Financial Literacy Starter Guide

FINANCIAL LITERACY STARTER GUIDE Lily Friedman

TABLE OF CONTENTS Budgeting

3

Debt & Credit

8

Savings

12

Investing

16

Sources

19

DISCLAIMER The information provided here is for educational and informational purposes only and should not be construed as financial advice. I am not a certified financial advisor, and any decisions you make based on this information are at your own risk. For personalized financial advice, please consult with a certified financial advisor or planner.

WHAT IS THIS? This booklet is intended to act as a starter point for undergraduate students to start learning the information needed to make responsible financial decisions.

The typical American undergraduate student lacks the foundational financial knowledge needed to be financially literate.1 Financial education can help students improve their financial decision-making skills.2 When reading this book, feel free to skip around the different sections! Financial education is most effective when focused on information useful to the learner’s current circumstances, so it is a good idea to flip to whatever part of the starter guide is pertinent to your own situation.3 2

BUDGETING What is your current income? How much money do you spend in a month, and on what? Are you putting away any money for savings? How would you handle a major unexpected expense?

If you can easily answer all these questions, you are likely already familiar with keeping a budget.

If not, you may find this chapter particularly helpful.

WHAT IS A BUDGET? A budget is a plan for how you will use your money.4 Keeping a budget requires you to track your income and expenses and helps you better understand your own financial situation.5 BUDGET TERMS TO KNOW INCOME: The money you receive to live on, such as compensation for working at a job, money made from investments, or money from disability or retirement benefits.5 EXPENSES: The money you pay for the things you want or need, such as grocery, rent, insurance, and utilities.5 3

HOW DO I MAKE A BUDGET? Starting a budget can be difficult. Luckily, it can also be broken down into a few simple steps:

1. Identify your monthly after-tax income To start your budget, you need to know how much money you are making each month.6 You may be earning money from a job, or receive money from a grant, scholarship, or family member.

Since your income might vary depending on the month, it may be a good idea to write down your income from the last three months and calculate the average. This table from the Consumer Financial Bureau’s financial planning worksheet might be useful as a template for your list: Income Source

Month 1 Net Income

Month 2 Net Income

Month 3 Net Income

Average Per Month

Job 1

Money made in Month 1

Money made in Month 2

Money made in Month 3

Add the amount for each month together, then divide by three

Job 2

Money made in Month 1

Money made in Month 2

Money made in Month 3

Add the amount for each month together, then divide by three

Total

DID YOU KNOW? ”Net” income is the same as “after-tax” income.6

4

2. Track your monthly expenses After you calculate your monthly net income, you need to figure out how much you are spending: your expenses.7 You may find it helpful to make a similar table as you made for incomes to keep track of your expenses, which may look something like this: Expense Expense 1

Expense 2

$ Spent in Month 1 Money spent on Expense

Money spent on Expense

$ Spent in Month 2 Money spent on Expense

Money spent on Expense

$ Spent in Month 3

Average Per Month

Money spent on Expense

Add the amount for each month together, then divide by three

Money spent on Expense

Add the amount for each Month together, then divide by three

Total

3. Figure out your financial goals Considering what you want to accomplish with your finances, such as paying off your credit card debt or building a fund for emergencies, can help you decide how best to approach budgeting.

You should set goals that are “SMART”, which stands for Specific, Measurable, Achievable, Relevant, and Timely.8 For more information on the “SMART” goalsetting method, check the next page of this guide.

5

SETTING SMART GOALS SMART goals will set you up for success. Here are some questions to ask yourself while setting financial goals:

Specific

What specifically am I saving for?

How will I benefit from this goal?

Measurable How much money do I want to save?

How will I measure my progress?

Actionable

Can I realistically reach this goal?

What steps will I take to reach this goal?

Relevant

Is it the right time to focus on this goal?

Why do I find this goal important?

Time bound When will I complete this goal?

Is this time frame reasonable?

4. Decide how you will allocate your money There are many different strategies to set up a budget.9 Now that you know how much you are earning and spending, and what financial goals you want to accomplish, you are well-prepared to figure out which one is best for you. One popular strategy, the 50/30/20 plan, is when you divide up your budget as follows: - 50% pays for necessary expenses, - 30% pays for non-essential ‘wants’ - 20% is put away for savings and debt repayment For a longer explanation of this type of budget, check out the Forbes article “What Is The 50/30/20 Rule?”

6

5. Create your budget Compile all the work you have done so far into one place for you to update as you live your life. Use whatever method works best for you, such as a spreadsheet or a budgeting app. Congratulations! You have a budget. It’s time to start using it.

