Financial Literacy In 63 Minutes#show 05-2026#

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Transcript

00:00:00I took Khan Academy's financial literacy course for you. So here's the Cliff Notes version to

00:00:04save you at least 25-30 hours. This course took me weeks to get through. Like here are my notes.

00:00:11It is 109 pages long. It is the most comprehensive personal finance financial literacy course I have

00:00:17ever taken and probably because it is an accumulation of the past 10-15 years of

00:00:23knowledge. It literally covers the foundations of everything but it is not enough for you just to

00:00:27listen to me talk. So I've also included little assessments throughout the video as well since

00:00:31it's such a long course. So if you can answer all of these questions you can consider yourself to be

00:00:36financially literate by the end of this video. Now without further ado let's get started. Let's first

00:00:41talk about the structure of this course. There are 16 units in total. Unit 1 is just an introduction.

00:00:47Unit 2 is on budgeting and saving. How do you create a budget? How much you should be saving? How

00:00:51to save?

00:00:52Unit 3 is financial goals. How do you set financial goals? What is a smart goal? And how does that

00:00:57relate to your money personality? And how to calculate your net worth? Then we're going into

00:01:01loans. How do loans work? How does debt work? What happens if you file for bankruptcy? Unit 6 is on

00:01:07insurance. Unfortunately lots of things can go wrong in life and there are lots of types of

00:01:11insurances to try to deal with that. Unit 7 is on investment and retirement. How much do you need to

00:01:16retire and how do you invest? Then we're moving on to scams and frauds. There are many trickeries in life

00:01:22that you should be aware of. People trying to steal your money. Then taxes. No need to say more. Unit

00:01:2711

00:01:27is employment. How do you calculate whether an employment opportunity is worth it or not? How do you

00:01:32choose between different offers? Unit 12 is banking. All the different types of banks and the different

00:01:37types of bank accounts. This also includes a crash course on interest rates and inflation. Unit 13 is car

00:01:43buying. Apparently car buying is also the place of one of the most trickeries that people will do on you

00:01:48to trap you into very bad situations. Then there's houses. When is it worth it to rent versus buy it?

00:01:54How do more? And finally unit 15 and unit 16 is on teacher resources and additional resources. Ready?

00:02:01All right let's go into budgeting. First off what is a budget? A budget is a plan that helps you

00:02:07manage

00:02:07your money. It shows you how much money you have, how much money you need to spend on things, and

00:02:11how much

00:02:11money you can save or use for other goals. Having a budget can help you make smart decisions with your

00:02:16money and avoid problems like overspending, debt, or running out of money. In essence you can think

00:02:21of a budget as a plan for the money that's going to be coming in and what you're going to

00:02:25be doing

00:02:25with it. I'm going to put on screen now a very simple budget sheet that Khan Academy provides.

00:02:30This is a monthly budget and people can have like super fancy spreadsheets and things like that.

00:02:34Again this is a very simple one but they all work essentially the same. You want to keep track of

00:02:38your income in some fashion whether that be in paychecks or side incomes. Then you want to decide

00:02:43what you're going to be doing with this money. A very popular rule that people like to follow is

00:02:47the 50-30-20 rule. Which means that you want to allocate 50% of the money you earn into

00:02:51needs. This

00:02:52would be like groceries, rent, transportation costs. 30% into wants. Things that are nice to have but not

00:02:58necessary. Things like going out to eat, watching movies. And finally 20% into savings. This would

00:03:04include saving for an emergency fund in case you have any medical emergencies or personal emergencies

00:03:09like getting laid off or if you just want to help someone. It also includes saving monies for bigger

00:03:13purchases like maybe you want to own a house or a car. Or you could be saving money for investment

00:03:18for retirement. Here's an example of a budget worksheet. For example the money that you're

00:03:22bringing in amounts to $3,000. Also make sure that when you're calculating the amount of income you're

00:03:27looking at after-tax dollars since that's the amount of money that you actually get to spend.

00:03:31The needs over here adds up to $1,780 which is 59% of our income and this is actually

00:03:37higher than

00:03:38our target goal of 50% of income. The wants total to $795 which is 27% of income and

00:03:45savings totals

00:03:46to $425 which is 14.17% of income even though our target is at 20%. So in this scenario

00:03:53if we want to

00:03:54follow the 50-30-20 rule it looks like that we need to decrease our needs a little bit in

00:03:59order to bump

00:04:00up our savings. As a little exercise if you look at this budget sheet what do you think this person

00:04:05can

00:04:05do in order to decrease the amount of money they're spending on needs to boost their savings?

00:04:10Write it in the comments. Okay so now let's think through this together. Looking into this needs

00:04:14category all these things are definitely actually necessary but there are some things that you can

00:04:20potentially do in order to decrease the cost. Rent is going to be something that you can consider

00:04:26downsizing into a smaller apartment but that's something that's probably a little harder to change.

00:04:30You might have to wait until your lease is over. Now let's look at utilities, cell phone, and home

00:04:35internet. So you definitely need to do these things but what you can actually do is actually try calling

00:04:40them up and just being like hey like I'm really looking to stick into my budget right now like this

00:04:44is outside of my budget what can we do in order for me to decrease the amount that I'm using?

00:04:49On the

00:04:49side of utilities they may have like certain plans for you where they can give you certain suggestions

00:04:54for this and for things like cell phone and home internet they may have better deals for you

00:04:58because they would rather retain you as a customer than you potentially leaving to go to your

00:05:02competitors. Sometimes all you have to do is ask. Car payments and insurance probably harder to

00:05:08decrease as well but also for groceries you can potentially decrease the groceries by looking at

00:05:13different stores around you seeing if you can buy things at different stores and buying things when

00:05:18there's discounts. There's a concept called per unit pricing that can be really helpful when you're

00:05:22considering what it is that you want to buy. It's basically telling you how much you're paying per ounce per

00:05:27pound

00:05:28or per item. Like say if you're buying laundry detergent pods how much are you paying per pod

00:05:33or per cycle of laundry? There are so many different types of laundry detergents available when you look

00:05:37at a grocery store so if you're not like super picky about it if you look at the per unit

00:05:41pricing

00:05:42that can help you determine which of these items is actually the cheapest per usage. It may not seem like

00:05:47a big difference just a few cents difference but if it's something that you use as a staple it can

00:05:51actually add up to hundreds of dollars of savings. So by implementing some of these decreases in cost for your

00:05:57needs section you can take that money and put that into savings to achieve our 50 30 20 rule. This

00:06:03rule

00:06:03is not a hard and fast rule and you can adjust it based upon your living situation and things like

00:06:08that but it is a really good place to get started and for you to go through your bank account

00:06:11and

00:06:12audit how much you're actually spending on each of these categories in relationship to your income

00:06:16after tax income. Now let's talk specifically about why it's so important to save money and what you

00:06:21should be doing with your savings. Saving money is very good for three primary reasons. The first one

00:06:27is so that you can save up for an emergency fund. It's generally recommended that you maintain three

00:06:31to six months of an emergency fund. Three to six months meaning the amount of money that you need

00:06:35in order to survive that amount of time. Going back to that previous example if we've managed to balance

00:06:40our funds so that our needs is a thousand and five hundred dollars per month then at the very minimum

00:06:45you

00:06:45should have four thousand five hundred dollars saved and the reason you want to do this is because

00:06:49life happens, shit happens. You might get laid off, you might have a medical emergency, somebody that

00:06:54you're very close with, your friend or your family might have a medical emergency. There's a lot of

00:06:58shit that can happen in life and you want to make sure that you have the amount of money to

00:07:03cover your

00:07:03basic necessities for at least three to six months in order for you to get yourself on your feet again.

00:07:08That is the first thing you should be saving for and you should not be touching this money until you

00:07:12really

00:07:12need it. Now after you save your emergency fund you can think about the two other types of savings.

00:07:17The first one is for bigger purchases like a car or maybe a house and the second one for

00:07:22investments and saving long term for retirement. These categories are not necessarily completely

00:07:27separate either like for example if you want to buy a house that can also be something that you

00:07:31consider to be an investment that you're saving for long term. A pro tip is that you can actually

00:07:35create a separate savings account for each of the things that you're saving for. Like if you want to

00:07:40save for a laptop, a car and a yacht, you really want a yacht, you can actually create a separate

00:07:47savings account in your bank account. You can usually do this for free with a savings goal for

00:07:51each of these accounts and when your paycheck comes in you can actually automatically redirect

00:07:55that money by how much money it is that you're putting into each of these different savings accounts.

