Financial Literacy Lessons

A credit score is a three-digit number (typically between 300-850) that represents your creditworthiness - how likely you are to repay borrowed money. It is calculated by credit bureaus (Equifax, Experian, TransUnion) using information from your credit report, including payment history, amount of debt, length of credit history, credit mix, and new credit inquiries.

• Payment history (35%): On-time payments boost your score
• Amounts owed (30%): Keep credit utilization below 30%
• Length of credit history (15%): Older accounts help your score
• Credit mix (10%): Multiple types of credit (cards, loans) are better
• New inquiries (10%): Hard inquiries can temporarily lower your score

If you are new to the U.S. or have little credit history, you can build credit gradually by establishing accounts and making on-time payments. Here are proven strategies:

• Become an authorized user on someone else's account with good payment history
• Get a secured credit card (deposit $200-$2,500, get matching credit limit)
• Apply for a credit-builder loan from your bank or credit union
• Make all payments on time - even one late payment can damage your score

Your credit report is a detailed record of your credit history maintained by the three major credit bureaus. You are entitled to one free credit report from each bureau per year at annualcreditreport.com (the only official site). Check for errors and dispute inaccuracies.

• Personal information: Name, address, SSN or ITIN
• Account history: Credit cards, loans, payment records
• Public records: Bankruptcies, liens, judgments
• Inquiries: Hard inquiries from credit applications and soft inquiries from companies

If you earn income in the U.S., you must file a federal tax return with the IRS. Most tax returns are due by April 15th of the following year. Filing early may help you get your refund faster. Visit IRS.gov for official forms (1040, Schedule C, etc.) and publications.

• W-2 employees file Form 1040 with their W-2 from employer
• Self-employed must file Schedule C and pay self-employment tax
• Immigrants with SSN or ITIN can file federal returns
• Keep all receipts, W-2s, and income documents for at least 7 years

The W-2 and 1099 are tax forms that report income. Your employer determines which form applies based on your employment status. This affects your tax filing and tax obligations.

• Form W-2: Issued to employees; employer withholds payroll taxes; you file individually
• Form 1099-NEC: Issued to independent contractors and self-employed; you must pay estimated quarterly taxes
• 1099 recipients often pay more self-employment tax (15.3%) on net profit

Both ITINs and SSNs can be used to file tax returns, but they have different eligibility requirements. If you don't have a Social Security Number, you may qualify for an ITIN from the IRS. Learn more at USCIS.gov and IRS.gov.

• SSN (Social Security Number): For U.S. citizens, permanent residents, and authorized workers
• ITIN (Individual Taxpayer Identification Number): For non-citizens who must file taxes
• Both require valid ID documentation and must be applied for with IRS Form W-7

A bank account allows you to safely deposit money, pay bills, and build a financial history. You need a valid ID and usually a minimum deposit. The FDIC (Federal Deposit Insurance Corporation) protects deposits up to $250,000 per depositor per bank.

• Bring government-issued ID (passport, state ID, or work permit)
• Proof of address (utility bill, lease, bank statement)
• Initial deposit (amounts vary; some banks offer accounts with $0 minimum)
• Consider credit unions if you lack credit history - they offer more flexible options

Checking and savings accounts serve different purposes. Understanding the difference helps you choose the right account for your needs.

• Checking: For frequent transactions; comes with debit card, checks, and online bill pay
• Savings: For building emergency funds; earns interest; fewer monthly transactions allowed
• Interest rates: Savings accounts earn interest; checking accounts typically do not

Banks charge various fees that can add up quickly. Understanding and avoiding these fees saves you money each month.

• Monthly maintenance fees: Choose banks with no monthly fees or free accounts
• Overdraft fees: Keep track of balance; use overdraft protection if available
• ATM fees: Use your bank's ATM network to avoid out-of-network charges
• Wire transfer fees: Compare banks; some offer free domestic transfers

Insurance protects you and your family from financial loss due to unexpected events. Different types of insurance cover different risks. Everyone needs certain basic types.

• Health Insurance: Covers medical expenses; required by law in most cases
• Auto Insurance: Required if you own a car; covers liability and damages
• Homeowners/Renters Insurance: Protects your home or belongings
• Life Insurance: Provides financial security for your family if you pass away

Insurance transfers financial risk to an insurance company. Without insurance, a single accident or illness could wipe out your savings and damage your credit for years.

• Medical bills can exceed $100,000 without health insurance
• Car accidents can result in lawsuits and wage garnishment
• House fires or theft can destroy your property and financial stability
• Life insurance replaces lost income for your family

Different people need different insurance coverage based on their situation. When choosing insurance, compare quotes, understand your coverage, and review annually.

• Get multiple quotes from different providers
• Understand deductibles, copays, and coverage limits
• Choose coverage levels based on your assets and income
• Review your insurance annually and adjust as your life changes

Choosing between renting and buying is a major financial decision. Renting offers flexibility; buying builds equity but requires more capital and responsibility.

• Renting: Lower upfront costs; landlord maintains property; no equity built
• Buying: Build equity; tax deductions possible; higher upfront costs; responsible for repairs
• Consider your financial readiness, length of stay, and local market conditions

A mortgage is a loan used to buy a home. You repay the loan over 15-30 years with interest. Understanding mortgage terms helps you choose the best loan for your situation.

• Fixed-rate mortgage: Interest rate stays the same throughout loan term
• Adjustable-rate mortgage: Interest rate changes periodically (often starts lower)
• Down payment: Usually 3-20% of home price; larger down payment means lower monthly payments

A down payment is the amount of money you pay upfront when buying a home. Lenders typically require 3-20% of the home's purchase price. A larger down payment reduces your loan amount and monthly payments.

• FHA loans allow down payments as low as 3.5% (first-time buyers)
• VA loans (military) may allow 0% down
• PMI (Private Mortgage Insurance) required if down payment below 20%
• Save emergency fund separate from down payment

When starting a business, you must choose a legal structure. The most common options are sole proprietorships, partnerships, LLCs, and corporations. Each has different tax and liability implications.

• Sole Proprietorship: One owner; easiest to form; unlimited personal liability
• Partnership: Multiple owners; shared liability; pass-through taxation
• LLC (Limited Liability Company): Offers liability protection; flexible taxation (can choose)
• Corporation: Complex; strongest liability protection; double taxation risk

An EIN (Employer Identification Number) is a unique identifier issued by the IRS for business tax purposes. Most businesses need an EIN. You can apply online at IRS.gov for free.

• Required if you have employees
• Recommended for all business types (protects your personal SSN)
• Apply online at IRS.gov; EIN issued immediately
• Use for opening business bank account and filing business taxes

A separate business bank account keeps your personal and business finances separate. This is important for tax filing, liability protection, and professional accounting. You need an EIN or SSN and business documentation.

• Track business income and expenses for accurate tax filing
• Keep personal and business money separate for legal liability protection
• Use business debit card and checks for all business transactions
• Reconcile accounts monthly to catch errors early