It’s common nowadays for college students to skip the finance section when reading the daily news on their newsfeed. It’s boring and filled with numbers, figures and line graphs. Contemporary terms like recession, stock market, inflation, stimulus, markets and risk may make kids want to roll their eyes, close their laptops and yawn uncontrollably — perhaps even all at the same time.
Understandably, these concepts appear to be dull, and may seem especially irrelevant to a 20-year-old studying biology and planning their next trip to Kung Fu Tea. Even worse, financial literacy is seemingly ignored throughout K-12 education, and is not required for college students to learn before graduating. However, if students begin to make an effort to become well acquainted with financial literacy early on, it can save them loads of stress and money in the long run. Understanding the importance of certain economic concepts, and how young adults can use them to their advantage, is an important foundation to set before they ultimately transition into a college setting, and even more so before settling into adulthood.
Firstly, it is important to understand a financial tool that can both ruin lives and send confidence sky-high: credit cards. While credit cards may not seem incredibly significant at first (they can do everything a debit card can do, right?), credit cards are strikingly crucial for young adults to begin building their credit scores. While debit cards move money directly and instantly out of your bank account for purchases, credit cards allow you to purchase things through credit, allowing you to pay off bills in the future. Your credit score is a number which helps money lenders and loaners decide if you are credible enough to borrow money. A good credit score is critical to have, because it lets you get a loan on big purchases such as cars, houses and even college tuition.
According to Sallie Mae’s 2019 Majoring in Money report, which surveyed “810 college students ages 18 to 24,” only 57 percent of college students surveyed carry at least one credit card. This figure can be seen as unsettling, as the usage of a credit card is a major step in developing healthy spending habits as a young adult. Responsible and smart credit card usage not only puts you in good standings to make those big essential purchases post-graduation, but teaches you how to manage a budget, track spending and pay monthly bills. While some may argue that students are too immature to handle credit cards and that they cause irresponsible students to damage their own credit, the same survey reported that about “60 percent of students say they pay off their credit cards in full every month and fewer than 1 percent say they pay less than the minimum.” Responsible card usage is critical especially for those in college; if you’re unable to keep track of a credit card, you won’t be able to keep track of loans, which can also default and damage credit.
The second concept that college students should strive to understand is comprehensive money-saving techniques. While most kids our age already do have a savings account, there are plenty of additional proactive methods to build your savings. Plenty of students most likely have a savings account with easily recognizable and student friendly banks, such as Bank of America and JPMorgan Chase Bank. However, most students are not aware that most of these top banks offer the lowest annual percentage yield (APY) on their savings accounts. For example, JPMorgan Chase’s savings account APY is currently 0.01 percent, meaning that in an account with $10,000, your annual net gain from interest will amount to only one singular dollar.
In contrast to this, more efficient bank accounts such as Citibank, American Express and Marcus by Goldman Sachs offer APY’s as high as 0.90 percent, where your annual gain could amount to $90. That’s a big difference, and a big deal, especially for students who are constantly working and adding to their savings. These accounts are always free to open and maintain — and more profitable in the long run. To figure out what works best for someone like you, one can easily conduct a Google search for a “savings account with high interest,” or visit a trusted site such as bankrate.com to view a comprehensive list of options and explanations.
Another easy way to save money smarter is to invest in stocks. We’re not talking about just any stocks though, we’re talking about index funds, a portfolio of numerous companies bundled together in one stock. Index funds are not for those looking to make a quick buck, but rather for those looking to make long-term gains, such as over the course of years to decades. While most securities on the market tend to swing up and down, mostly unpredictably, index funds remain relatively stable, and almost always guarantee you profit as long as you hold on. Some examples are basic index funds VTI and QQQ, which represent the entire market in a select number of companies. For example, a stock like QQQ acts as a sort of basket, representing major international and U.S. companies in the technology, health care, industrial, consumer and telecommunications sectors. Nowadays, online platforms such as TD Ameritrade are free and easy to use, and are totally commission-free.
As you can see, there are plenty of ways you can use finance to your advantage. Financial literacy is an essential skill that all adults have to learn one way or the other, so it’s better that we learn it as soon as possible. In times like these, financial literacy may not be the first thing on everybody’s minds, but rest assured, it soon will be.
David Hatami is a junior majoring in political science.