Americans are learning the hard way that they can’t always trust their own financial knowledge.
On average, American adults lost $1,819 from personal financial mistakes in 2022, according to the latest report from the National Financial Educators Council (NFEC).
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That’s a total loss of more than $436 billion when scaled up for the 240 million American adults.
“Financial illiteracy is an epidemic in the US and it comes at a time when the economic climate is changing rapidly,” says Vince Shorb, executive director of NFEC. “That means financial education has never been more important than it is today.”
Need a quick crash course? Here are some financial lessons that can have a direct impact on your bottom line.
Money Mistakes Come at a Cost
More than 38% of people said their lack of financial knowledge cost them more than $500 in 2022, while 23% reported losing more than $2,500 and 15% said it cost them $10,000 or more, according to the latest survey. of financial illiteracy from NFEC.
The cost of financial illiteracy has been rising gradually since 2017, and the pandemic pushed those costs to new heights. In 2020, those costs increased 27.7%, largely due to the pandemic panic. 2022 saw an even higher increase of 31.6% due to record inflation and other economic challenges.
“People weren’t prepared for the rapidly rising cost of food, gasoline and other necessities in 2022,” Shorb says. “Many people who were just getting their finances in order after the COVID times are now struggling to make ends meet.”
The NFEC identified several common money mistakes that cost Americans billions of dollars each year; here are three of the most common and costly mistakes:
The true costs of credit cards
Mistakes made with interest rates and credit card fees cost Americans a whopping $120 billion in 2022.
Credit card companies charge people an Annual Percentage Rate (APR) to borrow money. Most cards have variable APRs that can go up or down based on specific benchmarks, like the prime rate.
Carrying balances on your cards can be very expensive in the long run, especially right now. The current average credit card APR is 23.39%, according to LendingTree data, but someone with a low credit score could face an APR closer to 27%. .
If you don’t keep up with your monthly payments, you could end up paying interest on your interest, and your balance can quickly spiral out of control.
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If you make your payments on time or pay them in full each month and your credit score is in good shape, lower interest rates will be available to you when you get a car loan or mortgage, but a poor credit score can make loans of any type more expensive.
You can usually check your credit score for free, and keeping a close eye on it could save you a lot of money and ensure better loan rates in the long run.
As for additional fees, credit card companies will charge borrowers for things like late payments and cash withdrawals.
It’s worth simply asking your credit card issuer about payment options.
“For those with debt, opening a credit card account can be daunting and overwhelming,” says Shorb. “This emotional response to debt can lead people to inaction. For those with larger revolving debt that carries over from month to month, it’s important to regularly shop around for better credit card terms.”
Given the chance, most card issuers are willing to deal with you rather than risk you defaulting on the account and paying nothing.
You can also apply for a balance transfer card, which allows you to transfer your current balances to a card with a 0% introductory APR period, giving you up to 21 months to get your finances in order interest-free before you go into the regular APR is in effect. .
Luxuries you can’t afford
No matter how much the economy sinks, the allure of luxury goods remains strong and aspiring shoppers continue to buy expensive Chanel bags, Dior jackets and Cartier watches.
In 2021, US luxury spending soared 47% compared to pre-COVID-19 2019, and jewelry spending increased 40%, according to Bank of America data.
While spending slowed slightly in 2022, due in part to luxury brands raising their prices, sales held up well compared with cheaper brands.
The allure of luxury items is problematic for those who lack financial literacy, the NFEC stressed, especially if they are spending money on items they “don’t really need and often can’t afford.”
“Many of us have gaps in our financial knowledge that can cost us money,” says Shorb. “Identify the areas that are pulling you the furthest away from your financial goals, and set aside time each week to address those areas.”
Going overboard with overdraft fees
Many Americans are victims of overdraft fees. If you use your debit card to buy something that costs more than you have in your bank account, the transaction can still go through, but you will be charged a fee.
According to the Consumer Financial Protection Bureau (CFPB), a typical overdraft fee is around $34. While that may seem minor to some, Shorb notes that “small costs can add up over time.”
In fact, the CFPB estimates that Americans spend $17 billion a year on overdraft and non-sufficient funds (NSF) fees.
Of course, you are expected to pay the fee in addition to the overdrawn amount.
Overdraft fees can be easily overlooked, but there’s a simple solution to avoid them: Pay attention to your account balance and make sure you don’t spend more than that.
Also, remember that Overdraft Protection is an account feature that you must accept and pay for. If you have overdraft protection, you can ask your bank to remove your overdraft plan so you can’t overdraw your account at all, but this means your card could be declined if you try to make a purchase and you don’t have enough cash. in the account.
You’re probably overpaying for this too
Overdraft fees and luxuries aren’t the only costs you can control.
The median price of a homeowners insurance policy in 2022 is $1,680, nearly 40% higher than 12 years ago.
If you want to get the best possible deal on your home coverage, no matter where you live, you’ll need to compare multiple home insurance companies.
Normally looking for insurance quotes takes forever and it’s a hassle to receive multiple phone calls from different insurance agents. But today you can find the lowest prices on home insurance online, and it only takes three minutes.
Local homeowners in Washington state, for example, often save close to $1,000 or more per year by shopping around for insurance, according to the nonprofit consumer group Puget Sound Consumers’ Checkbook.
This article is for information only and should not be construed as advice. It is provided without warranty of any kind.