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Key Points:
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A recent survey found that a lack of financial literacy cost 15% of adults at least $10,000 in 2022.
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Some of the common mistakes were related to credit card interest, overdrafts, and fraud.
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Building your financial knowledge can help you avoid costly mistakes.
A lack of financial literacy can end up costing you in a big way. Making a mistake while you manage your money can lead to a big hit to your financial situation.
Let’s explore some of the gaps many have in their financial literacy. Plus, explore how to improve your own grasp of this critical information.
A Lack of Financial Literacy Can Hurt Your Wallet
A recent survey conducted by the National Financial Educators Council found that the average cost of financial illiteracy was $1,819 in 2022. That average cost is over $100 higher than any other year this survey was conducted. Unfortunately, this indicates that a lack of financial literacy can have a big impact on your wallet.
Key Areas Where Financial Literacy Can Help
When it comes to managing your personal finances, there are many areas where financial literacy can help. Below is a look at some of the common mistakes people who lacked financial literacy made in 2022:
- Overdraft fee: Accidentally overdrawing your account could lead to a steep overdraft fee.
- Luxury spending: Overspending on luxury goods, instead of saving or investing, can make reaching a brighter financial future more difficult.
- Leaning on credit cards: Credit cards have notoriously high interest rates, which makes it easy to slide into credit card debt. People with bad credit, who sometimes lack basic financial literacy, often pay significantly higher interest rates.
These common financial mistakes can add up quickly. But individuals with a robust base of financial literacy are more likely to avoid these common pitfalls.
How to Build Your Own Financial Literacy
While it’s common to lack financial literacy, the good news is that it’s possible to build this knowledge.
- Consume information from credible sources: If you are looking to learn about money, there are countless resources. You can try podcasts, books, newsletters, TV shows, and more. As you absorb this money information, be discerning about who to listen to.
- Track your income and spending: A good place to start your financial journey is to see where you stand. Tracking your income and spending can help you see where your money is going.
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- Set a savings goal: Saving money is a key part of building a bright financial future. Consider setting a savings goal for anything that suits your life. For example, you might want to save for a vacation or a down payment on a house. As you build your savings, tucking them into a high-yield savings account can help you put your funds to work.
- Be patient with yourself: Learning about the world of money is important. But like all skills, it will take time to master your money management. If you make a mistake, that’s okay. Try to be patient with yourself and move forward with confidence.
The Bottom Line
Improving your financial literacy can give you more control over your finances, and help you change your life for the better. As you continue on your journey, consider taking advantage of the free tools offered by Lendstart. You can use these to fine-tune your financial decision-making process.
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Sarah Sharkey is a personal finance writer with a Master's in Management from the Hough School of Business at the University of Florida. She enjoys helping people make better financial decisions and has written for numerous personal finance publications, including Money Under 30, Business Insider, and The College Investor. Sarah enjoys traveling, hiking, and reading when she is not writing.