00:08:01But speaking of savings accounts and we'll actually talk more about different types of bank accounts later as well,

00:08:05but it's useful to know that there are different types of saving accounts. You should consider things

00:08:09like the initial deposit requirements, any access restrictions, how often it is that you can take

00:08:14money out, any overdraft fees if you're not maintaining a certain amount of money, and also

00:08:18interest rates. Interest rates in this context is kind of like the bank giving a reward for you trusting

00:08:23them in holding on to your money. So most savings accounts will give you a certain amount of interest.

00:08:28It's usually not that much, be like single digits like 2-3%. So if you put in $100 and interest

00:08:34rates 3%,

00:08:34then they will actually give you $3 in interest. Now you have $103 without having to do anything,

00:08:39which is pretty magical. We're not going to talk about inflation yet.

00:08:43Now let's talk about credit. Since this course is based on the US system, there might be like a different

00:08:48scoring system in the country that you're in, but at least in the US and Canada, credit scores are between

00:08:54300 and 850. If you're in the high 700s to the 800 range, that's considered a really good score and

00:09:01you can get approval for most loans that you need and lower interest rates. If you're between 600

00:09:05and 700, that's considered decent. It's not great, but it's also not bad. So you may be paying a little

00:09:10bit higher interest rates. And if you're below 600, that's considered pretty bad. And you might just

00:09:15straight out be not approved for loans, or you just need to pay a really high interest rate.

00:09:21So what exactly is a credit score? A credit score is a measure of how likely you are to pay

00:09:25for things on

00:09:26time. This will include how long you've had credit accounts for like credit cards or student loans,

00:09:31how much money you owe, whether you make your payments on time, if you've ever filed for

00:09:34bankruptcy. There are all different factors that go into calculating the score. So it's actually like

00:09:38quite complex how it is that they actually do it. But overall, it's supposed to represent how

00:09:42trustworthy you are to lend money to. So say you might have a bad credit score. What can you do

00:09:47in

00:09:47order to improve your credit score? Luckily, there are ways and I'll go through them in a descending

00:09:51order of importance. So the first thing is that you need to pay your bills on time, your payment

00:09:56history represents 35% of your credit score. So if you have any loans or credit card debts,

00:10:01you should be paying that on time. The second is credit utilization. So this is something that I do

00:10:05know. But when I first learned about it, I was actually really surprised by this accounts for 30%

00:10:10of your credit score. And it means the fraction of your credit usage. For example, if you have a credit

00:10:15card limit of $10,000, it's actually best to spend as little of it as possible. Like say,

00:10:21if you spend like $100 only, then you have a credit utilization of 1%, which is really good.

00:10:26That is not to say that you shouldn't have credit cards though. You still want credit cards because

00:10:29you want to show a history of having credit, but you want to show a history of not using that

00:10:35much

00:10:35of it. I know it's sort of weird, but that's how they calculate it. And speaking of credit history,

00:10:39that accounts for 15% of your credit score. The longer the history of data they have on you of

00:10:44good, you know, money habits, then the more confidence people would have on your ability of

00:10:50paying back the loans that you take. And finally, the two last categories account for about 10%

00:10:55each. The first one is the type of credit. It's generally good to have a mix of different types

00:10:59of credit, like between credit cards, maybe like a mortgage, loans, whatever. Like I don't think you

00:11:03should go and like get more debt and like do that intentionally. But you know, that's just if you do,

00:11:11it kind of looks better for you. Although it's only like 10%. And the last one is new cards. So

00:11:16there's

00:11:16a concept called an inquiry. And there's like hard inquiry and soft inquiry. Basically, like every

00:11:21time that you open up a new credit card, it would be a hard inquiry. So the lender would be

00:11:26doing a

00:11:28hard inquiry to check your credit report. And every time that they do that kind of inquiry, it actually

00:11:33hurts your credit score. On the other hand, you have something called a soft inquiry. This would be

00:11:37something just like checking your credit score. Or if you're trying to like, you know, rent a house,

00:11:41they might do like a soft inquiry on your credit score. This kind of checking does not impact your

00:11:47credit score and is okay. So generally speaking, try not to get like several different new credit

00:11:51cards all at the same time. Try to like space it out a little bit. Now another thing that is

00:11:56interesting

00:11:56about credit scores is what doesn't count towards your credit score. And the big one that is very

00:12:02interesting is that income has nothing to do with your credit score. It doesn't matter how much money

00:12:06that you make. It's only about your ability of handling the money that you have. In relation to making

00:12:11payments for things, not the size of the payments that you're making. Things like employment has

00:12:15nothing to do with it as well. Although if you have an employment, you're probably be more likely to

00:12:19actually be able to pay back your payments. So don't be an ostrich. If you don't already know your

00:12:23credit score, go check it out using something like Credit Karma or your bank or whatever. And if you have

00:12:28a pretty bad credit score, then make a plan and follow these steps to improve it. There's a lot of

00:12:32free resources out there like YouTube videos that can teach you how to build up your credit. And just

00:12:35generally speaking, this course is about foundational things. So if you want to like dive deeper into any of

00:12:41this, it's best to actually look at specialized courses where like videos and resources about

00:12:45these topics. Now, before I move on to the next unit, I want to make a note about credit cards.

00:12:49Credit cards are one of those things that are such a double-edged sword depending on how you use it.

00:12:54On one hand, it's actually good to have a credit card because it can help you build credit and it's

00:12:58also super convenient. Plus, a lot of them come with really good rewards and cashbacks, especially in

00:13:03the U.S. I've lived in different places and all of them usually have some sort of rewards for your

00:13:07credit cards. But in the U.S., some of them are like insane. Some people use credit card points to

00:13:12have like entire vacations paid for. But if you are not responsible with your money and you cannot

00:13:17use your credit card responsibly, what could potentially happen is a massive amount of credit

00:13:22card debt. Because it's so easy to use and you just swipe it and it's on credit, like you don't

00:13:28even

00:13:28have to have money in your bank account. It's so easy to spend that money. A lot of people end

00:13:33up

00:13:33overspending and realizing like, I don't actually have that money to pay back my credit card. And

00:13:37that's when you realize that crazy interest rate starts kicking in. Like let's look at this credit

00:13:41card for example. This is called a shroomer's box, where by law, people who are trying to get you to

00:13:46sign up for a credit card, they have to show this to you. When things are going good and you're

00:13:49making

00:13:50back your payments on time every single month, you know everything is great, you're getting your

00:13:53cash back, your rewards, all these good things. But when you start missing payments and start

00:13:56accumulating debt, this is one of the scary things like annual percentage rate APR starts kicking in.

00:14:01So say if you have like $100 and your APR is like 20 and you're potentially paying up to 28

00:14:06.99%

00:14:07of the debt that you owe just on interest alone. So if you already can't pay back your initial amount

00:14:13of money and you have so much interest building up on that as well and it's very quickly that you're

00:14:17digging yourself a very deep hole of credit card debt. Unfortunately, I actually know quite a few

00:14:21people who have found themselves in that situation extremely quickly. Other things on this shroomer's box

00:14:27include like APR for transfers, if you're getting cash advances that's even worse, just just don't

00:14:31do it. If you're taking cash that you already don't have and you're getting from a credit card,

00:14:35just bad idea, don't do it. Yeah, there's like penalties. It also shows a grace period. So this is

00:14:41the amount of time that you have in this case 28 days before you need to start paying back

00:14:45the amount that you have on your credit card. So that's why you should always be paying back the full

00:14:50amount when you have a credit card so you don't have to pay any of these interest rates. We'll also

00:14:55be

00:14:55able to benefit from building out your credit and also all of the perks and rewards and things like that.

00:15:00This course also goes through a lot of different types of credit cards and how it is that you can

00:15:03compare credit cards. So if this is something that you're interested in, I actually recommend that

00:15:06you check out this unit from the course. By the way, all Khan Academy courses are free, which is

00:15:10amazing. Long story short, credit cards are great if you're responsible and you can actually pay

00:15:14things back. If you don't, just don't do it. Or look into specific special credit cards for

00:15:19people who are trying to build up their credit.