If you want a more detailed guide on how to build a budget, check out the National Credit Union Administration’s Budgeting and Savings Guide. You also might want to fill out the Consumer Financial Protection Bureau’s financial planning worksheet or cash flow budget guide. If you want a more in-depth workbook to get your budget started, please check out the Consumer Financial Protection Bureau’s Financial Empowerment Toolkit.

6. Adjust your budget as needed Creating your budget is only the beginning. It is important to continuously monitor your budget and financial goals to make sure it is working for you.8 As you use your budget, you will figure out what is and is not working.

Here are some questions to consider when adjusting your budget: How well are you sticking to your budget? Did any expenses surprise you? What are your spending trends? How much progress on your financial goals have you made? Has your financial situation changed since your last budget adjustment?

7

DEBT & CREDIT How does credit differ from debt? Although these concepts often get mixed up, debt and credit are not the same thing. Here is a short explanation of the definitions and usage of debt and credit:

WHAT IS DEBT?

WHAT IS CREDIT?

Debt is the money you Credit is the ability to get owe an individual or loans and borrow money business after borrowing with the promise to money.10 repay it later.11

USES OF DEBT

USES OF CREDIT

Debt is useful because it Credit is useful because it can help you achieve allows you to get debt.13 your financial goals and Your credit history is a build wealth over time.12 signal to lenders showing For example, taking on how likely you are to pay debt might allow you to back what you borrow.13 buy a home that grows “Good” credit will make in value or invest in your it easier to get approved own buisiness.12 for loans.14 8

HOW IS CREDIT MEASURED? Credit scores and credit reports are used to measure a person’s creditworthiness, which is how likely the borrower is to pay back debts on time.15 A credit report is a collection of your creditrelated financial history.16 A credit score predicts your creditworthiness based off the information in your credit report.17

This diagram was created by MyFico.com, and represents the makeup of a standard credit score.18

If you want to learn more about what credit is and how to use credit, please check out the Consumer Financial Protection Bureau’s page on Credit Reports and Scores.

9

GOOD DEBT VS BAD DEBT As a general rule, try to pay off your debt as soon as possible. However, not all debts are created equal. Why are some debts considered ‘better’ than other debts?

GOOD DEBT Good debts are debts that can help make you a more money in the future.19 For example, your house may grow in value by the time your mortgage is paid off, and student loans may allow you to increase your earning potential drastically by getting a college degree.

BAD DEBT Bad debts are debts used to buy things that will not help you make more money in the future, and debts you are unable to repay.20 Bad debt typically has high or variable interest rates. For example, you may build up credit card debt much quicker than you expect as interest payments accumulate and prolong your debt beyond its initial value.

WHAT ARE INTEREST RATES? Learning about interest rates will help you understand debt better. Interest is the price of borrowing money.21 If you are taking out a loan, the interest rate will typically be a percentage of the monetary amount loaned out charged by the lender to the borrower.22 Borrowing money is more expensive when interest rates are high and is cheaper when interest rates are low.

10

TYPES OF INTEREST IN DEBTS Interest can be complicated and confusing, and there are several different types of interest in relation with debts.

Remember, interest itself is essentially money paid regularly to a lender by a borrower as the price for being lent money.20 Compound interest is interest added to the initial loan amount. Since the added interest increases the loan, the amount of interest paid by the borrower or earned by the lender is increased over time.23 Compounding interest can accumulate fast and make debt very difficult to pay off.

Simple interest is interest calculated using the only the original principal of the loan, without including compounding interest.24 It is a good rule of thumb to pay off your debts with the highest interest rates first to prevent the interest from building on itself and adding to your debt.

DID YOU KNOW? The “principal” of a loan is the base amount of money that was originally borrowed in a loan.24

If you are currently dealing with a lot of student loan debt, a great place to look for advice is the Consumer Financial Protection Bureau’s page on Student Loan Advice.

11

SAVINGS Many say you should start saving money as early in your life as possible. However, it can be very unclear what saving actually consists of. When you save, you set aside funds for tomorrow instead of spending the money today.25 You might save for many reasons: to repay your debts, to build an emergency home, to make a large purchase, to make a retirement plan, or to have some extra money as a cushion for a rainy day.

Organize your income & expenses

Set a SMART* savings goal

Regularly set aside money for your goal

HOW TO START SAVING Creating and sticking to a budget will help you figure out how much you want to set aside for savings each week or month.27 Try to make saving as easy as possible for yourself. You could start out saving a very small amount of money and increase the amount you put aside over time.26 Another way to make saving easier for yourself is to set up an automatic payment into a savings account so you do not have to think about setting money aside each time you get a paycheck.26 * Check page 6 for an explanation of how to set a SMART goal.

