Making money is only half of the story. Knowing what to do with your hard-earned income is a whole other part of it, and Americans are learning this the hard way.
According to the latest National Financial Educators Council (NFEC) report, American adults lost an average of $1,819 in 2022 due to personal financial errors, which adds up to a total loss of $436 billion across 240 million people. Such data demonstrates the need for better financial education among today’s working population.
Vince Shorb, the CEO of the NFEC, told Yahoo Finance that financial illiteracy is an epidemic in the U.S. that is rising at a time when the economic climate is changing rapidly. “That means financial education has never been more important than it is today,” he adds.
Financial illiteracy has been a problem since 2017; however, it was not until the COVID-19 pandemic hit three years later that the issue truly started to become concerning. Losses related to financial illiteracy grew to a staggering 27.7% in 2020 due to pandemic panic, and in 2022 that number rose to 31.6% due to additional economic challenges such as inflation.
"People weren't prepared for the rapid increase in the cost of food, gas, and other necessities in 2022. Many people that were just getting their finances back in order after COVID times are now back to struggling to make ends meet," explains Shorb.
Based on the NFEC's analysis, three of the most common personal financial errors contributing to these numbers include: 1) carrying balances on credit cards with high annual percentage rates, 2) overspending on luxury goods despite not having the budget for them, and 3) being too lenient with overdraft fees.
It can be easy to fall into the trap of diving into one's credit; but with proper budgeting and some self-control, Americans in tough financial situations can work their way out of a financial hole in time.
“Many of us have gaps in our financial knowledge that can be costing us money,” says Shorb. “Identify areas that are taking you further away from your financial goals and dedicate time weekly toward addressing those areas.”
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