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Twelve Principles of Personal Financial Literacy

The Jump$tart Coalition For Personal Financial Literacy is a Washington DC-based non-profit organization that seeks to improve the financial literacy of young adults by promoting the teaching of personal finance in grades K-12. Recently, the Jump$tart Coalition released a list of 12 must-know personal finance principles that, if understood by young people, can make a real, positive impact upon their future financial success. Below is a description of each of these principles:

1. Know Your Take-Home Pay--Before committing to significant expenditures, estimate how much income is likely to be available to you. Net income, after all mandatory deductions, is more important to estimate than gross income before deductions.


2. Pay Yourself First--Before paying bills and other financial obligations, set aside an affordable amount each month in accounts designated for long-range goals and unexpected emergencies.


3. Start Saving Young--Recognize that your total savings are determined both by the interest you earn on savings and the time period over which you save.


4. Compare Interest Rates--Obtain rate information from multiple financial services firms (e.g., banks and credit unions) to get the best value for your money.


5. Don't Borrow What You Can't Repay--Be a responsible borrower who repays as promised, showing that you are worthy of getting credit in the future. Before you borrow, compare your total payment obligations with income that you will have available to make these payments.


6. Budget Your Money--Create an annual budget to identify expected income and expenses, including savings. This will serve as a guide to help you live within your income.


7. Money Doubles By "The Rule of 72"--To determine how long it will take your money to double, divide the interest rate into 72. For example, an account earning 6% interest will double in twelve years (72 divided by 6 equals 12).


8. High Returns Equal High Risks-- Recognize that no one will pay you high interest rates on a sure thing. In most cases, the higher the interest rate offered to you, the investor, the higher the risk of losing some, or all, of the money you invest. Diversification of assets is the best protection against risk.


9. Don't Expect Something for Nothing--Be leery of advertisements, sales people or other sources of financial offers promising anything free. Like non financial opportunities, if it sounds too good to be true, it probably is.


10. Map Your Financial Future--Take time to list your financial goals, along with a realistic plan for achieving them. You can go places you want to go without a roadmap but seldom on the first try.


11. Your Credit Past Is Your Credit Future--Be aware that credit bureaus maintain credit reports, which record borrowers' histories of repaying loans. Negative information in credit reports can affect your ability to borrow at a later point.


12. Stay Insured--Purchase insurance to avoid being wiped out by a financial loss, such as an illness or accident. An insurance plan should be part of every personal financial plan. Essential insurance includes liability, disability, and coverage for major medical expenses.