12

HOW DO BANKS FACILITATE SAVINGS? Banks act as a middleman between savers and borrowers.29 Since people are unlikely to take all their money out of a bank at once, the bank does not need to keep all money deposited on hand.30 Banks use the excess money to make loans and earn profit by charging borrowers higher interest rates than the interest on deposits.31 When you put money into a savings account, you are lending money to the bank. In return, the bank will put your money to work to make a little more money.

INTEREST AND SAVINGS Although the different types of interest in relation to debts were explained earlier on page 11, you may find it useful to reframe your thinking about interest when saving.

Consider the following: Simple interest is the interest used most often in savings accounts.24 You are not likely to earn a lot of money off simple interest in your savings account, but you still will earn more money than just keeping the money at home under your mattress.

Compound interest is interest that is added to the initial sum of money put into a savings account. Since the added interest increases the amount of the money, the interest paid to you will increase over time.23 Most savings accounts do not use compounding interest, but you can still use compounding interest to build your money over time in other types of accounts.23 13

IS MY MONEY SAFE IN THE BANK? If your bank is FDIC-insured, your money is safe. FDIC stands for “Federal Deposit Insurance Corporation,” and is a government entity that ensures your deposit is protected in insured banks.32 If you use a FDIC-insured bank, then the United States government will protect your money up to $250,000! For more information on exactly what is covered by the FDIC deposit insurance, check out the FDIC’s article “Understanding Deposit Insurance”.

CHECKING VS SAVING ACCOUNTS CHECKING ACCOUNT

SAVINGS ACCOUNT

A checking account is a bank account typically used for your daily expenses and more immediate spending needs.33 A checking account will likely earn less interest as a savings account.33

A savings account is a bank account often used to help save for your financial goals, such as starting an emergency fund.34 Savings accounts will typically earn more interest than checking accounts.33

WHY MAKE AN EMERGENCY FUND? An emergency fund is a bank account specifically set aside for unexpected expenses.35 Saving to create an emergency fund can help protect you against needing to rely on credit cards or loans in the case of a sudden financial shock.36 For more information on how to start your emergency fund, check out the Consumer Financial Protection Bureau’s digital guide to building an emergency fund.

14

WAYS TO MAXIMIZE YOUR SAVINGS Not all savings accounts are the same. Different options exist beyond your basic savings account. When considering what account to make, you first should figure out when you will need to use the money you are saving, as different types of accounts have different rules about when you can access your saved money.

Some options include certificate of deposit, U.S. savings bonds, and money market accounts. For more information on these financial products, please visit your local bank or check out the Consumer Financial Protection Bureau’s Benefits and Risks of Different Savings Options handout for an explanation of the different places to put your savings.

WHAT IS LIQUIDITY? “Liquidity” is the quality of how quickly and easily something can be turned into money and keep its value at a fair price.37 The more ‘liquid’ something is, the easier it is to turn it into money you can use to buy something. The more ‘illiquid’ something is, the harder it is to convert into cash.38 The most ‘liquid’ resource will always just be money itself, as there are no extra steps needed to use it as money!

When you are considering where to put your hard-earned savings, you may want to consider how easy it will be to take the savings in your account and turn it into money. Are there any fees for taking out money before a certain date?

15

INVESTING What do people mean when they say it is a good idea to invest your money? Investing is a way to use your money to make money over time.39 Typically, you invest your money through financial instruments such as stocks, bonds, and mutual funds.40 Investing often carries more risk than saving, with the potential for a bigger reward.39 Make sure you do not invest with money you can’t afford to lose.

What you invest in depends on your financial goals: what do you want to accomplish with your investments? Investing can be used to make progress on your long-term financial goals, such as planning for retirement, paying for a vacation, or saving enough to buy a home.40 16

WHY IS INVESTING IMPORTANT? Investing your money has the potential to earn you much more over time than your savings account.39 Although investing money may carry a higher risk of losing money, it can also help you achieve long-term financial goals that would be much harder to reach otherwise.

WHERE DO I INVEST MY MONEY? There are many ways to invest your money.

Once you have figured out what financial goal you want to pursue through investing, you will have to decide the type of investment account you want to open, and where you want to invest your money.40 Navigating these decisions can become very overwhelming, so you may want to reach out to your bank or credit union to see if it offers any free financial guidance with your account.41 For a more detailed explanation of the different ways to invest, check out Fidelity’s “How to Start Investing” online guide.

