Learn the skills you need for a more financially secure life

We know that the earlier you learn the basics of how money works, the more confident and successful you’ll be with your finances later in life. It’s never too late to start learning, but it pays to have a head start. The first steps into the world of money start with education.

Banking, budgeting, saving, credit, debt, and investing are the pillars that underpin most of the financial decisions that we’ll make in our lives.

What Is Financial Literacy?

Financial literacy is the ability to understand and make use of a variety of financial skills, including personal financial management, budgeting, and investing. It also means comprehending certain financial principles and concepts, such as the time value of money, compound interest, managing debt, and financial planning.

The Importance of Financial Literacy

Financial literacy is declining. Yet making informed financial decisions is more important than ever. Take retirement planning: Many workers once relied on pension plans to fund their retirement lives, with the financial burden and decision-making for pension funds borne by the companies or governments that sponsored them. Add to this people’s increasing life spans (leading to longer retirements), Social Security benefits that barely provide enough for basic survival, complicated health and other insurance options, more complex savings and investment instruments to select from and a plethora of choices from banks, credit unions, brokerage firms, credit card companies, and more. It’s clear that financial literacy is a must for making thoughtful and informed decisions, avoiding unnecessary levels of debt, helping family members through these complex decisions, and having adequate income in retirement.

Personal Finance Basics

Personal finance is where financial literacy translates into individual financial decision-making. How do you manage your money? Which savings and investment vehicles are you using? Personal finance is about making and meeting your financial goals—whether owning a home, helping other members of your family, saving for your children’s college education, supporting causes that you care about, planning for retirement, or anything else

Introduction to Bank Accounts

Bank accounts are typically the first financial account that you’ll open and are necessary for major purchases and life events. Here’s a breakdown of which bank accounts you should consider and why they are step one in creating a stable financial future.

Many financial transactions require you to have a bank account to:

• Use a debit or credit card
• Use payment apps like Venmo or PayPal
• Write a check
• Use an ATM
• Buy or rent a home
• Receive your paycheck from your employer
• Earn interest on your money

Which type of bank can I use?

Retail banks: This is the most common type of bank at which people have accounts. Retail banks are for-profit companies that offer checking and savings accounts, loans, credit cards, and insurance. Retail banks can have physical, in-person buildings that you can visit or be online only. Most have both. Banks’ online technology tends to be advanced, and they often have more locations and ATMs nationwide than credit unions do.

Credit unions: Credit unions provide savings and checking accounts, issue loans, and offer other financial products, just like banks do. However, they are not-for-profit organizations owned by their members. Credit unions tend to have lower fees and better interest rates on savings accounts and loans. Credit unions are sometimes known for providing more personalized customer service, though they usually have far fewer branches and ATMs.

Which types of bank accounts can I open?

There are three main types of bank accounts that the average person may want to open:

1. Savings account: A savings account is an interest-bearing deposit account held at a bank or other financial institution. Savings accounts typically pay a low interest rate, but their safety and reliability make them a sensible option for saving available cash for short-term needs.
2. Checking account: A checking account is also a deposit account at a bank or other financial institution that allows you to make deposits and withdrawals. Checking accounts are very liquid, meaning that they allow numerous withdrawals per month, as opposed to less liquid savings or investment accounts, though they earn little to no interest.
3. High-yield savings account: A high-yield savings account is another type of savings account that usually pays a much higher rate of interest than a standard savings account.

What’s an emergency fund?

An emergency fund is not a specific type of bank account but can be any source of cash that you’ve saved to help you handle financial hardships like job losses, medical bills, or car repairs

Introduction to Credit Card

Credit cards are accounts that let you borrow money from the credit card issuer and pay it back over time. For every month when you don’t pay back the money in full, you’ll be charged interest on your remaining balance.

What’s the difference between credit and debit cards?

Here is the difference:

Debit cards take money directly out of your checking account. You can’t borrow money with debit cards, which means that you can’t spend more cash than you have in the bank. And debit cards don’t help you build up a credit history and credit rating.

Credit cards allow you to borrow money and do not pull cash from your bank account. This can be helpful for large, unexpected purchases, but carrying a balance not paying back in full the money that you borrowed every month means that you’ll owe interest to the credit card issuer.

What is APR?

APR stands for annual percentage rate. This is the amount of interest that you’ll owe the credit card issuer on any unpaid balance. The average APR today is about 20%, but your rate may be higher if you have bad credit. Interest rates also tend to vary by the type of credit card.

