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5 Important Components of Financial Literacy


understanding these important components, students gain the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being. I am here to assist you in achieving your financial goals by explaining these important components.


Earning

Earning refers to bringing money home from a job, self-employment, or return on various investments. Most individuals earn money via employment in the form of a paycheck. The average employee pays between 28-30% of their gross income in taxes and other deductions before receiving their net income or take-home income. It is extremely important to understand gross versus net in a paycheck, in addition to understanding the federal, state and local individual income tax imposed on citizens and residents of the USA.

College students need to fully understand the concept of earning in order to determine their future potential earnings prior to committing to a specific specialization in their educational goals. It is advisable for all students to take time, ask questions, and explore career tracks before they declare a desired major of studies. This is not to say that a student should not pursue his or her passion, this is to get students to make a plan for future earning potential once they graduate from college. Regardless of what your goals are, education is an investment in your future, so make sure you are satisfied with your return on this investment.


Saving and Investing

Saving and Investing have to do with the understanding of financial institutions and services available to you. First and foremost, you should have a saving and a checking account to manage your own financial transactions. Start SAVING EARLY and PAY YOURSELF FIRST to help you understand the concept that saved money grows over time which also leads you to explore long-term investments for retirement planning.


Spending

Spending is probably the most important concept because it is a combination and personal reflection of your values, lifestyle, and your financial behavior. Differentiating between NEEDS and WANTS is the basic concept of controlling spending. Budgeting is the most powerful and impact-full tool you can adopt to control spending to allow for saving and investing.


Borrowing

Borrowing is acquiring debt to create assets. Most students have to borrow student loans to finance their educational goals, and with a financial plan for repayment, they can turn this investment in their education to their advantage. Mortgages or loans to buy homes are another form of borrowing or acquiring debt to create assets. Business loans to create self-employment opportunity or build a business, and real estate investments, are also good examples of how borrowed money can be turned into assets and wealth accumulation.


Protecting

Protecting deals with insurance, ID theft, and retirement planning. The idea is to stay protected at all levels in your life; on personal, health, and social levels. You will need to understand risk management, insurance coverage, identity theft protection, fraud, and scams, in order to master self and family financial protection in life.


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