17

FINAL THOUGHTS Congratulations for making it through to the end!

This starter guide is meant to be an introduction to your financial journey, not a catch-all guide. If anything in particular caught your interest as you were reading, try to look online for more resources related to the subject.

As you go through life, keep these things in mind: ▪ Don’t live beyond your means ▪ Pay off your credit card debt every month ▪ Don’t spend what you don’t have ▪ A penny saved is a penny earned ▪ Seek knowledge from reputable sources There is no singular most important piece of financial information to know, so try to continue to be curious and learn more!

Thank you for reading, Lily Friedman 18

SOURCES 1.

2.

3.

4.

5.

19

U.S. Financial Literacy and Education Commission.

(2019). Best Practices for Financial Literacy and Education at Institutions of Higher Education. https://home.treasury.gov/system/files/136/BestPractices-for-Financial-Literacy-and-Education-atInstitutions-of-Higher-Education2019.pdf Kaiser, Tim, Annamaria Lusardi, Lukas Menkhoff, and Carly Urban. “Financial Education Affects Financial Knowledge and Downstream Behaviors.” Journal of Financial Economics 145, no. 2 (June 10, 2022): 255– 72. https://doi.org/10.1016/j.jfineco.2021.09.022.

Fernandes, Daniel, John G. Lynch, and Richard G. Netemeyer. “Financial Literacy, Financial Education, and Downstream Financial Behaviors.” Management Science 60, no. 8 (2014): 1861–83. http://www.jstor.org/stable/42919641.

“Financial Literacy.” Harvard College. https://college.harvard.edu/guides/financial-literacy.

U.S. National Credit Union Administration. (October 16, 2024). Money Basics Guide to Budgeting and Savings. https://mycreditunion.gov/sites/default/staticfiles/money-basics-guide-budgeting-savings.pdf

SOURCES 6.

Barroso, Amanda, and Lauren Schwahn. “How to Budget Money in 5 Steps.” Edited by Laura McMullen.

NerdWallet. (July 1, 2025). https://www.nerdwallet.com/article/finance/how-tobudget.

7. Birken, Emily. “How to Budget in 7 Simple Steps.”

Edited by Doug Whiteman. Forbes. (March 5, 2020). https://www.forbes.com/advisor/banking/how-tobudget-simple-steps/.

8. “Setting SMART Financial Goals.” Desert Financial Credit Union. (July 31, 2024). https://www.desertfinancial.com/en/financial-wellbeing/blog/financial-education/smart-goals.

9. “Popular Budgeting Strategies.” Penn Student Registration & Financial Services. https://srfs.upenn.edu/financial-wellness/browsetopics/budgeting/popular-budgeting-strategies.

10. “Managing Debt.” UC Berkley Financial Aid & Scholarships, n.d. https://financialaid.berkeley.edu/center-for-financialwellness/financial-literacy-hub/managing-debt/.

11. Consumer Financial Protection Bureau. (2019). Want Credit to Work For You? https://files.consumerfinance.gov/f/documents/cfpb_ ymyg_want-credit-to-work-for-you_booklet_print.pdf.

20

SOURCES 12. “Financial Leverage: What Is Good Debt vs Bad Debt?” US Wealth Management, n.d. https://www.usbank.com/wealthmanagement/financial-perspectives/financialplanning/financial-leverage-what-is-good-debt-vsbad-debt.html.

13. Akin, Jim. “What Is Creditworthiness?” Experian, (December 9, 2023). https://www.experian.com/blogs/ask-experian/whatis-creditworthiness/.

14. Howard, Ebony, and Skylar Clarine, eds. “Credit: What It Is and How It Works.” Investopedia, (October 1, 2024). https://www.investopedia.com/terms/c/credit.asp.

15. Dhir, Rajeev. “Creditworthiness: How to Check and Improve It.” Investopedia, (August 10, 2023). https://www.investopedia.com/terms/c/creditworthiness.asp.

16. Consumer Financial Protection Bureau. (January 29, 2024). What is a Credit Report? https://www.consumerfinance.gov/ask-cfpb/what-isa-credit-report-en-309/.

17. Consumer Financial Protection Bureau. (August 28, 2023). What is a Credit Score? https://www.consumerfinance.gov/ask-cfpb/what-isa-credit-score-en-315/.

21

SOURCES 18. “What’s in My FICO Scores?” myFICO, n.d. https://www.myfico.com/credit-education/whats-inyour-credit-score.