00:15:22Now let's do a money personality quiz. This is going to be really helpful for determining your

00:15:26financial goals. I'm going to put on screen now and please pause the screen if you want to do this

00:15:31quiz and answer each of these five questions, A, B, C, or D. So for each of these questions,

00:15:36give yourself the following points for each answer. So when you answer A to something, give yourself one

00:15:41point. If you answer B, give yourself four points. C, give yourself five points. And D, give yourself two

00:15:47points. Now if your range is between five to nine points, then your personality is a spender type. This means

00:15:53you're someone who enjoys spending money. You're kind of like a live in a moment kind of person,

00:15:57may have trouble saving and planning for the future, and you might struggle with debt or impulse

00:16:01buying. If you have between 10 to 14 points, then you're called a balancer. This means that you're

00:16:06pretty good at managing your money and making good decisions, but you're also prone to indecision and

00:16:11stress. So you may be missing out on some good opportunities because you're being very cautious.

00:16:15If you have between 15 and 19 points, you're considered a saver. This means you're excellent at saving

00:16:20money and reaching your financial goals, but it also means that you may be too frugal and too rigid.

00:16:25You may be neglecting some of your own wants and needs just in order to save more, and you may

00:16:30have

00:16:30trouble sharing your money with other people. And finally, if you're from 20 to 25 points, you're

00:16:34considered an investor. You are savvy and you're strategic with your money, and you really seek to

00:16:39grow your wealth and to have a positive impact. Generally, you're very adventurous and you're willing to

00:16:43take risks, but sometimes you may be a little too optimistic and ignore some of your basic needs.

00:16:49Let me know in the comments what you got. So for me, I got 12 points, which makes me

00:16:54a balancer. My strengths are that I maintain a balance between saving, spending, and investing.

00:17:00So it says, the characteristics are you're good at managing your money and making smart decisions,

00:17:04but you may also be prone to stress or indecision. You may miss out on some opportunities or experiences

00:17:09because of your cautiousness. That actually fits me really, really well. I feel like I got so scared

00:17:15of certain like scams that people taught me about and warned me about to the point where I just kind

00:17:20of like assume everything might be a scam. So I'm definitely like a pretty overly cautious

00:17:26kind of person. And definitely I get like stressed or indecisive, so I just end up like not probably

00:17:31taking advantage of many opportunities that I have. And I also put on screen now the tips for the

00:17:36different money personalities. For me, I already know my strengths is being able to balance between

00:17:40these things and challenges. It's hard to stay consistently in the middle. So specific tips

00:17:45would include treating yourself occasionally to enjoy your money, staying open to new money

00:17:49making opportunities, seeking advice, but trusting your instincts, and celebrating your financial

00:17:54successes. So obviously, this is not like all encompassing, but I think it's useful to take some

00:17:58of these tips and start incorporating them into your financial goals, which is what we're going to talk

00:18:03about next. The course recommends that you use SMART goals. I might have heard of that acronym

00:18:08before. It stands for specific, measurable, achievable, realistic, and time bound. For example,

00:18:14a not SMART goal is I want to be rich. Like what does that even mean, right? On the other

00:18:18hand,

00:18:18a SMART goal would be something like by the time I am 30 years old, I want to put down

00:18:23a down payment

00:18:24for $100,000 to buy a house. It's specific because you want to buy a house. It's measurable because it's

00:18:30$100,000. It's achievable in the sense that it is not impossible to do and it's realistic. Well,

00:18:35it could be realistic depending on your life situation, but assuming that you have a job

00:18:39that can allow you to do that and you have five years until you're 30, it's something that you

00:18:44can reasonably do. And it's time bound because it's by the time that you're 30 years old. When you set

00:18:48these kind of goals, you can actually start making plans to achieve them. So when we're setting these

00:18:52financial goals, we also want to think about them in terms of short-term goals, medium-term goals,

00:18:56and long-term goals. Short-term goals are goals that are going to be less than a year long. This

00:19:00would

00:19:00include things like saving up for an emergency fund, buying a new phone, buying a new laptop,

00:19:05or paying off a small debt. A smart short-term goal would be something like I want to save up

00:19:10$2,000

00:19:10to buy myself a new laptop in three months. The general strategy for short-term goals is simply

00:19:16to take that out of your income as part of your budget and then save that into a bank account

00:19:21or

00:19:21like a piggy bank or money jar if you prefer. A medium-term goal is something that is between a

00:19:27year to

00:19:27five years long. This would include things like buying a car, saving up for college,

00:19:31buying a house. A smart medium-term goal could be like the example we used before. Like I want to

00:19:37have a $100,000 down payment to be able to buy a house by the time I turn 30, for

00:19:41example. In terms

00:19:42of strategy, in addition to just having that as part of your budget and you're saving that money, you might

00:19:46also want to consider some low-risk investments since that money is probably going to be locked up

00:19:51for at least like a year to five years. This could be something just like a high-yield savings account,

00:19:55or maybe something with a fixed-term interest rate. We'll talk more about investment vehicle

00:19:59things later in the video. And finally, non-term goals. Goals that will probably take you five

00:20:04years and more to achieve. This will include things like saving for retirement, leaving a legacy.

00:20:08Depending on your age and financial situation, buying a house could maybe be more of a long-term

00:20:12goal as well. A smart long-term goal could be something like I want to be semi-retired in 10

00:20:18years,

00:20:18so I want to have saved up around $5 million in the next 10 years so that I can work

00:20:23part-time and be

00:20:24able to travel wherever I want. This is when you should also really consider investing that money

00:20:29to grow your wealth in things like stocks and bonds. Most countries also have specific retirement

00:20:34accounts that can give you tax benefits as well, which we will also talk about later in the video.

00:20:39Now, after you create your smart goals, then you want to come up with a financial plan to achieve

00:20:43them. And there are four different components for a financial plan. The first one is a budget,

00:20:48and there's a lot of spreadsheets out there. There's a lot of different apps you can use

00:20:51in order to determine how much money is coming in and what's the plan to achieving your financial

00:20:55goals. Then you need a savings plan, which is specific to what it is that you're saving for,

00:21:00how much money you want to be saving for all of your different goals. This will help you prioritize

00:21:04your goals, allocate your income, and build up your savings. Third is a debt repayment plan. If you have

00:21:10debt, this is something that is really important. You want to be looking at all of the debt that you

00:21:15currently have and come up with a plan in order to repay these. And you should absolutely be prioritizing this.

00:21:21There are a lot of really great free resources out there that can help you come up with a debt

00:21:26repayment plan. So look it up. And fourth is an investment plan. This is a plan for how much money

00:21:30you want to be investing from your savings. Remember, your savings is divided into subcategories

00:21:34about your different financial goals, right? But you want to specifically also have a plan for your

00:21:39investment side of things. This is where you determine where it is that you want to be investing your

00:21:42money in order to achieve longer term goals like retirement. Again, there are a lot of really great

00:21:47resources out there that can help you come up with an investment plan as well. Just ask Chachipiti

00:21:51or look it up on Google. Even though the course doesn't go into a lot of detail about each of

00:21:55these plans, I think it is really helpful to know this framework that you need to realize that you

00:21:59need to set financial goals, how to set financial goals, and these are the components that you need

00:22:03in order to achieve your financial goals. Okay, so final part of this unit is calculating your net worth.

00:22:08Probably heard about this term a lot, people's net worth. So net worth is very simply just assets minus

00:22:12liabilities. For example, for assets, you could have a $500,000 house, a $50,000 car, it's a really

00:22:19expensive car, jewelry that's worth like $5,000, and your total amount of assets is $555,000. Now on your

00:22:26liabilities, you could have a $400,000 mortgage on your $500,000 house, $40,000 in car loans, which is

00:22:34also a lot of loans, $15,000 of credit card debt, and $50,000 of student loans. And that works

00:22:39out to be

00:22:40$505,000. So assets minus liabilities, $555,000 minus $505,000. That means your net worth is

00:22:48$50,000. This may not seem like a lot, but believe it or not, a lot of people actually have

00:22:52negative

00:22:53net worth, which honestly is okay when you're younger, because you know, you're going to school

00:22:57and accumulating debt from that probably. But as you get older, you do want that number to start

00:23:02becoming positive. So if you don't know your net worth, you should calculate that. All right,

00:23:16let's move on to loans and debt. When I didn't really know that much about loans, whenever I

00:23:21hear that word, I kind of have like this adverse reaction to it. And I think the reason is because

00:23:27growing up, I heard so many stories of people taking out loans and then just, you know, having

00:23:33like a lot of issues and going bankrupt and things in life. So it's almost like I just view the

00:23:37idea

00:23:38of loans and debt as something that's just like bad. Like I should stay away from that.

