Financial Literacy for Point Park Students
What is Financial Literacy?
Financial Literacy is the possession of skills, knowledge, and behaviors that allow individuals to make informed decisions regarding money
Why is this important for you?
Regardless of your college major, career path, or goals, having good financial literacy skills will allow you to make informed financial decisions which can keep you on track with your goals and avoid common financial hardships such as excessive debt accumlation and overspending
Understanding Different Financial Concepts
Here are some Financial Terms that we will be discussing
- Debt
- Budgeting
- Credit & Credit Score
- Savings
- Investment
Budgeting
Budgeting is a calculated plan which you follow for a set amount of time. Personal Financial Budgeting involves taking you income and setting allocated amount for each part of your life including necessary expenses, entertainment expenses, personal expenses and investment and saving expenses. Budgeting is very useful for having personal finances in order.
Debt
Debt is essentially the money that you one to one or multiple individuals or organizations. Some types of debt may be necessary to hold such as debts obtained for higher education, or debt obtained from heathcare providers.
Credit
Credit an agreement between a lender and a borrower to allow the borrow to use funds and repay at a later date. There are three types of credit which are revolving credit which is a line a credit (money) that somebody has access to and agrees to pay back in installments. Open-credit is very similar to revolving credit, but the pay-back terms are more loosely defined then with revolving credit. Installment Credit which is when a lump sum of money is borrowed and paid backt to the lender by the borrower in fixed amounts.
Credit Score
Credit Scores are used by financial firms to analyze how credit worthy somebody is based on different factors. The factors considered are as follows:
- Payment History
- Debt Owed
- Length of Credit History
- Newly Aquired Creidt
- Mix of Credit Acounts
Credit Scores are obtained whenever you first begin opening lines of credit. Most students at Point Park likely have one since many students take out loans to pay for education. A good credit score is useful for obtaining a bigger loan amount for a purchase like a car or a house, but unfortunately even some landlords will run a credit inquiry on people looking to lease/rent an apartment or house making it more of a requirement to maintain a good credit score.
Savings
Savings are basically just incomet that you are not spending in the moment, but keeping for a later date. There are plenty of different savings philosophies on how much income should go to savings, but generally its good practice to have an emergency fund so when something unexpected occurs you can pay for it without going into debt. Its also good practice to have a set amount put into savings weekly or monthly but this amount may vary based on your financial goals and situation.
Investment
Investment is a very important things that can put you ahead financially, but it requires commitment, education, and patience in order to ensure you are investing in the right things and allowing these investments to bring return.
Before Investing you should know:
- What you are investing in
- How Risky is your investment
- Pay off Debt or Invest?
- Do you know what you're doing?
You should know what you are investing in before you invest in it. This means doing research and ensuring that what you are investing it can reasonably give you a good return on investment, but also avoid being scammed if the investment seems to good to be true or is just an untraditional form of investment.
You may be intrigued by some investments because it promises a very high return, but the reality of most investmnet is that it takes a long time to see a noticable return on investment, and while high risk investment may be temping it can cause you to loose a lot of money or even put you in a situation where you find yourself in debt. Some individuals though have higher risk tolerance and are okay with higher risk investments.
It may be tricky to figure out if you should invest money or pay off debt, but it really just depends. If an employer is matching your investment in some type of investment account (usually a 401k) then you should 100% invest up until what they match, but after this it will be more beneficial to pay off any high interest debt like credit cards. If the interest rate on a loan then generally it is advisable that at a rate of 8-9%+ you may want to prioritize paying this off before investing as most investments won't yield a higher return than this.
You might think that you can make a quick flip on some stocks or crypto currency, and this may be the case, but a lot of us don't know what we are doing, and there is nothing wrong with this, but if you are unsure about what you are doing you should seek advice from experts or even just online if you're looking for the less formal do-it-yourself route.
Understanding your financial situation
There are different factors which patter whenever you are assessing your current financial situation. One is income vs expenses which if you are not somebody who makes a planned or written personal budget you may not know what your expeses look like and how much money you make per monthly period on average.
Heres what you should record
- Money Earned
- Necessary expenses
- Entertainment expenses
- Saving & Investment Amounts
- Deffered Expenses (done with lines of credit)
As a college student you may not currently have income or any expenses which you incur now and if this is the case ignore this section for now
Calculating Net Loss or Net Gain on your Budget
If you know how much you make in a month and how much you spend a month then you can calculate if you are net positive or net negative each month
Net Income
Understanding Loans
Loans can be tricky and hard to understand how much you are really paying. Typically a loan will have a fixed monthly payment for a period of time. A lower payment may be appealing, but often loan providers will use lower payments to get you to take the loan out, but in the long run you end up paying more in interest.
Typical Loan Terms
- Student Loans: 10 years
- Auto Loans: 2 - 7 years
- Personal Loans: 1 - 7 years
- House Loans: 15 - 30 years
Loans don't necessary have to be within these terms, but these are the typical amounts of time that these loans are provided. Loan providers especially whenever discussing auto loans will take advantage of a consumers lack of financial knowledge to entertain the lower monthly payment over a longer term in order to sell a car and get them to agree to loan terms.
Consequences of not paying loans
Unfortunately complete non-payment of loans isn't really an option because it will come with a number of consequences
Auto Loans
Non-payment of auto loans typically leads to repossession of the car you are making payments on.
Personal Loans
Non-payment of a personal loan will hurt your creditscore more severly than non-payment of other forms of credit and some personal loans require collateral which can be taken by a lender in cases of non-payment.
Home Loans
Non-payment of home loans can lead to the property being foreclosed on which is simply whenever the bank repossesses land due to non-payment of a mortgage
Student Loans
Student Loans are the most interesting of the bunch. There is essentially no way for you to get rid of student loans without you paying on them as legally there is no way to get rid of student loan debt through bankruptcy. Lack of payment on student loans can eventually lead to tax returns being seized, paychecks being garnished directly from your paychecks and sent to the government. If you are in a situation where making payments is rough there are federal programs that can lower your payment or defer it for a later date without any later legal or severe financial consequences like wage garnishment.
Calculating How Much you will Pay on Loan
This Calculator can calculate the total amount which you will pay on a loan
Calculating investment
Investment financially is a similar concept to loans only the rate of return is an typically an estimated average unless its interest yielded from something like a savings account which typically is guarunteed return, but if you are basing it off the market it will be based on the estimated or average return rate historically.