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How College Students Can Build Their Financial Literacy (and Future Wealth)

Financial literacy is knowing how your money works and how to get it to work for you. Financial illiteracy can leave consumers swimming in debt, struggling to repair their credit scores, and unprepared for retirement. 

However, understanding and exercising these five financial literacy concepts will help you avoid poor financial decisions and make major strides in your wealth building journey. 

  • Earning
  • Budgeting
  • Saving and investing
  • Borrowing
  • Protecting

Earn: understanding your take-home pay

While receiving a first paycheck can be an exciting milestone, college students may be puzzled to learn they’ve earned less than anticipated. Employers withhold deductions for many reasons, including federal and state taxes, health insurance premiums, and retirement contributions. Knowing the types of paycheck deductions can help you better understand how much you actually make.

Budget: keeping your spending habits at bay

The cost of your college education and experience can add up, but creating a budget ensures you’re spending within your means.

Several budgeting programs like the envelope system or zero-based budgeting can help you manage your finances and keep you accountable. A popular budgeting method is the 50/30/20 rule: 50% for needs, 30% for wants, and 20% for savings. However, you can adjust this ratio as needed.

Tracking your spending can help you stay within your budget limits or adjust your budget if needed. Several great budgeting tools include Mint, or You Need a Budget (YNAB).

Save and invest: establishing your financial future

If you’re a young, college student, retirement may seem light years away, and the last thing on you minds. However, due to the power of compound interest, time is your best friend when building a considerable retirement fund. For instance, if you’re a 20-year-old student, and you invest $100 monthly for the next 30 years with a 6% rate of return, you could have an additional $130,000 in your bank account by 50 years old.

Along with the benefits of compounding interest, retirement plans have tax advantages, meaning you can save money on taxes and increase your savings.

If your employer offers a 401(k) in your benefits package, take advantage of this retirement program. One of the neat features of a 401(k) is that your employer will match your contribution up to a defined limit. Contributing to your 401(k) up to your employer’s match will ensure you get the full benefit of your retirement plan. 

Whether you’re self-employed or have an employer, you can open a traditional or Roth IRA to start saving for retirement. Keep in mind that 401(k)s and IRAs have contribution limits. In 2023, you can contribute up to $22,500 in your 401(k) and up to $6,500 in your IRA, depending on your filing status.

Borrow: using credit to your advantage

Borrowing a line of credit can help you build your credit score and access attractive rewards. A good credit score can also qualify you for financial services like a mortgage or auto loan with favorable rates.


To build your credit score, you must have a credit history. If you have no credit, you can start building your history in several ways, including but not limited to the following: 


  • Signing up for a secured credit card
  • Becoming an authorized user
  • Making federal student loan payments (you don’t need credit history to qualify for federal student aid) 


If you have a credit card or can qualify for one, you can take advantage of its lucrative benefits while minimizing risks by following these steps: 


  • Pay your statement’s balance in full monthly to avoid interest rates 
  • Stay under 30% of your credit utilization
  • Only spend what you can afford by keeping a budget


You can also apply for a FirstCard account — a debit card that allows you to earn up to 15% cashback if you spend with our affiliated partners.

Protect: securing your assets from unexpected expenses

When life happens, you may have to spend extra money to get back on track, like taking your vehicle for repairs after a breakdown. Spending a bit on health, auto, or renters insurance will save you thousands of dollars and prevent you from going into debt if you have to cover a large, unexpected bill. 

Building an emergency fund can also fill the gaps that insurance can’t. For instance, if you get hurt and receive medical care, your health insurance may cover 80% of your expenses, while you must shoulder 20% out-of-pocket. Your rainy day fund can pay the difference, which is extremely helpful if your bill is high. Experts recommend having three to six months of living expenses for an emergency. 

It’s never too early to prepare for your financial future

Building wealth is a marathon, not a race or a get-rich-quick scheme. For many people, time is of the essence when it comes to growing their net worth and securing their future. If you’re a college in their 20s, it’s a prime time to take advantage of compound interest and see considerable returns in the next few decades.

Even if you can’t save and invest thousands of dollars each month towards your financial goals, you can start by budgeting a small amount towards monthly savings, creating an emergency fund to avoid debt, and saving any windfall income you get. Every dollar you save today is a dollar (and then some) towards your future self. 



Alani Asis is a freelancer for Firstcard on writing finance topics for college students. She graduated from the University of Hawai'i at Manoa with a bachelor's degree in political science and a minor in history. Alani has over three years of experience writing for personal finance brands such as USnews & World Report, Forbes, Insider, LendingTree and Fortune Magazine. She is dedicated to helping readers make informed financial decisions and achieve their financial goals. You can find her on LinkedIn or visit her website at alaniasis.com.

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