Most adults make this money mistake and it hurts them financially

  • Many studies show that there is a strong connection between financial literacy and financial well-being.
  • Adults who know how to build a budget, save for emergencies and manage debt find it easier to make ends meet in a typical month and are less likely to be considered financially fragile.

These days, most Americans are stressed about money. And yet, when it comes to budgeting, saving and managing debt, many people make some simple basic mistakes.

For example, according to a LendingTree survey, 65% of Americans believe that carrying a small balance on their credit card each month will improve their credit score.

It’s wrong.

Not only can carrying a balance lower your credit score, but sky-high annual percentage rates also make credit cards one of the most expensive ways to borrow money.

When it comes to the economy, the answers are rarely so “black and white,” said Kia McCallister-Young, director of the nonprofit America Saves, an initiative. from the Consumer Federation of America.

More often than not, Americans are unsure, especially when pervasive money myths get in the way of good credit habits.

More from Personal finance:
62% of Americans live paycheck to paycheck
How to prioritize pension and emergency savings
New tool lets you play around with fixing social security issues

“To find a solution, there needs to be more financial education and there also needs to be a change in how we approach money,” McCallister-Young said.

Too often, talking about finances is considered taboo, she added. Although there is an important role for schools to play, an economic education should begin at home.

“Start talking to your kids about finances in an age-appropriate way,” she advised. Many lessons are learned simply through exposure. “These conversations are necessary.”

Meanwhile, the trend towards personal finance classes in school is increasing.

In the past year, seven more states required high school students to take a personal finance course before graduating, bringing the total to 18, according to the latest data from Next Gen Personal Finance, a nonprofit focused on providing financial education to secondary schools and upper secondary schools. students.

In addition, there are 88 private economics courses pending bills in 28 states, according to Next Gen’s bill tracker.

Many studies show that there is a strong connection between financial literacy and financial well-being.

Students who are required to take personal finance courses from a young age are more likely to take advantage of cheaper loans and grants to pay for college and less likely to rely on personal loans or high-interest credit cards, according to a study by Christiana Stoddard and Carly Urban for the National Endowment for Financial Education. (Students are also even more likely to enroll in college when they are aware of the financial resources available to help them pay for it.)

“Our results show that high school financial education graduation requirements can have a significant impact on key students’ financial behavior,” the authors said in the report.

Furthermore, students with a financial literacy course under their belt have better average credit scores and lower delinquencies as young adults, according to data from the Financial Industry Regulatory Authority’s Investor Education Foundation, which seeks to promote financial education.

In addition, a Brookings Institution report found that financial literacy among teenagers is positively correlated with the accumulation of assets and net worth by age 25.

Among adults, those with greater financial literacy find it easier to make ends meet in a typical month, are more likely to pay off their loan in full and on time, and are less likely to be constrained by debt or be considered financially fragile.

They are also more likely to save and plan for retirement, according to data from the TIAA Institute-GFLEC Personal Finance Index based on research over several years.

“The body of evidence just keeps growing,” Ranzetta said.

To be sure, the hardest part of adulthood continues to be managing money.

“The problem is that it’s complicated,” said Laurence Kotlikoff, an economics professor at Boston University and president of MaxiFi, which works to analyze spending, savings and insurance to make sure they match your lifestyle and wealth.

Say, for example, that you are saving for a down payment on a new home and you want to build a budget that also takes inflation and taxes into account, he explained: “No one can do this in their head.”

Some online tools can help, Kotlikoff advised. “Use the technology available.”

“We need to move, as a profession, from studying errors to providing answers, just as doctors prescribe medicine.”

Subscribe to CNBC on YouTube.

Source link

Back to top button