Letter from The Editor
April is National Financial Literacy Month, but it’s our mission here at Investopedia every month. We’re grateful to reach more than 20 million monthly readers from around the world who visit our site, social media channels, newsletters, and podcasts to learn about finance and investing.
However, millions of people still need financial literacy and guidance, but don’t have easy access to it online, in schools, or in their communities. It’s our goal to reach them.
Finance and investing are also changing rapidly, thanks to the adoption of cryptocurrencies, decentralized finance, commission-free trading, and alternative forms of investing. These changes are creating pathways for people at nearly every income level to participate and grow their wealth, if they know how to utilize these tools. While technology has helped open doors, more education about these new platforms and assets is required—and that’s what Investopedia does best.
To help close those gaps, we’re committed to extending our reach and resources to underserved communities who have traditionally been closed out of the financial services and information industries. We have created new guides to support today’s investing environment, translated key resources into Spanish, and produced how-to videos for visual learners. Soon, we will also host live events with our partners Project Come Up and Wall Street Bound to connect young people with the knowledge they need most.
In our updated financial literacy section on Investopedia, you’ll find resources to help you become an engaged and educated investor in the ever-evolving financial markets. You’ll also find resources to share with people in your family and community to help support their financial journeys.
We wish you all a Happy Financial Literacy Month, year—and future.
Behind The Statistics
How To Start Investing
How much should I save for retirement?
The amount you need to retire will vary depending on such factors as the income you have now, your age, the age you hope to retire at, and the lifestyle you want in retirement. Most experts recommend your retirement income to be about 80% of your final, pre-retirement annual income. This is a good jumping off point but the amount you save will vary based on your circumstances.
How can I invest in cryptocurrency?
To start investing in cryptocurrency, you first need to open an account with the brokerage firm or cryptocurrency exchange of your choosing. Then, fund your account with a currency like U.S. dollars. Once you decide which cryptocurrency you wish to buy, you can follow the steps required by the exchange to place a buy order. Once the purchase is made, you must store your crypto in a digital wallet.
What is an NFT?
Non-fungible tokens (NFTs) are unique digital assets that can represent tangible and intangible goods, such as a piece of art, a song, or even a Tweet. Each NFT is individually recorded and authenticated through a public blockchain, much like a cryptocurrency transaction. This enables it to be bought, sold, or traded. Unlike crypto, NFTs are distinctive, one-of-a-kind goods.
How can you invest in NFTs?
To invest in an NFT, you can browse major NFT marketplaces, such as OpenSea, and pick the NFT you want to buy. Next, establish a cryptocurrency wallet and fund it with fiat money. Once your wallet is connected to the marketplace, you can purchase an NFT. The accepted currency for buying an NFT is typically the cryptocurrency corresponding to the blockchain (like Ethereum) that supports the NFT.
How safe are digital wallets?
There are many layers of security for digital wallet transactions, as they use encryption, tokenization, and authentication to protect your information on your smartphone or computer. While safe, it’s important to take extra precautions when using a digital wallet. This can include enabling a passcode, knowing the merchant you’re purchasing from, or installing facial recognition on your phone.
What are capital gains taxes?
The capital gains tax is a fee you pay on profit made from selling certain types of assets, like stock or bonds. A capital gain is the total sale price of an asset minus the original amount you bought it for, and there are two types: short-term and long-term. Short-term capital gains occur when you've owned an asset for one year or less and are taxed at a higher rate than long-term capital gains.
A refers to a loan used to purchase or maintain a home, land, or other types of real estate. With this type of loan, a borrower agrees to pay the lender over time, typically in a series of payments that are divided into principal and interest. The property serves as collateral to secure the loan.
Annual Percentage Rate
An annual percentage rate, or APR, is the yearly rate charged for a loan or earned by an investment. It is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan or income earned on an investment. Lenders must disclose the APR they charge to borrowers.
An emergency fund acts as a financial safety net that you use in times of financial hardship. Often stored in a savings account, the funds are used to meet unanticipated expenses, such as an illness or major home repairs. The amount of money within your emergency fund depends on several factors, including your financial situation, expenses, lifestyle, and debts.
An exchange-traded fund (ETF) is a type of investment that is a basket of securities traded on an exchange, much like how a stock is traded. Because there are multiple assets within a single ETF, they are often a popular choice for diversification within one’s portfolio. Unlike mutual funds which only trade once a day once the market closes, ETF share prices fluctuate all day as the ETF is bought and sold.
An index fund is a type of mutual fund or exchange-traded fund that aims to mimic the composition and performance of a market index, such as the S&P 500. Generally, index funds have lower expenses and fees than actively managed funds. Most experts agree that index funds are considered ideal core portfolio holdings for retirement accounts, like 401(k) accounts or IRAs.
