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Financial literacy may sound fancy, but you don’t need an MBA to embrace it. All financial literacy means is learning how to deal with everyday finances and plan for long-term goals.Financial literacy is an especially important tool for young adults who may find themselves a bit at sea when they first start working and living on their own.Financial literacy for young adults can help build the confidence needed to take control of every aspect of money life. And no matter what your age, the following steps can help you become more financially literate and take control of your money.
Learn More About Money
Online personal finance newsletters and podcasts and yes, old fashioned books, can help you catch up fast on all money subjects from the basics to advanced investment strategies.There are in-person options too. Check with your local library or community center. Many have regular seminars on personal finance topics.Learning about financial concepts such as the benefits of saving early thanks to compound interest, why it’s vital to have an emergency fund, how planning for the future can benefit you now and learning how to invest are all part of financial literacy and a secure financial future.
Avoid Credit-Card Debt
Credit card debt is one of the biggest obstacles to financial wellness, especially when it comes to money management for young adults. Young people who are just starting out may be particularly vulnerable. They may use credit to make ends meet but rack up large balances with sometimes debilitating interest charges in the process.In addition, young people may not realize that late or missing payments can seriously ding their credit ratings and credit score. That can affect your financial health for years to come especially when you apply for an auto loan, mortgage or even a new job.One way to manage credit card debt is to avoid it to begin with. If you’re having trouble paying your credit card balance in full each month, try paying bills and expenses with a debit card or online payment service like Venmo or Zelle.Recommended:Guide to Credit Cards vs. Debit Cards: All You Need to Know
Start and Stick to a Budget
Budgeting may not seem like a lot of fun. But in reality, this task can free you up to have more fun with your money. Importantly, it can also be the key to keeping debt at bay and saving for the future.There are several common budgeting strategies. One particularly popular one is called the 50-30-20 budget. This approach encourages followers to allocate 50% of their income toward essential expenses, 30% toward discretionary spending such as travel and entertainment and 20% toward saving.To create a budget of any kind, you’ll first have to come up with the following three numbers:Recommended:What is Zero Based Budgeting (ZBB)
#1: Monthly Income
The first number is an accurate account of your income. In other words, how much you have available to spend each month.You’ll want to include the take-home portion of your paycheck, excluding taxes, healthcare and any automatic deductions.If you have regular income from side gigs or other sources such as child support, investment income or Social Security, go ahead and add that to the monthly total.
#2: Monthly Essential Expenses
Second, put together a list of your regular essential monthly expenses. This includes housing, insurance, car payments, transportation costs, utilities, groceries, student debt and credit card payments and any other monthly bills.
#3: Non-essential Expenses
Next, when dealing with money management for young adults, tally your non-essential or discretionary expenses. These are often described as your wants, not your needs. Include averages of how much you spend on restaurant food (dining in and take out) entertainment, travel, gifts and non-essential clothing.
Gathering Data
To come up with a monthly average for essential and discretionary expenses, gather three months or so of your financial statements including bank statements, utility bills, paystubs, credit cards bills, insurance bills, loan statements and receipts.You can use this data to get started with monthly estimates. As time passes, you’ll want to track your spending to get a more accurate look at your expenses so you can adjust your budget accordingly. We’ll talk more about tracking expenses below. Recommended: 25 Ways to Save Money Fast
Use Online Tools
Becoming financially literate, particularly about your own finances, is easier thanks to the many online tools available for just about every financial task. Here are some examples. Recommended:8 Popular Budget Apps for Couples
Online Money Trackers
When grappling with how to improve financial literacy, nothing helps like tracking your expenses. That task, once the purview of spreadsheets and scattered receipts, has been simplified and enhanced by online money trackers. Apps like Mint.com will help you keep track of your spending in real time as well as your overall financial picture.
Banking and Credit Card Apps
Your bank and credit card apps can help you keep track of your finances too. They are key for adult financial literacy.Many bank apps help you keep track of automatic bill paying and transfers. You can set up a transfer system that “pays yourself first” meaning you put a certain amount of every paycheck into savings before you ever see it (or spend it).Many credit card companies offer real-time alerts for low balance before you head into fee territory. They also let you know instantly about overdrafts and suspicious purchases that may be fraudulent. Plus, some companies will categorize your spending for you and show spending fluctuates from month to month.
Talk to a Financial Expert
A financial advisor can help you determine your short-term and future financial goals. From there they can help you align your savings and spending with those goals.
The Takeaway
Having a good grasp of financial literacy at any age can help you understand how to save, spend and invest your money so you can achieve your financial goals. Reaching out to find out more about finances, learning to budget and track expenses and taking advantage of the many financial tools out there can help you gain financial literacy in all that you do.
Money Tips
1. Checking accounts are ideal for everyday transactions but earn little or no interest. Savings accounts are better for storing and growing your money — they earn higher interest but often restrict how many withdrawals you can make per month.2. To get into the savings habit, consider having 10% of your paycheck directly deposited into your savings account. Or, set up a small automatic recurring transfer from your checking account into your savings account on the same day each month.3. To set up a simple monthly spending budget, consider the 50/30/20 rule. This involves splitting your after-tax income into three categories of spending: 50% on needs, 30% on wants, and 20% on savings.Lantern can help you compare online savings accounts and find today’s best rate.
Frequently Asked Questions
What should I learn first for financial literacy?
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About the Author
Walecia Konrad
Walecia Konrad is an award-winning financial journalist with 25 years of experience in print and digital media. She is a graduate of Syracuse University and specializes in the topics of health care, personal finance, and employer-sponsored benefits. Konrad's work has been seen on CBS MoneyWatch, The New York Times, Money, SmartMoney, BusinessWeek, and Forbes. She has been the recipient of both a Pearl Award for Best Web Publication of the Year and a National Magazine Award for Personal Service.
