The Importance of Financial Literacy- Knowledge is Power!
What is Financial Literacy?
Financial literacy is a term describing how much a person understands about the way money works – both personal finances, and larger things such as investments and economics.
Though it sounds like a lot to know, it breaks down to understanding three things:
- How to earn money and where your money comes from
- How to keep a budget to manage your spending
- Knowing how savings and investments work
Being financially literate means you can make smart, informed decisions regarding how you manage and use your financial resources.
But I’m Just a Student! Why is This Important to Me?
If you’re thinking, “This is the first time I’ve heard that financial literacy is important!”, you’re not alone.
Many teens and young adults do not receive much information or education about finances from school or family. All too often, financial literacy is not taught in school, which means that when you get to college, university or your first adult job, you’re simply unprepared for the financial responsibilities facing you.
Even students in high school and university/college, as well as those young adults who go straight into an apprenticeship or the working world, will encounter significant financial decisions.
You may be juggling student loans through OSAP and other student aid. Or, you might be learning to balance your spending against your paycheque. Maybe you’re even renting your first apartment or buying your first car.
Knowing how to manage your personal finances for these adult responsibilities will ensure that you don’t get caught in any financial pitfalls:
- Unmanageable Debt: Probably the most common among students and young adults. Credit cards, student loans and lines of credit are easily available. However, without understanding how interest accumulates, or how payment plans work, what begins as just a little debt can quickly become overwhelming.
- Impulse Spending and Unnecessary Purchases: We all want to buy the latest game, eat out and party with friends, or take a trip when you get that paycheque or loan deposit. And, a little bit of this is just fine! Getting into the habit of spending without keeping track of where your money goes, however, can mean you end up not able to pay for the important things such as rent or groceries.
- Not Investing for Retirement: First off, you should be doing this! Yet without at least basic understanding of the principles of saving and investing, you might not realize just how vital this can be to your future.
It’s true that many schools don’t teach financial literacy. But don’t let that stop you! Many schools, both high school and at college or university, have guidance departments and student services that can provide you with resources to learn personal financial management.
There are also a ton of resources online that can provide classes, tutorials and other valuable information. Just be sure you use reputable sources such as banks, educational institutions, or community groups.