A mobile wallet is a virtual wallet that stores financial information on a mobile device. Because of its encrypted technology, they are considered safe for storing things such as credit cards, bank information, and even driver's licenses. Mobile wallets are a convenient way for a user to make in-store payments and can be used at merchants listed with the mobile wallet service provider.
Compounding is the process whereby interest is credited to an existing principal amount, as well as to interest already paid. Compound interest can help you earn a higher return on your savings and investments, and it can also work against you when you're paying interest on a loan. It’s often described as interest on interest—the effect of which is to magnify returns to interest over time.
Finance can be broadly defined as the management, creation, and study of money and investments. It is often split into three categories: public, corporate, and personal finance. Personal finance specifically focuses on all financial decisions of an individual or household, including saving, financial planning, budgeting, and retirement planning.
Debt is something—usually money—that a person, organization, or government owes to another person, organization, or government. Generally, the person who borrows the money must pay back the given amount with interest by a specific, agreed-upon time. The most common forms of debt are loans, such as mortgages, auto loans, personal loans, and credit card debt.
Credit is an agreement you make with a lender that enables you to pay for goods or services. In return for the good or service, you agree to pay the lender back, usually with interest, but specific terms will vary depending on the borrower and the lender. Common forms of credit include credit cards, student loans, and mortgages.
The price-to-earnings (P/E) ratio relates a company's share price to its earnings per share. It’s a way for investors and analysts to gauge whether the stock price of a company is high or low compared to its past performance or other companies. The ratio is calculated by dividing the current stock price by the current earnings per share.
Amortization is used in two different ways. First, it can be used when paying off debt. Many borrowers can be put on an amortization schedule where they will pay off a loan with regular payments so that the amount they owe goes down with each payment. Amortization can also refer to the practice of spreading out capital expenses related to intangible assets over a specific duration—usually over the asset’s useful life—for accounting and tax purposes.
Small Saver Certificate (SSC)
A small saver certificate (SSC) is a deposit savings account that has a small minimum requirement balance, or sometimes, no minimum balance requirement at all. The most common investors in SSCs are children or young adults. SSCs are not that common or popular, as investors usually choose to invest in certificates of deposit (CDs), a similar financial instrument.
Student debt is money owed on a loan by an attending, formerly withdrawn, or graduated student of higher education. Due to the rapidly increasing prices of higher education in the United States, student debt is a popular (and sometimes the only) option for many students to pay for college.
Financial literacy is the capacity, based on knowledge, skills, and access, to manage financial resources and information effectively. It includes the ability to effectively use and understand basic financial skills like budgeting, and investing. Financial literacy is seen as the foundation of one’s relationship with money.
A guardian IRA is a custodial IRA, meaning it is held in the name of a legal guardian or parent on behalf of their child or minor who is under the age of 18 or 21 (depending on the state). It can also be held on behalf of someone who is incapable of handling their finances due to a physical or mental disability. Once the minor turns 18 or 21, depending on the state, they will gain control over their account.
Personal Finance Basics
What’s the best way to start saving money?
One of the best ways to start saving money is by setting a savings goal—whether it be short- or long-term—and paying yourself first. Paying yourself first just means that, before each pay period from work, commit to putting some funds in a savings account. Automating these savings is a great way to ensure a certain amount of money is put toward your financial goals regularly.
How long does it take to improve my credit score?
There is no set amount of time it can take to improve a credit score. Your credit report is updated automatically when lenders share new account information to the nationwide credit bureaus. This can happen once a month or every 45 days, but it will depend on the lender. You’re most likely to see a score improvement if you pay your bills on time, pay down any outstanding balances, and avoid debt.
When will Social Security run out?
The Social Security Administration (SSA) estimates that combined asset reserves of the OASI and DI Trust Funds will be exhausted in 2034. At that time (if nothing changes), the continuing tax income will be able to pay only 78% of the scheduled benefits. To prevent this from happening, the government may raise the full retirement age, increase payroll tax rates, or adopt new tax reforms.
How do you pay off debt in collections?
To pay off debt in collections, confirm the debt is yours, check local statute of limitations, and know your rights. Decide how much you can afford to pay and set up a payment plan. Document everything. Paying a collection removes the debt, takes away certain tax liabilities, and updates your credit report. Note, according to FICO, there’s no guarantee that your credit score will improve.
Where can you get free financial advice?
Many county and state governments, including New York City, offer financial services like free, one-on-one guidance from professionals. Other organizations you can turn to include the Financial Planning Association, the National Foundation for Credit Counseling, and The Foundation for Financial Planning; however, qualifications may vary depending on the guidance you are looking for.
Explore Financial Literacy
Fidelity. “How much will you spend in retirement?”
TransUnion. “How Long Does it Take for a Credit Report to Update?”
Social Security Administration. “Press Release | Press Office: Social Security Board of Trustees: Combined Trust Funds Projected Depletion One Year Sooner Than Last Year.”
myFICO. “How Do Collections Affect Your Credit?.”