Let’s face it: College is a time when we’re all trying to juggle classes, enjoy our social lives and, for the first time, manage our own money. It’s exciting but also a little overwhelming. Suddenly, we’re responsible for rent, groceries, tuition payments and maybe even a part-time job or internship income.
With so much going on, it’s easy for financial responsibility to take a back seat, but learning how to manage your money now can save you from a ton of stress in the future. That’s where financial literacy comes in.
Financial literacy is just a fancy way of saying you know how to handle your money. It means understanding key concepts like budgeting, saving, investing and using credit responsibly. Being financially literate isn’t about becoming an expert investor overnight; it’s about building the skills and confidence to make smart decisions about money. Think of it as a toolset that helps you navigate life’s financial ups and downs, and college is the perfect time to start building that toolset. We’re already making financial decisions every day, whether we realize it or not.
Many of us are dealing with student loans, which can be confusing and stressful without a solid understanding of how they work. Knowing the difference between subsidized and unsubsidized loans, understanding interest rates and planning for repayment can make a huge difference down the road.
On top of that, daily expenses, like food, transportation and entertainment, can quickly add up if you’re not careful. Without a budget, it’s easy to overspend and end up scrambling to make ends meet. Financial literacy helps you avoid that by teaching you how to stay on top of your expenses and plan ahead.
It’s also important to prioritize needs over wants. That doesn’t mean you have to cut out all fun spending, but it does mean being mindful of where your money is going.
When you make purchases, try to find ways to save, like using student discounts or buying secondhand textbooks. And if you can, start saving — even if it’s just a little bit. The earlier you start, the more time your money has to grow, thanks to the power of compound interest. But saving isn’t the only way to grow your wealth; investing is just as important.
By putting your money into stocks, bonds or other investment vehicles, you have the potential to earn higher returns over time than if you were to use a traditional savings account. Investing early can help you build wealth for the long-term, whether it’s for retirement, a big purchase or other financial goals.
Lastly, don’t forget about credit. If you have a credit card, make sure you’re using it responsibly by paying off the balance in full and on time each month. Avoid racking up debt on impulse buys, and monitor your credit report regularly to catch any errors or signs of fraud. Building good credit now can open up a lot of opportunities in the future.
Investment basics: Understanding the fundamentals
Stocks, bonds, exchange-traded funds, mutual funds and index funds are all different types of investments, each with unique characteristics and levels of risk and return. Stocks represent ownership in a company. When you buy a stock, you purchase a small part of that company, making you a shareholder.
If the company performs well, the stock’s value may increase, allowing you to sell it for a profit. Some companies also pay dividends, which are portions of their profits distributed to shareholders. This is similar to an end-of-year bonus — if the company performs well, you may be compensated. However, if the company struggles or the market declines, the stock’s value can decrease, leading to potential losses.
While stocks generally offer higher returns over time, they come with a greater risk of price fluctuations. Bonds, on the other hand, are like loans you give to companies or governments. In exchange for your money, they promise to pay it back with interest after a certain period. Bonds are generally considered safer than stocks because of their fixed payments, but they offer lower returns.
ETFs are collections of different stocks, bonds or other investments, which are grouped together in a single fund that you can buy all at once. This allows you to diversify your investments without needing to pick individual stocks, such as Disney, Apple or Tesla. Mutual funds are similar to ETFs but are actively managed by professionals who decide what investments to buy and sell within the fund.
Index funds, a type of mutual fund or ETF, track specific market indexes. For example, an S&P 500 ETF tracks the performance of the 500 largest U.S. companies. ETFs offer investors diversification, which reduces the risk of holding a single asset, and they typically have lower fees compared to mutual funds. However, they still carry market risk, as their value changes with the performance of the underlying assets.
Each type of investment serves different financial goals and risk tolerances. Stocks provide potential for high growth but come with volatility. Bonds offer stability and regular income but have lower returns. ETFs and mutual funds provide diversification and are ideal for investors seeking a balance between risk and return.
Next steps?
Open a simple, no-fee brokerage account; it’s like having a bank account, but it allows you to purchase securities, such as stocks and bonds. Popular platforms include Robinhood, Fidelity Investments and Charles Schwab, all of which offer user-friendly apps to help you get started.
Learning how to manage your money in college might not sound as exciting as planning your next spring break, but it’s one of the most valuable skills you can develop. Financial literacy gives you the confidence and knowledge to handle life’s financial challenges and sets you up for success after graduation. And honestly, who doesn’t want that?
Reach Gigi Young at life@collegian.com or on Twitter @CSUCollegian.
