Living with credit

Financial illiteracy has cost me thousands

Kelly Dilworth

Financial illiteracy is expensive.

According to a new survey by the Financial Educators Council, consumers estimate that they lost an average of $9,700 because they didn’t know enough about personal finance to make better decisions with their money. The survey is particularly timely as April is Financial Literacy Month.

The financial education advocacy group polled more than 3,000 consumers over the age of 18 and asked, “Across your lifetime, about how much money do you think you have lost because you lacked knowledge about personal finances?”

Thirty-three percent estimated that they lost more than $15,000 because of naïve financial mistakes. Twenty-five percent confessed that they likely squandered more than $30,000.

Older consumers, because they had more years to stumble with their finances, were especially likely to report five-figure losses compared to consumers under the age of 35.

Those figures don’t surprise me. I’m only 32 and I would estimate I’ve lost at least $5,000 or more due to limited financial literacy in my early and mid-20s – and I’m probably lowballing that figure. Before I became a personal finance journalist, I knew little about the ins and outs of money management and routinely made costly mistakes.

In college, I squandered hundreds of dollars on overdraft fees alone. I also racked up credit card debt in my early and mid-20s and incurred a substantial amount of interest simply because I didn’t pay my balances in full – even when I could afford to pay off my cards.

I also didn’t pay attention to credit card interest rates, so I had no idea that my Gap store card charged a substantially higher APR than my Bank of America credit card.

As I got older and built a longer credit history, I started getting better credit card offers. But until I started covering personal finance as a journalist, I didn’t know I could transfer my balances to a lower-interest-rate credit card or save money on interest by getting a card with an interest-free promotion.

It’s embarrassing to admit now, but if I wasn’t paid to learn about personal finance, I might still be making costly mistakes I wouldn’t have made if I had known better.

Details matter
The last weekend of March, for example, I nearly lost several hundred dollars to credit card fraud. If I hadn’t known to check my bank statement, I might have never caught the unauthorized charges.

The charges were all relatively new, so it’s possible Discover would have eventually flagged them and notified me of suspected fraud, especially since my statement was suspiciously littered with hundreds of small-dollar charges to the U.S. Postal Service.

But if it hadn’t noticed the unusual charges, I could have easily paid off the statement without ever looking into it or thinking twice about the extra large balance on my card. I generally use my cards for all my major purchases, so my balance didn’t immediately strike me as suspicious.

Before I started covering personal finance and learned about the importance of monitoring billing statements, I rarely paid attention to my credit card statements.

I would occasionally look over my transactions to get a sense of what I was spending money on, but I didn’t track my statements for irregular charges. I also didn’t monitor my credit reports, nor did I pay any attention to my credit score.

I’m lucky I was never a victim of identity theft (as far as I know) or credit report errors back then.

Identity theft can cost people thousands of dollars if they don’t catch it. But even small mistakes people make because they don’t know better – such as accepting loans with high APRs or financial products littered with fees – can quickly add up.

How much do you think you’ve lost due to naive financial mistakes? Once you start adding up the numbers, you may be surprised by how much financial illiteracy has cost you.

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