19. “Good Debt vs Bad Debt: How to Tell the Difference.”

Fidelity, (October 8, 2024). https://www.fidelity.com/learning-center/smartmoney/good-debt-vs-bad-debt.

20. “Understanding Credit: Good Debt vs. Bad Debt.”

Equifax, n.d. https://www.equifax.com/personal/education/credit/re port/articles/-/learn/understanding-credit-good-debt-vsbad-debt/.

21. Chen, James. “Interest: Definition and Types of Fees for Borrowing Money.” Investopedia, (September 19, 2024). https://www.investopedia.com/terms/i/interest.asp.

22. Banton, Caroline. “Interest Rates: Types and What they Mean to Borrowers.” Investopedia, (May 11, 2025). https://www.investopedia.com/terms/i/interestrate.asp.

23. Fernando, Jason. “The Power of Compound Interest: Calculations and Examples.” Investopedia, (June 14, 2025). https://www.investopedia.com/terms/c/compoundinter est.asp.

22

SOURCES 24. Hayes, Adam. “Simple Interest: Who Benefits, With Formula and Example.” Investopedia, (February 23, 2024). https://www.investopedia.com/terms/s/simple_intere st.asp.

25. Jayachandran, Aswathi. WallStreetMojo, (November 24, 2023). https://www.wallstreetmojo.com/savings/.

26. Hottenstein, Soren. “How to Calculate Principal and Interest.” Investopedia, (March 7, 2025). https://www.investopedia.com/calculate-principaland-interest-5211981.

27. Milam-Samuel, Taylor. “Why Is It Important To Save Money In 2025? 5 Reasons.” Forbes Magazine, (June 28, 2023). https://www.forbes.com/advisor/banking/savings/wh y-is-it-important-to-save-money/.

28. Ayoola, Elizabeth. “27 Proven Ways to Save Money.”

NerdWallet, (July 23, 2025). https://www.nerdwallet.com/article/finance/how-tosave-money.

29. “Financial Intermediary.” Corporate Finance Institute, n.d. https://corporatefinanceinstitute.com/resources/econ omics/financial-intermediary-transactions/.

23

SOURCES 30. Hayes, Adam. “Deposit Multiplier vs. Money Multiplier: What’s the Difference?” Investopedia, (January 31, 2025). https://www.investopedia.com/ask/answers/062615 /what-difference-between-deposit-multiplier-andmoney-multiplier.asp.

31. Loo, Andrew. “How Do Banks Make Money?”

Corporate Finance Institute, n.d. https://corporatefinanceinstitute.com/resources/eco nomics/how-do-banks-make-money/.

32. Federal Deposit Insurance Corporation. (April 1, 2024). Understanding Deposit Insurance. https://www.fdic.gov/resources/depositinsurance/understanding-deposit-insurance.

33. Brunette, Margarette. “Checking vs. Savings Account: The Difference and How to Choose.” NerdWallet, (April 17, 2025). https://www.nerdwallet.com/article/banking/checki ng-vs-savings.

34. “Checking vs. Savings: Where Should My Money Go?” Space Coast Credit Union, n.d. https://www.sccu.com/articles/personalfinance/checking-vs-savings-where-should-mymoney-go.

24

SOURCES 35. Consumer Financial Protection Bureau. (December 12, 2024). An Essential Guide to Building an Emergency Fund. https://www.consumerfinance.gov/an-essentialguide-to-building-an-emergency-fund/.

36. Brunette, Margarette. “Emergency Fund: What It Is and Why It Matters.” NerdWallet, (February 8, 2024). https://www.nerdwallet.com/article/banking/emergen cy-fund-why-it-matters.

37. Hayes, Adam. “Understanding Liquidity and How to Measure It” Investopedia, (May 31, 2025). https://www.investopedia.com/terms/l/liquidity.asp.

38. “Guide to Personal Liquidity.” First Citizens Bank, (February 5, 2024). https://www.firstcitizens.com/personal/insights/saving /guide-to-personal-liquidity.

39. Hayes, Adam. “Saving vs. Investing: What Teens Should Know” Investopedia, (January 13, 2025). https://www.investopedia.com/articles/investing/0225 16/saving-vs-investing-understanding-keydifferences.asp.

40. “How to Start Investing” Fidelity, (June 27, 2025). https://www.fidelity.com/viewpoints/personalfinance/how-to-start-investing.

41. Jackson, Anna-Louise. “How to Find Cheap or Free Financial Advice.” NerdWallet, (April 24, 2025). https://www.nerdwallet.com/article/investing/freefinancial-advice.

25