How To: ATM's, Loans, Credit Cards & Identity Protection
Mastering Financial Basics: A Guide for Young Adults
Financial literacy is key to adulting successfully. It’s not just about having money—it’s about knowing how to manage it responsibly and avoid costly mistakes. This module will guide you through essential tasks, from using an ATM to understanding credit cards and protecting yourself from identity theft. Let’s dive into the practicalities of navigating the world of finance as a young adult.
How to Use an ATM: A Step-by-Step Guide
While digital payments are growing, using an ATM is still a must-have skill. Whether you’re withdrawing cash, checking your balance, or depositing money, knowing how to properly use an ATM ensures you have access to your funds anytime.
- Insert Your Card: Place your debit or ATM card into the machine.
- Enter Your PIN: This is the secure number you set with your bank. Make sure no one is watching when you enter it.
- Select Your Transaction: Choose from options like "Withdrawal," "Deposit," "Check Balance," or "Transfer."
- Follow the Prompts: If you're withdrawing money, choose the account (checking/savings), then enter the amount.
- Take Your Cash and Card: Always remember to take your receipt for your records.
Tip: Use ATMs in safe, well-lit areas. Some banks charge fees for out-of-network ATMs, so it’s wise to use your bank’s ATMs when possible.
Explaining Loans and Debt: The Real Price Over Time
Taking out a loan might feel like instant money, but the long-term cost is often much higher than the original price tag. This happens because of interest—the extra amount you pay for borrowing the money. Let’s break it down with an example.
Example: The Real Cost of a $1,000 Purchase on Credit
Imagine you buy a $1,000 laptop using a credit card with a 20% interest rate. If you only make minimum payments, you could end up paying far more than $1,000 over time.
As you can see, making only minimum payments increases the overall cost of the item due to interest.
Selecting a Credit Card: What to Look For
Choosing a credit card is an important decision. Here’s what you should consider:
- Interest Rates (APR): The annual percentage rate (APR) determines how much interest you’ll pay if you don’t pay off your balance in full each month. Lower APRs are better if you plan to carry a balance.
- Perks and Rewards: Some cards offer cashback, points, or travel rewards. Look for cards that align with your spending habits.
- Annual Fees: Some cards come with fees just to keep the card active. Make sure the perks outweigh the costs if you choose a card with an annual fee.
- Application Process: When applying, you’ll need to provide your personal and financial information, including your income, housing status, and sometimes employment history.
Tip: Using comparison tools online can help you find the best credit card based on your financial situation.
Applying for a Loan
Loans can help with major purchases, such as a car or a house, but they come with significant responsibility. Here’s a guide to the process:
- Research Different Loan Types: There are personal loans, student loans, auto loans, and mortgages. Each has different terms and interest rates.
- Check Your Credit Score: A higher credit score gives you better loan terms. You can check your credit score through credit monitoring apps or your bank.
- Prepare Your Documents: Lenders will typically ask for proof of income, employment details, and sometimes bank statements.
- Submit an Application: This can be done online or in person at a bank. You’ll need to provide detailed personal and financial information.
- Understand the Terms: Read the fine print carefully. Pay attention to the interest rate, repayment schedule, and any penalties for late payments.
How to Read a Bank/Credit Card Statement
Your bank or credit card statement tells the story of your financial activity each month. Here’s what to look for:
- Account Summary: This shows your balance at the start and end of the statement period.
- Transactions: A list of every transaction, including dates and amounts. Always check for accuracy.
- Interest Charges: If you’re carrying a balance on your credit card, this section will show how much you owe in interest.
- Payment Due Date: It’s crucial to pay at least the minimum amount by this date to avoid late fees and damage to your credit score.
Handling a Lost or Stolen Credit Card
Losing a credit card is stressful, but here’s what you should do immediately:
- Report the Loss: Call your bank or credit card issuer right away. Most companies have 24/7 hotlines for lost or stolen cards.
- Freeze the Card: Many apps allow you to temporarily freeze your card while you search for it.
- Review Transactions: Check your recent transactions for any suspicious activity. If there are unauthorized charges, report them.
Protecting from and Reporting Credit Card Fraud
Credit card fraud happens when someone uses your card without permission. Protect yourself by:
- Using Strong Passwords: For online accounts, use complex passwords that are hard to guess.
- Monitor Your Accounts: Regularly check your bank and credit card statements for any unusual transactions.
- Report Fraud Immediately: If you see unauthorized charges, contact your credit card company. They will investigate and usually reverse the charges if fraud is confirmed.
Paying Bills
Paying your bills on time is crucial for keeping your finances in order and avoiding late fees. Here are a few ways to stay on top of payments:
- Set Up Auto-Pay: Many banks and companies offer automatic bill payments so you never miss a due date.
- Use a Calendar or App: Set reminders on your phone to pay bills before they’re due.
- Prioritize Essentials: Always pay necessary expenses like rent, utilities, and minimum credit card payments first.
Understanding Identity Theft
Identity theft occurs when someone steals your personal information and uses it to open accounts, take out loans, or commit fraud. To protect yourself:
- Shred Important Documents: Shred any financial documents you don’t need to prevent thieves from accessing your information.
- Monitor Your Credit Report: Check your credit report regularly for new accounts or inquiries you didn’t initiate.
- Report Identity Theft: If you suspect identity theft, report it to the Federal Trade Commission (FTC) and your financial institutions immediately.
Knowing What to File and What to Shred
It’s essential to know which documents to keep and which to dispose of safely.
- File: Tax returns, loan agreements, important receipts, and insurance policies.
- Shred: Old bank statements, credit card offers, and documents with personal information that you no longer need.
By mastering these essential financial tasks, you’re not only avoiding common mistakes but setting yourself up for long-term success. These skills are the foundation of financial independence and will help you make informed decisions for years to come.