Raiders for Financial Success
Financial Literacy refers to the use of skills and knowledge to make informed decisions regarding financial resources for a lifetime of financial well-being. Financial literacy is comprised of many financial topics, but overlapping themes tend to focus on budgeting, understanding credit, saving, debt management, and identity theft.
What is budgeting?
To budget is to plan how you will spend your income.
Steps to preparing a budget
Decide on a timeframeThis may depend on your sources of income and anticipated expenses. For example, if you receive your income and pay your expenses at the beginning of each semester, you'll want to prepare a semester-long budget. However, if your income and expenses occur weekly, bi-weekly, or monthly, consider preparing a budget for each month.
Determine your incomeGet an accurate picture of funds that you'll incur throughout the year. These may include loans, work-study, scholarships, or grants.
Determine your anticipated expenseFigure out where your money will be spent and how much you'll be spending. Will you pay for rent? Gas? Groceries? Electric?
Evaluate your budgetSubtract your expenses from your income. If you don't have enough income to cover your expenses, you'll want to reduce your spending or search for additional sources of income, such as employment opportunities or loans.
Record spendingRecord your expenses and income to make sure your spending is aligned with your budget.
Reduce your spending
You'll have fixed and flexible expenses. Fixed expenses, such as housing costs or tuition, generally won't change. Flexible expenses, such as food or transportation costs, can often be reduced. Search for more affordable substitutes if necessary.
- Easily create budgets (website): https://www.mint.com
My college budget worksheet (excel workbook): https://templates.office.com/en-us/My-college-budget-TM02347374
What is debt?
Debt is money owed to a person or organization, generally with accumulating interest - the percentage of a loan balance the lender charges for the use of its money.
Debt can be caused by a lack of financial knowledge. Some students end up borrowing high interest loans or relying on credit because they don't know about the alternatives.
Financial aid debt
The four types of financial aid are student loans, scholarships, grants, and work-study. Loans are debt; scholarships, grants, and work-study are not. Grants are free money, scholarships and work-study are earned money, and student loans are borrowed money. Student loans accrue interest, and you must repay them.
Scholarships are merit based, meaning they are awarded to students with certain qualities.
Federal work-study provides part-time jobs for undergraduates and graduates with financial need.
Loans are debt provided by an organization at an interest rate. Unlike scholarships, grants, and work-study, you must repay your loans. Fill out the FAFSA to determine your eligibility for federal loans.
What is the FAFSA?
The FAFSA or Free Application for Federal Student Aid is the form the government uses to determine the maximum amount of need-based federal financial aid you are eligible to receive.
When to fill out the FAFSA
- You'll fill out the FAFSA on a yearly basis. It is available October 1st. To complete the FAFSA, you'll need the following:
- W-2 forms and other tax documents
- Personal information
- Parent or guardian information
There are two main sources of student loan debt: federal and private.
Federal loansFederal loans come from the federal government. They often have lower interest rates and more flexible repayment options than private loans. You can view the types of federal loans at https://studentaid.ed.gov/sa/types/loans.
Private loans are an option for students who can't meet financial obligations, even with money available through federal loans.
Private loans are not subsidized, meaning the government will not cover the interest while you're in school. Eligibility and interest rate depend on your credit history.
Which type of loan is best?
Most student loans are federal. It is only necessary for students to borrow private loans if they still need help funding their education after applying for federal loans.
Tips for borrowing
Your student loan debt should be less than your starting annual salary after graduation.
Use loans for educational purposes, not for vacations, cars, etc.
- Make a budget without using loans as a resource. Only borrow what you can't cover with your other sources of income
How to repay loans
Your loan servicer or lender must provide you with a loan repayment schedule. The repayment schedule should specify when your first payment is due, the number and frequency of payments, and the amount of each payment.
View your federal loans
Go to Studentaid.gov
Log in with your FSA ID. If you don't have one, you can create one.
After logging in, you should see a summary of all your loan data on your Dashboard.
View your private loans
Start by checking your mail or email for statements. You may also log into the servicer or lender website.
Your loan payment should represent 10 to 15 percent of your income. There are repayment plans to help you make ends meet.
If you work in public service professions such as teaching, military, firefighting, law, medicine, or government, you are eligible for loan forgiveness programs after making 120 full monthly payments. To learn more, visit https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service
What is saving?
Saving is the act of setting aside money now to prepare for the future.
What to save for
- Big ticket items, such as a car, house, or wedding
- Emergencies, such as medical expenses or unemployment
- Other unplanned expenses, such as car repairs
Where to put savings
Banks vs. Credit Unions
Banks and credit unions are the two common types of financial institutions that offer savings options.
Savings Accounts vs. Certificates of Deposit vs. Money Market Accounts
Generally, banks and credit unions provide four basic types of accounts to help you manage your settings.
Difference between saving and investing
Your interest rate will be much higher when you invest in mutual funds or stocks as compared to when you put money into savings. However, investing is much riskier because it doesn't always guarantee a return.
What is credit?
Credit is your ability to acquire goods or services before payment. Credit is granted based on trust that the payment will be made in the future.
What is a credit score?
