Financial literacy: Important for difficult times

This paid piece is sponsored by Dakota State University.

“Financial studies are too hard. I always lose interest.”

Money jokes like this one are funny, but financial literacy is no laughing matter, especially in difficult times.

This is a lesson learned this past year, said Dr. Yen-Ling Chang, associate professor of finance in Dakota State University’s College of Business and Information Systems.

“Financial literacy is important, and people should know a thing or two about it,” she said, adding seeing job losses and long lines at food banks in 2020 during the pandemic “really broke my heart.”

Because no one knows when the next pandemic will come, “we want to be prepared … by taking good control of our finances and having emergency funds,” Chang said.

To manage money wisely, the old-school principles still apply, she said: create a budget, reduce your debt, save money, build credit. However, the process of implementing those steps has changed.

In the past, people often had a notebook and wrote down where all their money went. This was time consuming and tedious and could be inaccurate, Chang said, so people have added new technology tools such as apps and online banking. These tools are called financial technology, or fintech.

“I think apps really come at the right time because people are busy,” she said. “Fintech apps are really handy and save time to do more meaningful things in life.”

Despite these advantages, individual users need to be responsible to protect themselves online.

Create strong, secure passwords that are difficult to breach, and share those responsibly. Fintech apps “are not safe if we are careless and share our password,” Chang said. While it may be convenient and necessary to share budgeting apps within a family, make sure only certain people have access.

When choosing an app, users should look at the security and privacy policies and what they share with affiliated companies and understand those agreements, Chang said. Paid apps often are safer than free apps, she noted.

Whether old school or using fintech tools, “you don’t want to spend more than you earn,” Chang stated. “Pay for what you need; the rest of your money should be put to work in investments.”

Budgeting is the first step in moving toward that goal, to plan for routine expenditures and big-ticket items, with the goal being to save money, and invest and grow money for the future.

Good credit is another important component to financial literacy.

“Banks are happy to give you an umbrella when it’s not raining, but when you need it, they might not be so willing,” said Dr. Dan Talley, professor of economics at Dakota State.

While it seems ironic, the time to build good credit is when you don’t need it, so you have it when times turn tough, such as a job loss.

Credit history is a necessity because it is often checked when getting an apartment, buying a house, even sometimes when applying for jobs. “Credit scores have now become something of a reflection on character,” he said.

Talley has advice for students – or anyone – who wants to build good credit. “Get a card in your own name, then use it, but use it sparingly and wisely” for things such as groceries. “This is a good way to start using it, for something that’s essential.” As much as possible, pay it off or at least pay it down in a timely manner.

He also recommends avoiding high-interest credit cards. Look for special offers, such as balance transfers that come with zero interest, and cards that have cash back or travel rewards.

People don’t need several cards, just a primary one. If an offer comes along later for a better card, don’t cancel the old card because longevity reflects well on credit scores – just keep that card and don’t use it very often.

“If you do use your credit wisely, it’s a great way to begin to start getting a good credit rating,” Talley said.