Financial literacy education is becoming more and more common in public education systems. It’s a beautiful thing to see, but it doesn’t necessarily help the more *ahem* mature among us who didn’t have access to that education growing up.
Today, we’ll go over some of the most frequently asked financial literacy questions to catch you up.
Believe it or not, the basics of budgeting are fairly simple. Ultimately, you’re trying to capture your income vs. your expenses. Usually you’re doing this over the period of a month, but you can technically make a quarterly, yearly or even multi-year budget.
Your goal is to create a budget where you’re spending less money than you bring in. That way you can use the excess to build your savings, pay off debt or invest for your future.
There are several different strategies you can use to build your budget. Some common budgeting strategies include:
Back in the day, you would have done this manually with pen and paper. At a certain point, you were able to start building your own spreadsheets to record your budget.
But in today’s day and age, you can use budgeting software like PocketSmith to build a budget for you. It takes a lot of the heavy lifting out of the process, while increasing your financial literacy skills along the way.
Your credit report is the document that informs your credit score. You can have multiple credit scores, depending on which company is doing the calculations and the type of loan you’re trying to take out.
Your credit report contains both positive and negative line items. Positive line items — like on-time payments or accounts that have been open for a long time — could serve to boost your credit score. Negative line items, like late payments or bankruptcies, could lower your credit score.
The better your credit report, the easier time you’ll have getting approved for a loan or credit card. Those with a more positive history are also likely to get better terms and interest rate offers when they do qualify for lending products.
If there’s an inaccurate line item on your credit report, you can contest it. Just bear in mind that just because an item doesn’t show up on your credit report doesn’t necessarily mean that you don’t legally owe that particular debt.
Credit cards are revolving credit products. That means you have a line of credit open to you, to spend against whenever you want. You don’t have to pay any money until you borrow against this line of credit.
When you make a purchase against this line of credit, you’re not immediately charged interest. If you pay your balance off in full at the end of every statement cycle, you can avoid interest on purchases altogether.
However, if you pay only the minimum amount due or any amount less than your total balance, you will be charged interest on the remainder. Interest rates on credit cards tend to be incredibly high, which means they can get expensive fast.
Let’s say you have a $2,000 balance on a credit card account that charges you 25% APR in interest. Your minimum monthly payment is about $60.
It would take you five years to pay off your credit card debt. When all is said and done, in addition to the $2,000 payment, you would have also paid nearly $1,400 extra in interest.
If you’re late on one of those minimum monthly payments, things can get worse. You can get hit with late fees, which commonly fall around $30 in the U.S.
Some credit cards allow you to withdraw cash from the ATM. These are known as cash advances, and they act differently than standard credit card purchases. They come with a separate interest rate, which can sometimes be higher than the interest rate charged on purchases.
Another big differentiator is that interest on cash advances starts accruing right away. You don’t get a grace period that lasts until the end of the statement cycle like you do with purchases. That means you’ll want to pay off these cash advances ASAP — even before your statement comes in.
When it comes to products like student loans or mortgages, one of your best bets is to get financial coaching at the time you take these products out. That’s because the terms of certain lending products can change over time.
For example, depending on your country, there might be different terms for student loans granted by your government rather than student loans you take out from a lender in the private sector. The laws around government-issued student loans change over time, so your best bet is to seek out this information directly from your government immediately prior to signing on the dotted line.
Mortgages tend to be a little more static in terms of regulations, but things like first-time homebuyer assistance programs, minimum down payment requirements and interest rates can vary over time — or even vary based on where you live.
If you are a first-time homebuyer and you participate in an assistance program, usually one of the requirements of participation is completing a (free-to-you) homebuyers education program. This, combined with working with a trustworthy, experienced real estate agent, can help you figure out how much house you can realistically afford, and which lending products make the most sense for your own homebuying journey.
The fact that you’re reading this article is a great start! You’re seeking out the knowledge you need to better your financial future, and that curiosity is the key to it all. Keep researching the topics that are important to your financial life, bearing in mind that there’s a lot of inaccurate information on the internet. Rather than relying on social media to feed your knowledge base, turn to trustworthy sources like:
For example, rather than taking credit advice from a TikTok star, it would be a better idea to seek it out from a credit counsellor who has a certification that’s recognised as non-predatory by your government.
And while you can feel confident turning to the PocketSmith content to build up your budgeting skills, you’d want to go to a certified financial advisor who can evaluate your unique financial situation before making any massive, in-depth investment decisions with your retirement account.
It’s never too late to start learning about money. Building your financial literacy skills is key to building a better financial future, no matter your age.
Brynne Conroy is an award-winning personal finance writer, creator of the popular women’s finance site, Femme Frugality, and author of The Feminist Financial Handbook, which was an Amazon #1 New Release across multiple categories including Poverty and LGBTQ Demographic Studies. Her work has been cited in academic texts, and she’s spoken at venues such as Vanderbilt University, the Financial Planning Association and the 529 Conference. Here at PocketSmith, Brynne covers personal finance within American financial systems.