A credit score is a decision-making tool that lenders use to determine how likely you are to repay your loan on time. FICO scores and scores by VantageScore are two of the most common types of credit scores.
What is a good credit score?
FICO scores range from 300 to 850. A FICO score of 670 or above is generally considered good; 740 or above is considered very good; 800 or above is considered exceptional.
Scores by VantageScore also range from 300 to 850. A VantageScore above 700 is considered good, while a score above 750 is considered excellent.
How to establish good credit
- Open a checking and savings account
Make payments on time
Check your credit report annually
Start with only one credit card
Pay outstanding balances
Use only a small amount of the credit available
Let your accounts age (the longer you've had credit, the better it is for your credit score).
What is a credit report?
A credit report details your credit history. It includes your loan paying history and the status of your credit accounts.
Reasons to check credit report
- It's free
- It's often the first indicator that you're an identity theft victim
- It's an important step in rebuilding and maintaining good credit
- It can help you detect and dispute errors
Note: your credit report will not show you your credit score. To view your credit score, you can check your credit card or other loan statement.
Where to access credit report
There are three nationwide credit bureaus that provide you with a free credit report, upon request, every 12 months:
You can visit https://www.annualcreditreport.com/index.action to request your free report.
What is a credit card?
A credit card is issued by a bank, allowing you to purchase goods or services on credit. Credit cards are accompanied by interest and sometimes fees. They offer a revolving line of credit, which means when you repay the money you borrowed, the balance is automatically renewed.
Advantages of a credit card
You can purchase now and pay later
Controlled use of a credit card can help you establish credit or rebuild credit.
Most credit card companies handle disputes for you.
Depending on your card, you can earn rewards, such as cash back or airline miles.
Sometimes emergencies may lead you to large purchases. If you don't have the money, you can charge now and pay later.
Disadvantages of a credit card
High interest rates
Credit card companies charge you interest on each balance you don't pay off at the end of each month.
If you use your credit card freely, you may find yourself in debt.
Stay in control of credit cards
- Use only one credit card
Shop for a credit card that offers the best rewards and lowest interest rates and fees
Consider a secured card, which is a credit card that requires a cash collateral deposit that becomes the credit line for that account
Pay your monthly bills in full and on time
Only charge what you can pay for
Choosing a credit card
When considering a credit card, review the Schumer box. A Schumer box is a reference for fees, interest rates, and other information you'll need to compare credit card offers. Each Schumer box will outline the following:
Fees: Late fees, over-the-limit fees, and other common fees.
Interest rate: Interest rates can range from 6% to 35%. You are only charged interest if you carry a balance on your card from month to month.
APR: The amount of interest that you'll pay annually. A lower APR translates to lower monthly payments.
Grace Period: The time you have before you'll be charged interest.
Credit card resources
What is identity theft?
Identity theft occurs when someone steals your personal information to open accounts, file taxes, or make purchases. Identity theft can damage your credit, leading to rejection for borrowing loans and the loss of job opportunities.
Types of identity theft
Social Security identity theft
Once your social security number is stolen, the thief can sell it to undocumented workers or use it to access services or steal property and money. The thief may also use your SSN to forge fraudulent documents, such as passports, or open credit card accounts.
Financial identity theft
Financial identity theft occurs when your credit card or bank information is stolen and used to purchase goods and services. This can be hazardous to your credit and lead to a significant loss of money.
Driver's license identity theft
If your driver's license falls into the wrong hands, it can be sold to someone who matches the picture. The criminal can then use the driver's license to hide or protect his/her own identity while engaging in dangerous situations, such as drunk driving.
Criminal identity theft
This is when a person commits a crime under your name. The criminal may use a fraudulent ID with your name and details.
Medical identity theft
Medical Identity theft occurs when criminals use your medical identification numbers to access medical products and services.
Insurance identity theft
Insurance identity theft is when criminals steal your medical identity information to access insurance to receive medical treatment.
Synthetic identity theft
This is when criminals use your SSN in combination with fake information to create new identities.
How to prevent identity theft
Keep your SSN private. Don't carry your SS card with you or write your number on checks.
Don't respond to unsolicited requests for personal information by phone, mail, or internet
Collect mail as soon as possible
Compare receipts with your financial statements to watch for unauthorized transactions
Shred receipts, credit offers, account statements, and expired credit cards
Store personal information in a safe place at work or home
Install firewalls and virus-detection software on your computer
Create a complex password that criminals cannot easily guess
Review your credit report at least once per year to be sure it doesn't include accounts you haven't opened.
Know where your wallet is
Protect your mobile devices with passwords
Signs of identity theft
Unsolicited withdrawals from your bank account
Missing mail or bills
Medical bills for services you didn't use
Checks refused by merchants
Medical records that show a condition you don't have
Unfamiliar accounts or charges on your credit report
Collection calls about accounts you never opened
Credit report that contains inquiries from businesses you don't recognize
Steps to repair identity
Place an initial fraud alert
Order your credit report
Create an identity theft report
Resources for identity theft
How to Avoid Identity Theft: http://www.cmu.edu/sfs/access/docs/identity-theft.pdf