00:23:43But after a little bit of unlearning, I realized that the idea of loans and debt is not actually a

00:23:47bad thing. It's really just about how you use it. Unfortunately, the stories that we hear is often

00:23:52of people who use it poorly, or you may have a completely different reaction to when you hear

00:23:56the word loan. So whatever it is, I think it is really helpful to really understand how loans work.

00:24:02So I'm going to spend a little bit more time on this section, but let's first define loan.

00:24:06So when we say that we're taking out a loan, we're using credit. What we mean is that we're

00:24:10borrowing money from somebody else. That could be like a friend, family, or third party institutions,

00:24:15like a bank. The agreement is that they lend you the money and you will pay that back to them

00:24:19in the future, probably with some money added on top as well in the form of interest or fees,

00:24:24as the cost of borrowing that money. Interest is generally a percentage that is based upon how

00:24:29much money that you're borrowing, which you're going to be paying back through a period of time.

00:24:33For example, if you borrow $100 and you're paying back $110 in one year, that means the interest rate

00:24:38is 10%. Fees are another cost, and there could be like a variety of different kinds of fees

00:24:42associated with borrowing that money. Loans can be extremely useful if you need to purchase something

00:24:46which you don't have the money or you don't necessarily want to spend the money on right now.

00:24:51This could be things like buying a house, going to college, investing in education, or in case,

00:24:56God forbid, there's an emergency that you need to deal with. But not all loans are created equal.

00:25:00There are different terms and requirements, and the biggest difference between them is generally

00:25:05in the interest rate. Some loans have higher interest rates and some loans have lower interest

00:25:09rates. If you think about it from a lender's perspective, they will probably charge you a

00:25:13higher interest rate for something that has more risk towards them. We'll go back to this and talk about

00:25:18different types of loans in just a bit, but first I want to talk about how to get a loan.

00:25:22So this course is

00:25:22very US-centric, so I'm going to try to generalize these terminologies and concepts in a way that

00:25:27everybody can understand. But if you want to have more specific terms, if you are based in the US,

00:25:33I actually really encourage you to go through this section of the course, which I will link below.

00:25:37So when you want to get a loan and you go to a bank, for example, and you're like,

00:25:40I would like to have a loan, please. Generally, they will ask you for a variety of information to

00:25:45determine how risky it is to loan something to you. In other words, how likely are you to actually

00:25:51pay back that money? They will consider things like your income level, your job history,

00:25:54how long have you had a job for? Do you tend to switch your jobs a lot? What's your credit

00:25:58score?

00:25:58Your debt to income ratio, which is how much debt you have in relation to the income that

00:26:03you're bringing in. The higher the debt to income ratio, the more risky it is. For some types of

00:26:06loans, they would also consider something called a collateral, which is something of value in which

00:26:11if you decide to like not pay back that money for some reason, the bank can take back to repay

00:26:16that

00:26:16loan. For example, if you can't repay your house loan, then the bank gets to take your house.

00:26:20Okay, so let's now go back to the type of loans that are available. The first type is called

00:26:24an installment credit. This is when you borrow generally a pretty large sum of money, and you

00:26:28need to pay that money back by installments, usually on a monthly basis. For example, if you buy a car

00:26:34or you buy a house, then you're paying back a certain amount of fixed money every single month.

00:26:39The second type is a revolving credit, and the best example of this is your credit card. Your credit

00:26:43card has a limit in terms of how much money you could borrow up to, but you can borrow different

00:26:47amounts. And as long as you pay back some of that money, you can keep borrowing up to that amount.

00:26:51For example, if your credit card has a limit of $1,000, you could buy something for $50,

00:26:55and you still have $995 left that you can borrow until you pay some of it back. As you can

00:27:01see,

00:27:01a revolving credit can get pretty risky and dangerous pretty quickly. One of the worst

00:27:05possible loans you can get, which is a revolving credit loan, is payday loans. You're basically

00:27:10taking out credit on the payment that you haven't even received yet, and you can do this like over and

00:27:14over again. But I'm not just saying that revolving credits are bad. There's really pros and cons for

00:27:19both installment-based and revolving credit. Revolving credit, even though it can be risky

00:27:22and costly, it is very convenient. And when used smartly, like if you actually pay back your credit

00:27:27cards on time, you can take advantage of lots of rewards. And you can use it to improve your credit

00:27:31scores over time. Installment credit, on the other hand, is a lot less risky. And that's actually also

00:27:36why it has a much lower interest rate in comparison to revolving credit. But it can also be rigid and

00:27:41limiting. If you've ever heard someone say that they had to refinance their mortgage,

00:27:45because their mortgage is in installments. So they have to like physically go and change the way that

00:27:50they're financing it, and then go through this entire process of doing that, while potentially

00:27:54also incurring fees along the way. And if you really need money fast, you also can't really use installment

00:27:59credit because it takes such a long process to actually get it. Revolving credit will be much

00:28:02easier to do. I've been using interest rate a few times now. The interest rate when it comes to loans

00:28:06is generally described as an APR, annual percentage rate. It's the total interest and fees in a year divided by

00:28:13an

00:28:13average balance owed. And you'll see this number everywhere. It is like a standardized way for you

00:28:17to be able to compare between different loans that you're taking. And just for reference,

00:28:20here are some different types of loans and their APRs expressed as a range. As you can see,

00:28:25something like payday loans is freaking crazy at 300% to 800%. And this is, you know, of course,

00:28:31based upon the United States. So long story short, loans are not necessarily a bad thing,

00:28:35and debt is not necessarily a bad thing either. The course explains that there really is a concept of

00:28:40good debt versus bad debt. A good debt is taking out a loan as an investment for the future. This

00:28:45could be things like starting a business, investing in a home, considering that you actually do the

00:28:49research properly. These are all things that are meant to increase your quality of life and bring

00:28:52you more wealth in the future. And you should be able to pay back that loan easily. Bad debt is

00:28:56also

00:28:57unfortunately definitely a thing as well. And these are the horror stories that you generally hear of,

00:29:01like people taking out payday loans, personal lines of credit, drowning in credit card debt. Bad debt is

00:29:06anything that is weakening your financial stability. When you spend money that you don't have on

00:29:10something that isn't actually going to bring you more wealth in the future. Let me know in the comments,

00:29:15what's your relationship with like loans and debt? Do you kind of have like a negative connotation

00:29:20towards it out of like fear? Is it something that you're just like, Oh, whatever. And then you have

00:29:24like maybe issues with spending and potentially are in debt because of reckless spending? Or do you feel

00:29:29like you're able to use credit and loans and debt responsibly? I really want to know where you stand.

00:29:33Okay. So before I end this unit, I do want to touch on the fact that if you do happen

00:29:36to have

00:29:37a lot of debt, it is something that you should definitely be prioritizing over everything else

00:29:41right now. The course briefly talks about two different approaches called the high rate approach

00:29:45and the snowball effect. I'm not going to go into too much detail about this right now,

00:29:50but I really recommend that you check it out. And then also just there's a lot of free resources

00:29:54out there that can help you come up with a debt repayment plan. Now let's talk about insurance.

00:29:59So I actually didn't know that much about insurance before taking this course. And my first initial

00:30:05reaction is that, wow, I did not realize that so many bad things could possibly happen. And there's

00:30:11so many different types of insurances that could cover to so many bad things that are happening.

00:30:15But in all honesty, though, I'm really glad that I did this section because it's just not a topic that

00:30:20I would naturally, you know, look up by myself because I don't want to think about bad things happening,

00:30:24you know, like most people don't. But the truth is that bad things are happening all the time. Even

00:30:29if you're just minding your own business, you could potentially get laid off, you could have a medical

00:30:33issue occur, you could have some issue happen with any of your family and friends, God forbid you could

00:30:38die. So it is actually important to mitigate those risks. There are two approaches that you can manage

00:30:43financial risk. The first one is just to avoid risk. And the second is to transfer risk to someone else.

00:30:49In the case of a car accident, you can try to avoid this risk by driving safely and not texting

00:30:54and driving or drinking and driving. You can also save up some money so you can fix your car relatively

00:30:58quickly in case something happens and you wouldn't have the risk of not having a car to drive. In

00:31:03addition to this, you can also transfer some of that risk to somebody else by purchasing liability

00:31:07insurance from an insurance company. In this way, if you get into a car accident and it's your fault,

00:31:12you instead of having to pay for damage that you've done because you have insurance,

00:31:16that insurance will cover that amount. So you see, the key to managing financial risk involves

00:31:21both avoiding risk and potentially transferring that risk to someone else by purchasing insurance.

