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University of Delaware finance instructors Chris Lynch and Rich Jakotowicz
University of Delaware finance instructors Chris Lynch and Rich Jakotowicz

3 financial literacy lessons for every college student

Photo illustration by Julie Morin

Credit card bills eventually arrive, start saving early

April marks National Financial Literacy Month in the United States, a time to highlight the importance of teaching Americans how to establish and maintain healthy financial habits.

In celebration of Financial Literacy Month, University of Delaware finance instructors Chris Lynch and Rich Jakotowicz shared this list of key financial literacy lessons for college students.

Use your credit cards appropriately

Keep the following points in mind when dealing with credit cards:

  • The best student credit cards are those with, first and foremost, no annual fee and a low interest rate. Cash back or other rewards are also a nice attribute, but only if these come with no annual fee and a low interest rate.

  • The biggest mistake that college students make is spending more on the card than they can afford.  It can be easy to think you can “afford” to spend up to whatever the credit line is on the credit card, but if you don’t have the ability to pay off the balance in full each month, then you really can’t afford the purchase.

  • It is critical for anyone with a credit card to make sure payments are always made on time in order to maintain a good credit report. Not only will a late payment cause higher fees and potentially a higher interest rate, it could have a negative impact on your credit report.

Start saving early and save consistently

When college graduates start their first jobs, it is beneficial to develop the mindset from the start of their working careers to not spend all of the salary that they earn. This savings mindset will help ensure that one is living within their means and saving for the future.

Employer 401K plans provide an excellent way to start saving. Employees can put away dollars on a pre-tax basis that continue to grow until they retire. In many cases, employers match all or a portion of what the employee contributes. 

The difference between saving for retirement at the start of one's career vs. a later date can be quite significant. For example, using reasonable assumptions, an employee could build a retirement nest egg of about $1 million by saving just $2,000 per year over a 40 year career with an equivalent match by their employer.  The employee that waits 10 years to start this savings program would have over 50 percent less of a nest egg at retirement.

Don't try to pick stocks: Invest in a low-cost index fund

The best way for those starting out in their working careers to invest their savings (especially long-term savings like a retirement fund) is to invest in low-cost equity index funds and not worry about the ups and downs of the market. By investing in low-cost index funds, the amount of expense going to transaction and management costs is very low, and index funds hold stocks across the whole market to get the maximum benefit of diversification.  

 


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