Americans are learning hard, and they can’t always rely on their financial literacy.
In 2022, American adults will lose an average of $1,819 to personal financial mistakes, according to the latest report from the National Financial Educators Council (NFEC).
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When the losses for all 240 million American adults are multiplied, the total loss exceeds $436 billion.
“Financial illiteracy is an epidemic in the United States, and it’s happening at a time when the economic environment is changing rapidly,” said NFEC CEO Vince Schaub. “This means financial education has never been more important than it is today”.
Need a quick crash course? Here are some finance courses that have a direct impact on your bottom line.
Money mistakes have a price
According to NFEC’s latest Financial Illiteracy Survey, over 38% say their lack of financial literacy is costing them more than $500 in 2022, 23% report losing more than $2,500, and 15% say it’s costing them $10,000 or more.
The costs of financial illiteracy have gradually risen since 2017, and the pandemic has pushed those costs to new heights. In 2020, those costs surged 27.7%, largely due to the pandemic scare. In 2022, the increase is even larger, at 31.6%, due to record high inflation and other economic challenges.
“People are not prepared for the rapid increase in the cost of food, gasoline and other essentials in 2022,” Shaub said. “Many people who have just recovered their finances after the COVID era are now back to making ends meet.”
The NFEC has identified several common monetary mistakes that cost Americans billions of dollars each year — here are three of the most common — and costly — mistakes.
The true cost of credit cards
Mistakes around credit card rates and fees will cost Americans as much as $120 billion in 2022.
Credit card companies charge people an annual percentage rate (APR) for borrowing money. The APR on most credit cards is variable and can go up or down based on a specific benchmark, such as the prime rate.
Having a balance on your card can get very expensive in the long run, especially now. According to LendingTree, the average APR on credit cards is currently 23.39 percent, but people with poor credit scores can face rates closer to 27 percent. .
If you don’t keep up with your monthly payments, you could end up paying interest and your balance could quickly spiral out of control.
If you make your monthly payments on time or in full, and your credit score is in good shape, you’ll have a lower interest rate when you go for a car loan or mortgage — but a bad credit score can make any kind of borrowing more difficult. expensive.
You can usually check your credit score for free, and keeping an eye on it can save you a lot of money and ensure better loan rates in the long run.
As for additional fees, credit card companies charge borrowers for things like late payments and cash withdrawals.
Just ask your credit card issuer about repayment options, and it’s worth a try.
“For those in debt, opening a credit card bill can be disheartening and feel overwhelming,” Shaub said. “This emotional response to debt can lead to inaction. It is important for those with large revolving debts that carry over from month to month to regularly seek better credit card terms.”
Given the chance, most card issuers are willing to negotiate with you rather than risk you defaulting on your account and not paying anything.
You can also apply for a balance transfer card, which lets you transfer your current balance to a card with an introductory 0% APR — you have up to 21 months to get your finances in order before the regular APR kicks in In perfect condition without interest payments.
Luxuries You Can’t Afford
No matter how far the economy slumps, the allure of luxury is strong, with aspiring shoppers still picking up pricey Chanel handbags, Dior jackets and Cartier watches.
According to Bank of America, in 2021, luxury spending in the U.S. will surge 47% from pre-COVID 2019 levels, with jewelry spending jumping 40%.
While spending has slowed slightly in 2022 — in part because luxury brands have raised prices — sales are still holding up well relative to cheaper brands.
The NFEC stresses that the appeal of luxury is problematic for those who lack financial literacy, especially if they spend money on items that they “don’t really need and often can’t afford”.
“Many of us have gaps in our financial literacy that can cost us money,” Shaub said. “Identify the areas that are keeping you further from your financial goals, and set aside time each week to address those areas.”
Excessive use of overdraft fees
Many Americans have fallen victim to overdraft fees. If you buy more with your debit card than you have in your bank account, the transaction may still go through, but you will be charged.
A typical overdraft fee is about $34, according to the Consumer Financial Protection Bureau (CFPB). While this might seem like a small thing to some, Shorb noted that “small fees can add up over time.”
In fact, the CFPB estimates that Americans spend $17 billion a year on overdrafts and non-active funds (NSF) fees.
Of course, you’ll also need to pay fees in addition to the amount you overdraft.
Overdraft fees are easy to overlook, but there’s a simple solution to avoiding them: Keep an eye on your account balance and make sure you don’t spend more than that.
Also, keep in mind that overdraft protection is an account feature that you have to choose and pay for. If you have overdraft protection, you can ask the bank to cancel your overdraft plan so you can’t overdraw your account at all – but that means if you try to make a purchase and you don’t have enough cash in your account, your card May be rejected.
You may be paying too much for this too
Overdraft fees and luxuries aren’t the only expenses you can control.
The average price of home insurance in 2022 will be $1,680, nearly 40% higher than 12 years ago.
If you want to get the best insurance deal for your home — no matter where you live — you need to compare multiple home insurance companies.
Oftentimes, looking around for insurance quotes takes a long time, and making multiple calls from different insurance agents is cumbersome. But now you can find home insurance for the lowest prices online, and it only takes three minutes.
For example, local Washington state homeowners can often save nearly $1,000 or more a year by shopping around for insurance, according to the Puget Sound Consumers Checkbook, a nonprofit consumer group.