00:31:26So hopefully that makes sense in terms of where insurance fits in and why it can be useful. Now,

00:31:30the course itself goes through a lot of different types of insurances that you can have, with the

00:31:33most common ones being medical insurance, especially if you're in the US. I learned this the hard way when

00:31:38I broke my foot and I did not have insurance. Property insurance in case you own a property or even

00:31:42if

00:31:42you're leasing a property. Car insurance, there's life insurance in case you die. I'm not going to

00:31:47go into too much detail about all the different types of insurances, but definitely if you're

00:31:50interested, do some of your own research. But before I end this section, I do want to

00:31:54define some of the key terminologies that is used in the insurance world. The key participants include

00:32:00the insured, which is the policyholder. It's you if you're buying it for yourself, it's somebody else

00:32:04if you're buying it for somebody else. The insurer, the company providing the coverage, so the insurance

00:32:08company. The agent, so there's usually a third party that helps you purchase that policy. And

00:32:12the underwriter, the people who assess the risk and set what the premiums are. The premium means

00:32:18the payment that is needed to keep the coverage active, so how much money you have to be paying

00:32:22to have that insurance. Sometimes there's deductibles, which is the amount that you need

00:32:26to pay out of pocket before an insurance kicks in. Like say, for example, your deductible is like

00:32:30a thousand dollars in one year. That means that anything that happens within that year, you go to a

00:32:36doctor, you do all these things. If it's up to a thousand dollars, you need to pay that out of

00:32:39pocket, but the insurance will kick in after you've spent a thousand dollars of your own money.

00:32:44There's also something called copay. So sometimes when you visit a specialist office, you have to

00:32:48pay a certain amount in addition to the insurance paying the rest of the amount. So if your copay is

00:32:54like twenty dollars to see a dermatologist, so you paid twenty dollars and your insurance will cover

00:32:59the rest of the visit. There's often also a policy limit, which is the maximum the insurer will pay for

00:33:04the claim. Your home insurance could have a policy limit of four hundred thousand dollars when it

00:33:08comes to fire damage. A claim is a formal request for coverage. So if something happens, you put in a

00:33:13claim for coverage. And finally, the benefit is the payment that insurer will pay to cover whatever it

00:33:19is that the claim is. It's best to use insurance as a backup. It's not something that you should be

00:33:23like, oh, it's because I have insurance. I can just do whatever I want now. And it's definitely not

00:33:27something that you should be thinking like, oh, I can make money from my insurance. It's for reducing

00:33:31financial impact. And the best time to think about getting insurance is when you don't actually need

00:33:36that insurance yet, which is always the little tricky part. You want to be getting your insurance

00:33:40before you get sick, before your house burns down, before you die. Let's talk about investments and

00:33:45retirement now. There are two friends called Miguel and Jasmine. Miguel and Jasmine both started working

00:33:51at Widget Corp at the same time. And during the onboarding, they were asked to sign a lot of different

00:33:55forms, a lot of them with health insurance forms because they're from the US. So there's health insurance,

00:34:00dental insurance, and retirement. So Miguel decides to save $25 per month to put inside his retirement

00:34:06fund. But Jasmine just goes like, eh, future Jasmine problem. So Miguel kept on contributing $25 to his

00:34:11retirement account per month, while Jasmine contributed zero. Now 10 years has passed. And

00:34:16really, Miguel has mostly forgotten about the $25 that he's been contributing because it's just been

00:34:21directly being taken out of his paycheck. But Jasmine at this point goes like, hmm, I should probably think

00:34:26about retirement. So she starts contributing as well. But since she has more disposable income now,

00:34:31she decided to put in $50 per month. So double the amount Miguel puts in. Then another 30 years passes.

00:34:37Lots of things happen. And finally, Miguel and Jasmine also decide that they are going to retire. Now,

00:34:42let's take a look at their retirement accounts. Guess who has more money? Well, if you guess Jasmine,

00:34:47you are incorrect. That would be Miguel. Miguel has $168,000, while Jasmine only has $147,000.

00:34:55So even though Miguel only contributed $25 and never increases contribution, Miguel contributed $25

00:35:02for 40 years, while Jasmine contributed $0 for the first 10 years, and then $50 for the next 30 years.

00:35:10So even though Jasmine contributed twice the amount of that Miguel did, and for 30 years, she still ended up

00:35:16with less. And that is thanks to what is considered the eighth wonder of the world, compound interest.

00:35:21So even though Miguel was contributing less money, his money was working for him all of those 10 years,

00:35:26and it kept on compounding on top of each other. So even though Miguel contributed less overall,

00:35:31that first 10 years really started adding up. And before he even knew it, he had increased his nest

00:35:37egg significantly. This is the reason why people keep saying that you should invest early. Even if it's

00:35:42just a few dollars, that number will keep adding on to itself. The general idea is that the earlier

00:35:48it is that you should start saving, the better it is. Remember the 20% we talked about in the

00:35:52budgeting

00:35:52section, the 20% where you're allocating into savings? Let's now talk about more in detail what

00:35:57you should be doing with those savings. So first, let's make a distinction between saving and investing.

00:36:03These are two terms that get confused a lot. I mean, even on our budget sheet, we just call the

00:36:06entire

00:36:07thing savings, right? But they're actually different. Saving means storing your money safely, having

00:36:12easy access to it, and having very low risk, potentially, hopefully growing it a little bit

00:36:17over time as well. But mostly just not losing money is called saving. And these savings are useful for

00:36:22your emergency fund in case there's emergencies, and also for short term goals. Remember those smart

00:36:27goals we talked about? The short term smart goals. Now, technically, you can save your money by just

00:36:32stuffing it under your mattress and hiding it in your closet. But it's generally not that great,

00:36:37because it is not convenient to you. Somebody could just steal all of it. There's a lot of cash

00:36:41just lying around. It gets very, very confusing. And you have absolutely zero growth on that money,

00:36:46assuming you don't lose it yourself. People generally save their money by putting in a bank

00:36:50in a bank account. It can be like a regular bank account, or there are types of special savings accounts,

00:36:55where if you put a certain amount of money for a certain period of time, you're able to have higher

00:36:59interest rates for it. In the US, this is called a certificate of deposit. It's called other things

00:37:04in other places. But the concept should be in your country as well. On the other hand, investing is

00:37:09the idea of putting money with the intention for the money to grow over time. This is when you put

00:37:14money into assets like stocks or bonds or mutual funds. By investing, you're accepting higher risk with

00:37:20the hope of potentially having more returns. The money itself is generally less liquid, like you can't

00:37:25take it out as quickly as you could from your savings account. And it's usually useful for

00:37:30medium to longer term goals. So I'm going to talk more specifically about investments in just a bit.

00:37:34But first, I'm going to quickly walk through this framework for how to think about your savings and

00:37:39investments, which I think is really helpful. So number one is that you need to create a budget.

00:37:43So you're tracking your income and you're taking that 20% that you're going to be using for savings and

00:37:47investment. Then the first goal is a savings goal, and that is to establish an emergency fund.

00:37:52You want to save at least three to six months of your living expenses in a bank account and don't

00:37:57touch it, unless you actually have an emergency. Step three is to set clear financial smart goals

00:38:02for the short term, medium term, and the long term. And you want to decide whether saving or investing

00:38:07is the best way to achieve them. Remember, for short term goals, generally there are saving goals,

00:38:11while for medium and long term goals, you can have portions of investment goals. Now specifically for

00:38:17investment, step number four is to diversify your investments. Don't put your money into one

00:38:22type of investment. Instead, try to spread them out across different types of assets to reduce

00:38:26your risk. And step number five is to review and to adjust. Check your progress regularly and adjust

00:38:32it as needed in order to make sure you're achieving your financial goals. I think this five step framework

00:38:36is super helpful because there's just like so many things that you're supposed to be doing.

00:38:41But you know, it's basically telling you that these are your list of priorities that you should be

00:38:45doing. So if you don't know what to do, start with that. Okay, let's not talk about investments

00:38:48specifically. There is a relationship between risk and reward. Generally, the greater the risk of an

00:38:53investment, the greater the potential reward is as well, but also the potential for loss. A simple way

00:38:59of categorizing different types of investments, because there are so many different types of

00:39:02investments, is into three major categories. The first one is a low risk and a low return category.

