9 ways college students can improve their financial literacy

April 15 is a date etched in all adult Americans’ calendars and minds; however, many college students are still free from the burden of filing tax returns.  While some students may not need to face this responsibility, Ladan Masoudie, a lecturer in the Department of Economics, stresses that there are steps they should take to prepare for the financial realities of adulthood.

Ladan Masoudie of economics at USC Dornsife. Photo courtesy of Ladan Masoudie.

1)    Pay off your credit card balance before making any investments. Know what the typical interest rate is and by how much it will go up if you miss a payment. Currently the average interest rate is between 12 and 13 percent — significantly higher than most investment accounts and a perilous drain on finances.

2)    When applying for a credit card, read all the fine print. Make sure to ask if there is an annual fee, what the late fee is, and what the affect of the late fee is on your interest rate. Also ask if there is a universal penalty — that is, if a late payment on another credit card will trigger an interest-rate hike on this one.

3)    Make sure you have adequate insurance: Know your health risks and get additional coverage based on your own need. Also think about disability insurance. Research shows that disability risk is underestimated, so make sure that you do have coverage regardless of how safe your job seems.

4)    The sooner you think about saving, the better. Once your credit cards are paid off, make saving your default. Always put as much in your pre-tax retirement account (401K,) as possible. That money will come out of your paycheck before you ever see it, so you won’t ever miss it.

5)    Take advantage of other tax-saving programs.

6)    Always diversify. Modern finance tells us that you cannot easily beat the market. Start with a well-diversified portfolio or exchange-traded fund (ETF) that follows a market index, a tool used by investors and financial managers to compare the return on specific investments. You can add a bond portfolio as well.

7)    Remember that you can always save because there is always something you are spending on that you can live without. (Do you really need those $4 lattes…?)

8)    Think long-term. The stock market fluctuates, and it can be scary. If you’re thinking long-term, you can handle more market volatility and not panic if the market moves.

9)    Take an introductory finance class — regardless of your major or expected career.

Ladan Masoudie studies gender differences in risk behavior of top-level executives in compensation and decision making. She teaches economics at USC Dornsife.