As you have started college, you have stepped into a new chapter of life filled with exciting opportunities and challenges. College is a time for growth, new experiences, and laying the groundwork for your future. While academics are extremely important, other essential knowledge and skills often overlooked are financial literacy and financial capability. Financial literacy “refers to the knowledge you can gain from financial education” while financial capability “refers to how you use that financial knowledge with your existing resources – be that skill, confidence, or financial capital – to navigate opportunities for financial decision-making” (Pellegrini, 2024). As depicted below, having financial knowledge and skills could help you to make informed financial decisions now and, in the future. Thus it could significantly impact your college experience and set you up for long-term financial success.
1. Building a Strong Financial Foundation
College is often the first time many students manage their finances independently. From budgeting for tuition and textbooks to handling day-to-day expenses like food and transportation, understanding financial basics is crucial. Financial education provides the tools to create a budget or spending plan. It can also increase awareness of barriers to a budget or spending plans and help you to live within your means. A lot of financial education programs also teach about how to avoid risks and navigate issues when they pop up (e.g., identity theft, insurance).
2. Avoiding Debt and Managing Student Loans
Student loans are a reality for many college students. Over half of students leave school with debt (Hahn & Tarver, 2024; Hanson, 2024; Bareham, 2024). While borrowing for education can be a smart investment in your future, it is essential to understand the implications of taking on debt. Financial education will teach you how to evaluate loan options, understand interest rates, and help you develop a plan to pay off your loans after graduation.
Credit cards can be a double-edged sword. Learning how credit works, building good credit, and avoiding the pitfalls of credit card debt is essential. By being informed, you can maximize the benefits of building a positive credit history while minimizing the potential risks of common credit pitfalls.
3. Maximizing Your Money
It is important to have fun while in college. Money gives you more choices when it comes to recreation and fun activities. However, college is a time when every dollar counts, so those choices can carry more weight. Financial literacy and capability will help you learn how to make the most of your money by teaching you about savings strategies, the importance of an emergency fund, and smart spending habits. Understanding concepts like compound interest can also encourage you to start saving early, even if it is just a small amount. Over time, these habits can significantly impact your financial security now and in the future.
4. Preparing for Future Financial Responsibilities
The financial decisions you make in college can have long-term effects on your life. By learning about credit, investments, and financial planning, you are setting yourself up for success beyond graduation. Good credit is essential for major life purchases like buying a car or a house and learning how to invest early can help you build wealth over time.
5. Reducing Stress and Improving Mental Health
Money is one of the leading sources of stress, especially for college students. For example, Episode 31 of the Making Cents of Money podcast which we co-host with IDFPR highlighted Financial Security & Stress for consumers across the United States.
The American Psychological Association also highlights the impact of money on mental health and tips rooted in behavioral science for addressing spending habits.
Financial education can help alleviate this stress by giving you control over your finances. When you understand how to manage your money, you can avoid some of the anxiety that comes with financial uncertainty. This peace of mind can allow you to focus on your studies and enjoy your college experience.
If you are experiencing chronic stress and anxiety, please seek out the help of a mental health professional. All universities in the University of Illinois System have counseling services available to students:
6. Empowering Independence
Financial literacy can empower you to take control of your life. Financial knowledge and confidence can help you take action to navigate financial hardships when they arise and get back on track toward your goals. When you know how to manage your finances, you can be less reliant on others and more capable of making decisions that align with your values and goals.
Financial decisions just get more complicated as you get older so getting a financial education at a young age and while in college gives you a solid foundation. This independence is important as you transition into adulthood and begin to navigate the complexities of life on your own.
7. Setting the Stage for Lifelong Success
The habits and knowledge you develop in college will follow you throughout your life. By prioritizing financial education now, you are setting the stage for lifelong success. Whether you are planning to start a career, buy a home, or start a family, the financial skills you learn today will help you make wise decisions in the future.
Conclusion
As you embark on your college journey, remember that financial literacy and capability skills are just as important as your academic studies. By taking the time to learn about budgeting, debt management, savings, and investing, you are equipping yourself with the tools to navigate the financial challenges of college and beyond. As mentioned above, the benefits of these could be far-reaching, impacting not just your time in school but your entire life. So, invest in your financial education — it is one of the smartest decisions you can make as you start this new chapter.
Note that financial literacy and financial capability skills alone are not going to solve all economic issues. There could be situations outside your control like job loss, healthcare issues, etc. When these things happen, knowledge of financial literacy and financial capability might not be the solution, but might help to mitigate the impact of unfortunate downturns. When the expected happens, you can leverage community aid programs and ask for help when you need it.
The Student Money Management Center (SMMC), a division of the University Bursar, empowers students to make positive behavioral changes associated with their finances by providing financial education to students, parents, employees, and alumni for all universities in the University of Illinois System — Urbana-Champaign, Chicago, and Springfield. Connect with SMMC to learn more!
Remember, financial literacy is a lifelong journey. The earlier you start, the better equipped you will be to navigate life's financial challenges and opportunities. So, embrace financial education as a valuable addition to your college experience. Your future self will be happy and thank you for it!
REFERENCES
Pellegrini, A (2024, July 29). Podcast: Financial wellness concepts. University of Illinois System Student Money Management Center. https://blogs.uofi.uillinois.edu/view/7550/970920991
Fletcher, C., Cornett, A., and Ashton, B. (2024). Student Financial Wellness Survey report: Fall 2023. Trellis Strategies. https://www.trellisstrategies.org/wp-content/uploads/2024/05/SFWS-Aggregate-Report_FALL-2023_FINAL.pdf
Money, American Psychological Association. (n.d.) https://www.apa.org/topics/money
Hahn, A. (2024, April 18). 2024 Student loan debt Statistics: Average student loan debt. Forbes Advisor. https://www.forbes.com/advisor/student-loans/average-student-loan-debt-statistics/
Hanson, M. (2024, July 15). Student Loan Debt Statistics [2024]: Average + total debt. Education Data Initiative. https://educationdata.org/student-loan-debt-statistics
Bareham, H. (2024, August 8). Student loan debt statistics. Bankrate. https://www.bankrate.com/loans/student-loans/student-loan-debt-statistics/