Which credit card should I choose?

Credit scores have a big impact on your odds of getting approved for a credit card. If you’ve never had a credit card before or if you have bad credit, you’ll likely need to apply for either a secured credit card or a subprime credit card. By using one of these and paying back on time, you can raise your credit score and earn the right to credit at better rates. If you have fair to good credit, you can choose from a variety of credit card types, such as:

• Travel rewards cards. These credit cards offer points redeemable for travel—including flights, hotels, and rental cars—with each dollar you spend.
• Cash-back cards. If you don’t travel often—or don’t want to deal with converting points into real-life perks—a cash-back card might be the best fit for you. Every month, you’ll receive a small portion of your spending back, in cash or as a credit to your statement.
• Balance transfer cards. If you have balances on other cards with high interest rates, transferring your balance to a lower-rate credit card could save you money and help your credit score.
• Low- or no-APR cards. If you routinely carry a balance from month to month, switching to a credit card with a low or no APR could save you hundreds of dollars per year in interest payments.

How do I create a budget?

Budgeting starts with tracking how much money you receive every month, minus how much money you spend every month. However you track your budget, clearly lay out the following:

• Income : List all sources of money that you receive in a month, with the dollar amount. This can include paychecks, investment income, alimony, settlements, and money that you make from side jobs or other projects, such as selling crafts.
• Expenses : List every purchase that you make in a month, split into two categories: fixed expenses and discretionary spending. If you can’t remember where you’re spending money, review your bank statements, credit card statements, and brokerage account statements. Fixed expenses are the purchases that you must make every month. Their amounts don’t change (or change very little) and are considered essential. They include rent/mortgage payments, loan payments, and utilities. Discretionary spending is the category for nonessential or varying purchases for things like restaurant meals, shopping, clothes, and travel. Consider them wants rather than needs.
• Savings : Record the amount of money that you’re able to save each month, whether it’s in cash, cash deposited into a bank account, or money that you add to an investment account or retirement account.

What is the stock market?

The stock market refers to the collection of markets and exchanges where stock buying and selling takes place.

How do I invest?

To buy stocks, you need to use a broker. This is a professional person or digital platform whose job it is to handle the transaction for you. For new investors, there are three basic categories of brokers:

1. A full-service broker who manages your investment transactions and provides advice for a fee.
2. An online/discount broker that executes your transactions and provides advice depending on how much you have invested. Examples of this include Fidelity, TD Ameritrade, and Charles Schwab.
3. A robo-advisor that executes your trades and can pick investments for you. Examples include Betterment, Wealthfront, and Schwab Intelligent Portfolios.

Stocks: A stock (also known as “shares” or “equity”) is a type of investment that signifies partial ownership in the issuing company. This entitles the stockholder to that proportion of the corporation’s assets and earnings. Essentially, it’s like owning a small piece of the company.

Owning stock gives you the right to vote in shareholder meetings, receive dividends (which come from the company’s profits) if and when they are distributed, and sell your shares to somebody else. The price of a stock fluctuates throughout the day and can depend on many factors, including the company’s performance, the domestic economy, the global economy, the day’s news, and more. Stocks can rise in value, fall in value, or even become worthless, making them more volatile and potentially riskier than many other types of investments

ETFs: An exchange-traded fund, or ETF, consists of a collection of securities—such as stocks—that often tracks an underlying index, although ETFs can invest in any number of industry sectors or use various strategies. Think of ETFs as a pie containing many different securities. When you buy shares of an ETF, you’re buying a slice of the pie, which contains slivers of the securities inside. This lets you purchase many stocks at once, with the ease of only making one purchase: the ETF.

Mutual funds : A mutual fund is a type of investment consisting of a portfolio of stocks, bonds, or other securities. Mutual funds give small or individual investors access to diversified, often professionally managed portfolios at a low price. There are many categories of mutual funds, representing the kinds of securities in which they invest, their investment objectives, and the type of returns that they seek. Most employersponsored retirement plans invest in mutual funds. Mutual funds charge annual fees, called expense ratios, and in some cases, commissions.

Bonds : Bonds are issued by companies, municipalities, states, and sovereign governments to finance projects and operations. When an investor buys a bond, they’re effectively lending their money to the bond issuer, with the promise of repayment plus interest. A bond’s coupon rate is the interest rate that the investor will earn. A bond is referred to as a fixed-income instrument because bonds traditionally have paid a fixed interest rate to investors.