Yahoo Finance You May Have Lost $1,500 Last Year — Here’s Where That Money Went
According to the 2023 CNBC Select and Dynata Banking Behaviors Survey, 82% of the U.S. population doesn’t use higher-yielding accounts and 57% park their money in a regular savings accounts, which are currently averaging an interest rate of around 0.60% annual percentage yield (APY). The best high-yield savings rates currently range from 4.50% APY to 5.35% APY, according to Forbes.
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This is but one way that a lack of financial knowledge — and utilizing it — could be costing you thousands of dollars every year. Since 2017, the National Financial Educators Council (NFEC), conducts “a survey to clarify how much money people believe they lost during the previous year due to lack of personal finance knowledge.”
By answering one question (“During the past year (2023), about how much money do you think you lost because you lacked knowledge about personal finances?”), the study found that that the average respondent lost $1,506 due to lack of financial knowledge. Generalizing to the overall U.S. population means that Americans lost more than $388 billion in 2023, per NFEC.
Although almost 40% of respondents claimed they only lost between $0 and $499 due to a lack of financial, 19.81% thought they may have lost between $1,000 and $2,500 due to not knowing or understanding financial skills such as budgeting, investing, borrowing, taxation and personal financial management.
Perhaps more worrying is the fact that almost 62% of NFEC study respondents in 2022 thought they lost between $0 and $499 and only 7.96% said they lost between $1,00 and $2,500. The number respondents that said they were losing between $1,000 and $10,000 doubled from 2022 to 2023.
“Financial illiteracy is an epidemic in the U.S., and it’s coming at a time when the economic climate is changing rapidly,” said Vince Shorb, CEO of the NFEC. “That means financial education has never been more important than it is today.
Where Does Your Money Go?
According to the S&P Global Financial Literacy Survey, 57% of Americans are financially literate, or possess “the financial knowledge, behaviors, systems, team, and plan to confidently take effective action that best fulfills an individual’s personal, family, and global community goals,” according to the NFEC definition.
But where does that lost money go? Losing money through lacking knowledge is lousy, but identifying where your money is being lost is the first step to educating yourself about your finances and the consequences of your uninformed decisions. There are many ways in which Americans lose money every year through a lack of financial knowledge. Turning around discretionary and luxury spending and building a smart budget and sticking to it will help you keep your money where it belongs. But there are other financial areas you need to look to ensure you don’t lose money needlessly.
High Loan and Credit Card Interest
Financial ignorance carries significant costs and consumers who fail to understand the concepts of savings and interest (and compounding interest) spend more on transaction fees, run up bigger debts, incur higher interest rates on loans and, as mentioned above, leave money languishing in low-yield accounts. People with limited financial knowledge are more likely to make poor borrowing decisions, resulting in higher debt and bankruptcy.
Bank Fees and Overdrafts
Bank fees are often easy to avoid, but many savers don’t pay them any attention. Fees are charged and they can add up quickly and chip away at needed income. Being uncertain of fee schedules, when payments will be processed and when deposits will be available can cost customers more than the underlying transactions themselves.
Those paying overdraft fees often don’t understand when and why their accounts being assessed, and the overdraft fees the bank is charging far exceed the services they’re providing. Additionally, “Many consumers don’t understand that if they don’t opt in for overdraft protection, [their transactions] will be declined and the bank can’t charge them a fee,” said Thaddeus King, an officer with the Pew Charitable Trust’s consumer banking project.
Identity Theft and Scams
There’s no sure-fire way to avoid becoming a victim of identity theft, and there are many types of scams that criminals try to empty your bank account, including phishing, check fraud and peer-to-peer payment scams. However, there are preventive actions you can take to lessen your chance of becoming a victim of identity theft or a financial scam, starting with upping your awareness level. Not having knowledge about scams can make you more exposed to falling for them, even when scammers are guaranteeing the safety of your personal banking or credit information.
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As far as the latter goes, remember the general advise of Amanda Christensen, Utah State University Extension associate professor: “Whether or not you were affected by a data breach or scam, be proactive about monitoring your personal credit information. Keep in mind — the data breach is a frenzy for scammers who will call, text, email and create fake websites pretending to be credit monitoring companies that can help ‘protect you’ for a fee. Just remember, a legit site will not ask for a credit card number or your full Social Security number.”
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This article originally appeared on GOBankingRates.com: You May Have Lost $1,500 Last Year — Here’s Where That Money Went