00:39:08These are things like money markets, treasury bills, and bonds. I'm not going to go into too much detail

00:39:12about what exactly these types of investments are, and the course itself also doesn't go into too much

00:39:17detail about it. But if you're interested, definitely look up these specific terms. But when we say low

00:39:21risk, low return, these are things that you will not get that much interest rate for. But these are

00:39:25just things that if you invest in, they're very safe investments. So the likelihood of you losing your

00:39:29money is extremely low, but the amount of money that you get from interest rate is also quite low.

00:39:34The second type is moderate risk and moderate return. These are things like mutual funds and index funds.

00:39:39And the third type is high risk and high return. These are things that are risky and volatile. Things like

00:39:45single stocks, cryptocurrencies, and commodities. So to just kind of give you an idea for what these

00:39:50return percentages are looking like, I'm sure many of you have heard about this suggestion when people

00:39:55just tell you like, oh, if you have like money set aside for investment, just invest in the S&P

00:39:59500.

00:40:00The S&P 500 is a stock market index that tracks the largest 500 U.S. companies. This falls into

00:40:07the

00:40:07category of moderate risk and moderate return. And historically, the S&P 500 have been returning around 10%

00:40:13annually. And adjusted for inflation, that's around 6% to 7%. Just to give you an idea of what these

00:40:18numbers are looking like. In any case, the general philosophy of investing is that you need to

00:40:22understand the amount of risk that you're taking and the potential reward or loss that you could be

00:40:26taking as well. And that you should always try to diversify your assets. Do not keep your eggs in

00:40:32one basket. Let me know if you actually want me to do a speed run of an investment course specifically.

00:40:36I'll be down for that as well. But just a word of caution, because I have made this mistake before.

00:40:40Like several years ago, I got really interested in investment. And that in itself is like not a

00:40:46problem. But what was a problem was that I was very interested in investing without actually covering

00:40:52the foundations first, which is in budgeting and saving. I thought that was like boring. But in reality,

00:40:57that's like trying to build a house while having like a shitty foundation. So if you're interested

00:41:00in investing, you definitely should get your budgeting and your saving and debt repayments if you

00:41:04have any in order first. Okay, let's actually go back to Miguel and Jasmine and talk about retirement.

00:41:10So we saw from the life of Miguel and Jasmine, the magic of compound interest, which is especially

00:41:15relevant when it comes to investing for retirement. Because we're looking at 10, 20, 30, even 40 years

00:41:21that people have before they retire. So you have all that time to take advantage of compound interest.

00:41:26There are actually special retirement accounts in most countries specifically to allow you to invest

00:41:31for retirement. In the US, the ones that they usually talk about is the 401k, the IRA, and the

00:41:37Roth IRA. The 401k is an employer sponsored account, which is set up by your employer. So both you

00:41:42and your employer can contribute towards it. Some employers would actually do 401k matching. Like for

00:41:46example, when I was working at Meta, they did 7% 401k matching up to like a certain limit, which

00:41:51is

00:41:52really, really good. So it's essentially like free money that the employer is putting into your retirement

00:41:55account. IRAs are considered individual accounts. So you're basically operating that by yourself. And of

00:42:00course, there is social security, which is a government program funded by payroll taxes.

00:42:04That generally is going to be like really, really small amount. And who knows if you can actually

00:42:10depend on that by the time you actually retire. It wouldn't really count on that one. Anyways,

00:42:13I'm not going to go into too much more detail about these like very US specific things, but you can

00:42:17check out the details about these accounts. I think the course does a pretty good job of covering them.

00:42:21And I'll put the link in that for that unit below. For everybody else, and this is me included,

00:42:25because I'm not American. There's generally some version of this for your home country as well.

00:42:31You can go to Chachupet or whatever your favorite AI is and just ask like, what is the equivalent of

00:42:36a 401k? We're just like, what are the retirement accounts available in my country? All right, time

00:42:40for our next little assessment. I'm going to put on screen now some of these questions that covered

00:42:45the past couple of units. Remember, if you answer these questions, that means you actually have

00:42:49retained that information. Now let's go on to scams and frauds. Okay, so I'm going to spare you the

00:42:54massive list of different scams and frauds that are going on. But I'm just going to leave you with

00:42:59two general wisdoms when it comes to scams and frauds. The first one is that if it's too good

00:43:04to be true, then it's too good to be true. In Chinese, we actually have a saying that's called

00:43:09That's a phrase that my mom likes to use a lot as well. But basically, it's just saying that the

00:43:13sky

00:43:13does not have like these . It's like this food that drops for free. Like, you know, no such thing

00:43:20as a

00:43:20free lunch, right? If it sounds too good to be true, then it's too good to be true. If someone

00:43:24goes like, oh, you know, if you invest in this thing, then I'm gonna give you 50% return. Yeah,

00:43:29no, they're not going to do that. Or a Nigerian prince is going to like, you know, give you the

00:43:34certain amount of money. If you wire that amount back, that's not going to happen either. And I

00:43:38actually did notice with the rise of AI, these scams have gotten a lot more intelligent. So even though

00:43:44like, you know, Nigerian prince sounds so ridiculous, there are like very, very like good scams these

00:43:49days. So just generally speaking, if you see something and you're like, wow, that's a great

00:43:54opportunity, definitely just be careful of that. And the second general wisdom is to not give out

00:43:59personal identifiable information, or PII. Things like your social security number if you're American,

00:44:04social insurance number if you're Canadian, or whatever the equivalent is to your country. Try not to

00:44:09give people your birthday as much as possible. Try to, you know, use different passwords, different

00:44:13types of emails, just like don't do things that can expose you to more scams. Remember, stranger danger,

00:44:20you know, things when you say it, like you meet everybody, we're all just like, oh, like I would

00:44:23totally never get scammed because of something like this. But when in reality, like when they're

00:44:28actually like doing these things, it can be very, very realistic. Like scammers are very good at

00:44:35tapping into the emotional part of your brain. And it makes you start doing things that are

00:44:40completely irrational. So please, if you feel like something could be potentially off,

00:44:44try to ask more questions about it. Try not to do anything rash when it comes to your money. I

00:44:49guess

00:44:49that's a general sentiment as well, not just for scams and frauds. Now, with all that being said,

00:44:53though, I do kind of want to make a caveat. And this is kind of like actually a personal caveat.

00:44:56It's actually not from the course. So not from Khan Academy. It's the fact that you can also

00:45:00go the opposite direction. Like for me, I'm so scared of getting scammed that I essentially

00:45:06just like think everything is a scam. And I miss out on a lot of opportunities, you know,

00:45:10because of that. And I think that also can be a problem. Like when you hear so many horror stories

00:45:16about scams that you just end up not actually like making moves that could potentially benefit

00:45:21you financially. So yeah, just keep that in mind as well. There are scams, but there's also genuinely

00:45:26good opportunities out there as well. All right, moving on to the next section. I'm actually

00:45:30going to group together the two sections. The first one is careers and education, but I also

00:45:34want to group in employment. And the reason why I'm doing this is because these sections

00:45:37are not as in depth as the other sections. And also they're very, very US centric. So if you are

00:45:43American, by all means, please do check out those sections if you're interested in kind of a good

00:45:48overview about things to think about when you're thinking about school and your career and employment.

00:45:53But for this video, I'm going to talk about more general frameworks for how to think about these things.

00:45:58Let's talk about education first. Specifically, let's say colleges and universities. It is a really,

00:46:03really big investment to go off to college, whether that be like a two-year degree or a four-year

00:46:07degree.

00:46:08So before making a decision like this, it's very important to understand the breakdown of costs in

00:46:13relation to how much additional financial value that the degree can bring you. So return on investment.

00:46:19The sticker price of what university tells you something costs is never actually the true cost of going to

00:46:25that school. A lot of additional costs to the tuition that people don't fully consider would

00:46:28be like the cost of books, the cost of materials, like lab materials if you're into sciences, art

00:46:33material if you're into arts. Many universities also have these other like random little fees that

00:46:37they just stick in there. Like mine definitely did and I did not know that until I actually saw

00:46:42you know the amount of money, additional money that I had to pay. Other types of costs would include

00:46:46transportation and living expenses if you're going to be living near the school and actually commuting to

00:46:52the school. So that would be transportation, housing costs, food costs, and just personal expenses. If

00:46:57you need to move to a city that's much more expensive than where you're living right now then

00:47:00you have to factor those into account as well. It is possible that attending a university is actually

00:47:05cheaper than you would expect too and that's through something called financial aid. I think it's

00:47:09especially common in US-based universities but there's a lot of like grants and scholarships for

00:47:14people who can't afford to go to school where they're you know at a certain merit level that they would

00:47:19get

00:47:19these scholarships. Of course there's also the option of loans and I'm not going to go into too much

00:47:24detail about this because there's a lot of different types of student loans available. But generally

00:47:28speaking it's just a very good idea to actually go through these numbers and actually calculate

00:47:33how much things cost and what potential financial aid that you could apply for before choosing a

00:47:39university that you're going to. When it comes to if you're getting a postgraduate degree like a

00:47:43master's degree or a PhD, another consideration you want to take into account is the idea of opportunity cost.

