can pass a course they would fail otherwise. A financially literate student will make this purchase only when necessary. When they have time for the assignment, they will work on it. The student who lacks financial literacy will procrastinate the work on the papers and they will always buy them online.
That's how being smart about money makes a difference.
Financial Literacy Can Balance Out Negative Spending Habits
College students are two to three times more prone to gambling than adults. Universities have policies against drinking on campus, but the awareness on the gambling issue is much smaller. Only 22% of colleges have formal anti-gambling policies. Most campuses don't block online casinos and the students are free to spend their money on these websites.
When the students become financially literate, they will discourage negative financial behavior, such as gambling and excessive use of alcohol. They plan the monthly budget and they are aware: if they risk their money, they won't be able to cover basic expenses for utilities, food, and coursework material.
As for the extra money that they can spend however they want, money-smart education encourages them to add it to a savings account.
Students Have to Learn about Taxes
If we talk about the importance of financial literacy among students, monthly budgeting is the first thing that comes to mind. It's an acute problem that students have to solve. But there's another important thing to mention: taxes.
Most students work, so they can earn enough money to get through college. The ones with traditional jobs can easily handle the taxing part. But what happens with freelance writers, photographers, graphic designers, makeup artists, and all other non-traditional jobs? These students have to file their taxes, too. And they have zero idea how to do it. No one taught them about taxing at high school, and they aren't taking a specialized course at college.
College professors have to encourage their students to learn about taxes. They have to be aware of the laws and regulations. Earning money has its perks, but also imposes responsibilities. If they manage their money well, covering the taxes won't be a problem.
All Students Need to Know Their Way around Finances
College life is usually the first opportunity to get independent for most students. During high school, their parents managed the expenses and gave them pocket money. The money the students earned was extra, so they usually spent it on clothes and days out. College comes with real responsibilities.
Why is financial literacy important for youth? The students would rather spend their money intuitively. But that's a good way to get stuck before the end of the month, and we have to prevent that from happening.
Colleges have to provide specific courses on money management. In addition, the students should be encouraged to take online courses and use various budgeting apps. This is the right moment to become money-smart.
Robert Everett is an academic writer and researcher on finance and economy topics. He helps students to learn how to budget. If you want more of his tips, you can follow Robert on Twitter.
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