10 Signs a Lack of Financial Literacy Could Be Costing You Money
by Gary Foreman
Most of us like to think we’re financially literate. But can you really have enough money smarts? See if any of these signs apply to you and could be costing you money.
According to Investopedia.com, “financial literacy is the ability to understand and use various financial skills, including personal financial management, budgeting, and investing.”
While you might feel confident in any or all of these areas, you don’t know what you don’t know. And what you don’t know might be costing you. Which is why continuing your financial education is important.
We explore some signs that a lack of financial literacy might be costing you money. See if any apply to your finances and then take the necessary steps to educate yourself and improve your financial situation.
1. You Don’t Have an Emergency Fund
No one gets through life without a few financial emergencies. A home or auto repair, medical bill or job loss shouldn’t be a surprise.
The question is not if it will happen, but when will it happen.
Experts suggest that you have a fund large enough to cover 6 months of expenses. Over 50% of us have 3 months or less.
2. You Don’t Know Where Your Money Goes
At the end of the month, do you know how much of your income goes to pay for housing? Transportation? Food? Over half of all adults couldn’t tell you.
But it’s hard to manage your money when you don’t know what’s going on.
3. You Don’t Know How Much You Owe
According to Bankrate.com, the average American owes $92,727 in 2021.
Knowing how much you owe, who you owe it to and how much it’s costing you is the first step to reducing the amount of debt.
Get the book How to Conquer Your Debt No Matter How Much You Have and begin the journey to financial freedom today!
4. You Don’t Know to Separate Wants From Needs
In the consumer age we live in, it’s impossible to avoid being tempted to spend our money. Each day marketers put a tempting variety within our grasp.
Some of those things are necessary and needed. But others aren’t. Knowing the difference is crucial.
5. You Have Trouble Saying ‘No’
Knowing how and when to say no is important.
Whether it’s friends, family or even yourself, there are times that not saying ‘no’ could avoid painful financial consequences.
6. You Spend More Than You Make
Spending more than you make on a continual basis is the recipe for financial hardship.
Failure to address the problem is a sign that you need to learn more about money.
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7. You Use Credit Cards As a Safety Net
Do you run out of money before the end of the month? And, use Mr. Credit Card as your savior?
It might be alright once in a great while, but if it happens often you’re setting yourself up for hardship later.
8. You Only Pay the Minimum On Your Credit Cards
It’s easy. The credit card company even tells you exactly how much the minimum payment is. But did you know that for every $1 you put on that card, if you just pay the minimum each month, you’ll repay $1.30?
No wonder the credit card company makes it so easy.
9. You Compare What You Own to Others
Tempting? Yes! Especially when they just put pictures of their new car on Facebook.
But it’s a bad idea. You’ll find yourself spending money that you don’t have (or need to spend).
If it’s a regular habit, you’ll end up with lots of debts like your Facebook friends.
10. You Don’t Monitor Your Credit Reports
They affect everything from how much you’ll pay to borrow money, to what you’ll pay for insurance, to whether you can rent an apartment or get a specific job.
Many contain errors that need to be corrected. And often a drop in your credit score is the first sign of identity theft.
What Steps Will You Take to Improve Your Financial Literacy?
Hopefully you only need to address one or two of these areas to fix those few weaknesses in your finances.
But when it comes to money, we all should always be learning better ways to save more money, grow more money and fix our money as necessary.
Reviewed November 2021
About the Author
Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's the author of How to Conquer Debt No Matter How Much You Have and he's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com.
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