00:47:48So the amount of money that you're going to be spending on this degree in addition to the cost

00:47:52that is associated directly with that degree also includes you not working during that period of

00:47:57time. So all of that is called opportunity cost. All of that money that you could potentially have

00:48:01earned if you actually kept working at your job would be gone. So that's also something that you need

00:48:06to be careful about considering. Many people also fall into the trap of thinking that getting a

00:48:09master's degree or a postgraduate degree would definitely increase their salary expectations

00:48:13afterwards and that is not always the case. So it's also very important to evaluate that carefully

00:48:18too. Anyways if you're looking to attend school or go back to school it is obviously a really really big

00:48:22decision and it's something that you should very carefully consider. Now the second thing from the

00:48:27course which I thought was really helpful for people who both want to go to school also for

00:48:31people who are trying to get a job is an actually very very obvious thing. It's to actually talk to

00:48:35people. Like if you're thinking of going to a university and getting a certain degree and you're like,

00:48:40oh like I'm not sure if this is actually going to get me the job that I want, I don't

00:48:44know if it's

00:48:44I'm going to learn the things that I want to be learning, then actually reach out to people who

00:48:48have graduated from that degree. And same goes for a job. If you're like, oh I'm not really sure if

00:48:52I

00:48:52want to do this job, not really sure what that's going to be like, then try to actually reach out

00:48:55to

00:48:55people who have done that job before. Seriously if you just talk to someone who's actually been through

00:49:00the experience that you're trying to decide about, it can potentially save you a lot of money,

00:49:06time, and headache. Okay now let's do a fun exercise. Answer the question, when was the last

00:49:11time that you paid taxes? A in the last 24 hours, B in the past week, C in the past

00:49:17month, or D in the

00:49:19past year. I would hope the majority of you probably should have chosen A in the last 24 hours. Whether

00:49:25you have bought anything in the last 24 hours, you should have picked A and that is because of sales

00:49:30tax

00:49:30tax. Which is the tax that you pay every time that you purchase something. At least if you're in North

00:49:34America. I know that not all places have sales taxes. But my point being in doing this little

00:49:40exercise is the fact that when most people think about taxes, they just think about tax season.

00:49:45Like when they have to pay taxes every single year. When in fact you're actually paying taxes all the

00:49:51time throughout the year in a variety of different ways. Let me just list out a few for you. Income

00:49:55tax,

00:49:56payroll tax, sales tax, property tax, corporate tax, estate tax, excise tax, hotel tax, and toll tax.

00:50:02So these taxes generally fall into two different categories. The first one is called a flat tax,

00:50:06and a sales tax would be an example of this. It would just be like every time you buy something

00:50:10or you go to a restaurant and you eat something, there would be like a certain percentage at the

00:50:14end of your bill that's tacked onto your bill. And this is going to be the same rate for everybody.

00:50:18Then there's progressive tax. An example of this would be income tax. Higher earners would generally pay

00:50:23a larger percentage of their income. Some taxes are going to be built into the prices itself and

00:50:27there's nothing you can do about it. While for others like income tax or property tax, you can

00:50:32calculate and sometimes there are ways that you can actually reduce that tax. So generally speaking,

00:50:36if you're a single person, you're an employee working a full-time job and you don't own any

00:50:40properties, then you would have like the simplest tax forms and a simplest tax process. You would just

00:50:45fill out some forms in the beginning of your employment and usually the tax is deducted directly from

00:50:50your paycheck. So you don't actually even get to see that money. It gets directly paid to the government.

00:50:54Now it gets a little bit more complex. Say if you're a contractor and you're working for yourself,

00:50:58then you're taxed at different rates and you're responsible for reporting your taxes and paying

00:51:01your taxes yourself as well. And if you own things like properties, then that's like a whole set of

00:51:05other types of tax that you would be paying. Other thing to know is that there's things called

00:51:08deductibles. So if there are certain things that don't count towards your taxes, so you don't get taxed on

00:51:13those specific things. There's also something called a tax credit and this can be used to reduce the amount of

00:51:18tax that you have.

00:51:19The rest of this unit goes into detail about US based specific tax forms, how to fill them out,

00:51:24what they mean and all these things. So definitely check them out if you're interested, but I'm not

00:51:27going to cover them here just because we have a pretty global audience. Let's now talk about banks.

00:51:33The way that a bank makes money is that when you deposit money into a bank, you'll receive a little

00:51:37bit of interest for the money in your bank, but they'll actually take that money and lend it out to

00:51:42other people and charge a much higher interest rate for it. And the bank gets to keep the difference

00:51:46in interest rate. Banks pretty much all work in a very similar way, but there are many different

00:51:50types of banks. So first you have your very big national or even global banks, places like JP

00:51:55Morgan Chase, Bank of America, Citibank. Generally speaking, these banks are full service banks,

00:52:00so they'll do lots of different things for you, but you wouldn't make the most money in terms of

00:52:03interest rates when you're banking with a larger bank. Then you have your regional banks. So they're

00:52:08smaller, they're more specific to where it is that you live. You can probably get better interest rates when you

00:52:12bank with them and they may have specific perks and offerings that would be especially useful for you.

00:52:17You also have credit unions where you can also deposit money and take out loans, but these are

00:52:21generally non-profit and based on membership. So you actually have to be a member to be to do stuff

00:52:25with a credit union. If you bank with a credit union, your interest rate is generally going to be

00:52:29higher, but they do have more limited services. And finally, there is online banks. So these are banks

00:52:34that don't have physical locations, although sometimes they would partner with bigger banks so that you can use

00:52:38different ATMs that are around. So because the bank itself needs less money in order to operate,

00:52:43since it doesn't have any physical locations, generally if you bank with them, you would also

00:52:46get a much higher interest rate for your money. Although it is also true that some of these online

00:52:50banks can be a little bit more risky because they're just online people doing online things.

00:52:56So when you're choosing to bank with a bank, people generally start off with a regional bank or a

00:53:00national or global bank, just because there's more services that are being offered and it's generally

00:53:04considered to be more secure. But if you want something with better rates and a more personal

00:53:08touch, you could consider a credit union. And finally, if you're comfortable with online

00:53:12things and if you want lower fees and higher interest rates, you can try an online bank.

00:53:16Now let's talk about different bank accounts. So within a single bank, there's usually different

00:53:19options for bank accounts. So these terms might be a little US centric, but based upon where you are,

00:53:24there's probably an equivalent of this. So you have your checking account, which is kind of like

00:53:28your everyday account has very low interest rates or no interest rates. And you're essentially just

00:53:33using it just a place to store your money as opposed to hiding cash and hoarding cash in your

00:53:37house. There are money market accounts, which has slightly higher interest rates.

00:53:41Um, but you know, they may have some things that you can't withdraw under certain limits. You have

00:53:46to keep a certain amount of money within that bank account, or you can only do withdrawals like five

00:53:50times a month. Similarly, a savings accounts, it also has a little bit higher interest rate,

00:53:54but more restrictions. Then there are certificates of deposit or CDs. In Canada, where I do a lot of my

00:54:00banking, these are called GICs. And this is kind of like the highest level of saving before you

00:54:05start going to investment territory, because you're essentially going to take that money and lock it

00:54:10up for like six months, one year or two year. And in exchange for this, the bank will give you

00:54:14a much

00:54:14higher interest rate for it. And the reason why the bank is willing to do this is because if you're

00:54:18basically like saying, I'm not going to take this money out, then the bank is able to take that money

00:54:22and loan it out to people, knowing the fact that you're not going to want it back. Of course,

00:54:25the downside is if you actually do have to like touch that money and take it out, you'll have to

00:54:30pay a very

00:54:30significant penalty for it. And finally, you have investment accounts. So investment accounts is

00:54:35also kind of a category in itself. There are a lot of different investment accounts. There's stock

00:54:39accounts, you have your special investment retirement accounts, like your 401ks and your IRAs.

