Importance of Financial Literacy: Praveen got into Stanford University and was planning to take an education loan from HDFC Bank to fund his education. When he was browsing through the bank’s website he came across terms like secured education loan, floating interest rate, Marginal Cost of Funds-based Lending Rate (MCLR), etc. Praveen realised that though he had heard of these terms before, he still didn’t have complete knowledge of them. He now decided to gain basic financial literacy so that it becomes easier for him to understand his education loan process and its repayment structure.
Financial literacy is a crucial skill that all of us should have. It enables us to make sound financial decisions, and it becomes all the more important if you are a student studying abroad. International students have a lot of personal finances like paying for education loans, accommodation, managing different currency exchanges, etc.
Financial literacy for college students is gaining a lot of importance these days. Keeping this goal in mind, we will discuss further the importance of financial literacy for international students.
Table of contents
Meaning and Basics of Financial Literacy
Financial literacy is the ability to understand and use financial concepts effectively in one’s daily life. For instance, if you are an international student, you must know what education loans are and terms related to education loans such as ‘repayment period’, ‘moratorium period’, etc. There are a few other things also which if you know would help you in making efficient financial decisions.
A basic financial literacy of knowing what investment, saving, budgeting, and borrowing are is expected from every individual. The table below mentions the 5 basics of financial literacy that we all should be aware of:
| Terms | Meaning |
| Saving | Saving for short-term, long-term, and emergency needs. |
| Budgeting | Comparing your income and expenses and accordingly cutting back and saving where it is possible. |
| Investing | Investing in assets (stocks, bonds, mutual funds, etc.) to grow your wealth. |
| Credit and Debt Management | Knowing about different types of credit like credit cards, loans, etc., and paying debt efficiently. |
| Insurance and Risk Management | Understanding the risks well and taking insurance to protect one’s life, health, property, etc. |
Also Read: If you want to know about forex trading and know its impact on students then you must check out this blog: What is Forex Trading & Its Impact on Students
Importance of Financial Literacy For International Students
Financial literacy helps international students understand different financial tools like international money transfers, forex cards, etc. It not only helps students deal with their finances during their course period but even after it. Let’s learn more about the importance of financial literacy.
Helps Students Understand Education Loans
Education loans are the most important aspect of the study abroad journey. If you have a good knowledge about how education loans work then it will become easier for you to apply for it. Financial literacy about terms like principal, interest rates, collateral, loan sanction, etc, will help you understand the education loan process. During your course period, financial literacy will help you understand how the interest rate would be calculated on your loan and how the repayment of an education loan works.
Guides them Towards Choosing a Suitable Credit or Debit Card
Every international student needs a debit, credit, or forex card. If you have sufficient financial knowledge about the usage of these cards and the different factors that should be considered while applying for one, it will help you buy the right card for your requirements. This knowledge will also help you in choosing the right bank to purchase your card.
Helps Them in Budgeting & Planning Loan Repayment
It becomes easier for you to repay your loan if you have a basic understanding of budgeting which is an important component of financial literacy. Your loan repayment will start after your graduation and if you have strong budgeting and planning skills then paying your EMIs would not be that difficult. It will be easier for you to repay your loan without affecting your monthly budget. You will know how much your EMIs are and how the interest rate is calculated and accordingly plan your budget.
Makes Them Aware of Loan Repayment Options
After your course ends, your financial education will help you understand options like loan refinancing and loan consolidation as these options help one in getting improved interest rates and managing debt effectively.
Financial Literacy Terms International Students Should Know
If you are planning to study abroad then there are certain financial terms that you must know:
- Secured and unsecured education loans: A secured loan is one where you need to pledge collateral and an unsecured loan is one where you don’t need to provide any collateral/security.
- Moratorium period: During the moratorium period, the borrower is not required to pay the principal but an interest is levied on the loan.
- Loan refinancing and loan consolidation: Education loan refinancing helps students get better interest rates and loan consolidation helps students in consolidating different debts into one by taking a personal loan.
- Loan Amortization: The term loan amortization indicates the repayment process through periodic installments of the principal amount and the interest amount.
Also Read: You may also be interested in knowing about the differences between education loan refinancing and loan consolidation. To know about the difference between both you must check our blog: Education Loan Refinancing Vs. Loan Consolidation: Choose the Better Option
FAQs
Financial literacy is the ability to understand and use financial concepts effectively in one’s day-to-day life.
The basics of financial literacy include saving, budgeting, investing, credit and debt management, and insurance and risk management.
Financial literacy helps international students in managing their finances effectively. Knowledge about education loans, international money transfers, etc. helps in making sound financial decisions.
This blog was all about the importance of financial literacy for international students. To know more about the concepts of financial literacy, the best bank accounts for students, forex and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience.
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