The Importance of Financial Literacy for Those 25 and Under

Abstract

This article explains the unfortunate pattern of the lack of personal finance education for young people, what they can do to set themselves up for financial stability, and how to do so. To be financially literate is to have a general understanding of personal finances and how to best run yours. A traditional IRA, Individual Retirement Account, allows individuals to make pre-tax contributions to give you immediate tax benefits only if your contributions are tax-deductible. Another type of IRA is called a  401k which is an account where both you and your employer must contribute to an account in which the employer can match your deposit of income up to a certain percentage. Additionally, A Roth IRA is an account that allows earned income to grow tax deferred and be withdrawn penalty free. An investment portfolio refers to all of the different investments one holds to ensure that all of their money is not in one place. A Roth IRA is an example of an investment in a portfolio, but to diversify risk, it is diligent to invest in assets other than just a Roth IRA. It is also important to save money in an emergency fund, an account where you save 3-6 months’ living expenses to create a safety net for yourself in times of uncertainty. Therefore, through amassing an investment portfolio, adding to an emergency fund, converting to a Roth IRA, and becoming financially literate, people under the age of 25 can set themselves up for financial success.