Introduction
Lets see what financial literacy is for students. Financial literacy means you know how to manage money and not get into trouble with money.
1. Assets and Liabilities.
One simple element of financial literacy is understanding the difference between assets and liabilities. Simply, assets put money in your pocket, for example, rental income and liabilities take money out of your pocket, for example buying an electronic.
Now does that mean assets are always big stuff like home, businesses, etc. Usually yes.
But like I said earlier assets put money in your pocket so if something has to put money in your pocket it should be valuable and the value of the asset should be growing, year on year, more importantly.
This type of financial literacy for students is a must and must be included in their education but unfortunately it’s not there in the syllabus because teachers first are not financially literate.
Now let’s back to assets. Assets necessarily do not mean big stuff, it can be simple stuff like gold, or gold rings. Assets rise in value over a period of time whereas liabilities fall in value over a period of time.
That is enough regarding assets and liabilities for financial literacy for students. Now let’s move onto the next segment in the basics of financial literacy for students.
2. Budgeting
Budgeting is the most simplest tool one can make use of that significantly reduces the stress and thinking one goes through with money.
Simply, budgeting means you allocate beforehand where your money is going to go and how much money is going to go there. Usually this budgeting involves fixed cost and variable cost.
Fixed Cost
Fixed Costs are costs that occur every month the same. For example, the internet pack of airtel is the same every month, although they change once a year or once in two years.
Other examples include monthly groceries, etc, petrol costs for bikes, etc. Fixed costs are usually the same number every month and it is easy to calculate.
Variable Cost
On the other hand, there is variable cost. This cost varies from one value to another each month and it is slightly difficult to allot and track.
Lets see an example.
We all eat snacks. If you allot Rs.1000 for snacks for a month, will you stick to it? Probably not, because you may eat more or less and not exactly Rs. 1000 because of the nature of hunger and cravings and whatnot.
But we can always allocate an approximate number or range like 800-1200. Now that is the basics of budgeting. One month we can slightly go above our budget on certain stuff, but that’s totally ok. Budgeting helps to avoid unnecessary freaking out of going broke anytime, anywhere and puts a system in place that ensures one does not mismanage their money.
3. Savings
Now next, in the segment of financial literacy for students , let’s see about savings. Savings are easy but slightly tricky. Saving simply means you are saving money for future expenditure.
One of the easiest ways to save is to open a savings bank account with a standard and reputed bank and park your savings there.
When the need to use the money occurs, you take it from your savings. One can start with a small portion of the monthly income to savings.
30-40% is a great start to save because later on when you plan to invest, there is enough money for you at the exact time.
4. Debt/Loan
Next on financial literacy for students, let’s talk about debt. Debt simply means money you got from others and you should give or owe to others with interest at specified times, usually monthly.
If you miss the payment, late fees are also applicable. If you pay it before the time, prepayment fees are applicable. Funny, right?
Also one must check the processing fees and interest rates when taking on debt/loan.
Now on financial literacy for students, let’s see the common finance mistakes students make in their student life years.
- No savings.
- Spending all the money for entertainment.
- Not learning about money.
- Not learning about banks.
- They buy high end electronics that will fall in value and they make their parents pay emi monthly, which is a bad mistake.
Common Financial Literacy Practices for Students
- Budget every month. How much you are spending on what. Track your expenses in a notebook or phone or whatever you’re comfortable with.
- Save at least 30% of your pocket money that you get from your parents.
- Start learning about how to make money on the side with simple ideas.
- Use the saved money to fund your ideas.The earlier you start saving a portion of your pocket money, it will become a habit and you will save more for the future when it’s needed.
This is the basis of financial literacy for students.
You can always learn more through books, courses, etc.
I hope you liked this post on financial literacy for students, and I will see you in the next post. Take care.