00:54:44You could also have like normal brokerage accounts where you can buy things like stocks and funds and

00:54:48things like that. Most people generally don't have just a single type of bank account. Usually at least

00:54:52you would have like a checking account for just moving money around some form of savings accounts to get a

00:54:58little bit of interest rate and then potentially also at least one type of investment account

00:55:03to be doing investing stuff. Okay, so now let's actually revisit the idea of interest rates,

00:55:07specifically in relationship to bank accounts. I mentioned interest rate for some of the accounts

00:55:11that I just talked about earlier, but let's specifically talk about the accounts that has

00:55:14compound interest built into it. Remember the story Miguel and Jasmine? Miguel contributed less money,

00:55:20but he actually had more money at the end of retirement. And that is because of the magic of compound

00:55:24interest. Luckily, some accounts have compound interest built specifically into it. For savings

00:55:29accounts, these will be regular saving accounts and CDs, retirement accounts like 401ks and IRAs,

00:55:35and also most brokerage accounts, which are accounts in which you're investing stocks, bonds,

00:55:40or mutual funds. So any money that you earn from that investment can actually be reinvested,

00:55:44so you can let compound interest do its magic. So if you're looking to take advantage of compound

00:55:49interest, then you should be looking into these types of accounts. The last thing I want to talk about

00:55:53this section is inflation. Inflation refers to the idea that the prices of things that we buy are

00:55:59generally going up over time. So your money actually is worth less over time. So if you ever hear in

00:56:04the

00:56:04news that inflation is 3% or 6%, this is basically saying that things are getting on average 3%

00:56:10more

00:56:10expensive or 6% more expensive. It's very important to keep track of inflation because it is a force that

00:56:16will continue to make your money worth less. That's why if you actually do nothing with your money,

00:56:20you're actually slowly losing money over time. And even when you're investing money, sometimes

00:56:24you know somebody would tell you, oh like the interest rate for these investments where you

00:56:28know putting it into your savings account is like 2%, right? You're like, oh wow, like I could make

00:56:322%, but say that your inflation rate is 3%, you're actually still losing money. You're just losing it

00:56:37at a slower rate at only 1% as opposed to 3%. So yeah, always keep that in mind whenever

00:56:43you're planning for the

00:56:44future. Inflation is one of those things that will sneak up on you. All right, we're almost done.

00:56:49Only 2 units left. And actually unit 13, which is car buying. You know, going through that unit,

00:56:55the thing that I basically got out of it was that people will try to scam you a lot. They

00:56:59will do a

00:57:00lot of trickeries to try to scam you. And then the course does like list out like a few different

00:57:05types of trickeries that they will do on you to try to scam you. But I feel like unless you're

00:57:10actually

00:57:10actively buying a car, it's not super useful to you. So if you are, check it out. But for everybody

00:57:15else, I am not going to take up more of your time because this is already like a very long

00:57:20video. So

00:57:20let's just end on the housing unit. So the first part of this unit talks about whether you should

00:57:25rent or whether you should buy. And the instructor, Sal, goes through a pretty good example. So I'm going

00:57:30to share that with you guys now. So imagine that you want to buy a house that is listed for

00:57:34$400,000.

00:57:35You have $100,000, which you'll put as a down payment, which leaves $300,000, which you're going

00:57:41to take as a loan. So just for simplicity's sake, let's say that you take out a loan that is

00:57:46simply

00:57:46a 6% interest rate per year. This means that you need to pay $18,000 a year. Now assume

00:57:51that you also

00:57:51make $100,000 in income. So in the US, your interest rate, the mortgage that you're paying is actually

00:57:57deductible. This does not mean that you can just subtract $18,000 from the amount of taxes

00:58:02that you're paying. That would be great. But that would be called a tax credit.

00:58:05It means that instead of having to pay taxes on $100,000 of your earnings, because you're spending

00:58:11$18,000 to pay back for the loan, you only get taxed on $82,000. So very approximately a third,

00:58:17where $6,000 will be considered reduced taxes, which means that the effective cost that you're

00:58:22paying for interest for your mortgage is $12,000. So unfortunately, the cost associated with buying

00:58:27a house is not just the mortgage. There's also additional things like property tax. Let's say,

00:58:32for example, here, that property tax is $4,000, which is 1% of the value of your property. And

00:58:37say that you'd have to spend another $2,000 just to upkeep your property and like do some renovations

00:58:42or something like that, which means that in the end, the amount of money that you're paying

00:58:46for the house in terms of buying is $18,000. So now let's consider renting. Say you have that same

00:58:52place, right? And the rent for it is $1,500 per month. This means that it also works out to

00:58:57be

00:58:58$18,000 a year if you actually rent the house. But that's not it. All things considered equal,

00:59:03if you still had $100,000 and you did not put it into a down payment for buying the house,

00:59:08it means

00:59:08that you could have invested it somewhere else. And let's just say that we're going to be very

00:59:12conservative and your investments only yield like 2%. Maybe you just stuck it into a savings account

00:59:17and you only got 2% out of it. This means that you earned another $2,000. So effectively,

00:59:22decreasing the $18,000 per year to $16,000 per year if you choose to rent. So in this example,

00:59:28using, you know, these specific numbers, it turns out that it would be better for you to actually

00:59:32rent the house as opposed to buying this house. However, of course, this is like a very simplistic

00:59:38example and there's also a lot of other factors to consider as well. Like maybe the fact that

00:59:42psychologically speaking, you just want to have a house, right? Like maybe you want to have a place

00:59:47to yourself. You don't want to keep moving around whenever your lease is over. There are a lot of other

00:59:51factors at play as well. But I do think this is a really nice little framework in terms of trying

00:59:57to understand whether you should be renting versus buying. I think people in our generation might just

01:00:02believe that buying is always better than renting because from our parents' generation, that usually

01:00:08was always the case. But unfortunately, it's not always the case anymore. So if you are deciding

01:00:13whether you should rent or buy, try to kind of do this little exercise first.

01:00:16Khan Academy also has a nice little mortgage calculator, which I will link in the description.

01:00:21If you're based in the US, then that will be helpful for you as well.

01:00:24Okay, we are at the end of this video. Oh my gosh, this is such a long video.

01:00:29It actually took me two days to film the whole thing. Truthfully, I don't think I was able to cover

01:00:33like everything about this course. So I tried my best to kind of go through these foundations and

01:00:39give you the big ideas of them so that if you are interested in any specific section,

01:00:43you can actually go to that course since Khan Academy courses are completely free and to do

01:00:47that section by yourself. But hopefully this at least gives you an idea of what you don't know.

01:00:52Because if you know what you don't know, then you can look up the things that you don't know.

01:00:55I think the very difficult thing about financial literacy is oftentimes we don't know what we don't

01:00:59know. Anyways, I'm gonna stop laughing. So as promised, here is an assessment that covers these

01:01:04sections. Please write your answers in the comments. If you're interested in self-learning STEM

01:01:09subjects, I really recommend that you check out Brilliant. Brilliant is a STEM learning

01:01:13platform that specializes in interactive hands-on learning. When I was interviewing for Meta and

01:01:17it was actually Meta that recommended to me that I should use Brilliant to brush up on my math and

01:01:22stats before the interviews. And that's because it's just so effective at teaching STEM subjects

01:01:26through interactive problem-based learning. Brilliant incorporates like little quizzes,

01:01:30analogies, and just like little dopamine hits that help a lot when you're feeling bored or discouraged,

01:01:35which I feel like for STEM subjects, it is pretty easy to feel bored and or discouraged. If you're

01:01:40interested in Gen AI, they have a short and sweet little course that is a really fun overview and

01:01:45it actually doesn't involve any coding. They also have timeless offerings like math and stats,

01:01:49programming with Python, as well as new course offerings with topics like neural networks and

01:01:53quantum computing. You can join in millions of people already learning on Brilliant by going to

01:01:57this link over here, also linked in description, or by just scanning the QR code on screen. If you go

01:02:02through my link, you'll get a 20% off the annual membership. By the way, if you celebrate Christmas,

01:02:06this is also a pretty good Christmas present for people who are like slightly nerdy. Like,

01:02:10I would appreciate it. Thank you all so much for watching,

01:02:13and I will see you guys in the next video or live stream.

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