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 essential.

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 it will happen.

Experts suggest you have a large enough fund to cover six months of expenses. Over 50% of us have three 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 managing your money is hard when you don’t know what’s happening.

Related: A Beginner’s Guide to Budgeting Success

3. You don’t know how much you owe.

According to the Motley Fool, the average American’s debt payments were 9.6% of income in 2023.

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.

4. You don’t separate wants from needs.

In our consumer age, avoiding the temptation to spend our money is impossible. 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.

Related: Could Acquired Needs Theory Save You Money?

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 when not saying ‘no’ could avoid painful financial consequences.

Related: Want To Improve Your Finances? Just Say ‘No’

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.

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.

Related: The Best Credit Card Debt Repayment Options for Different Credit Scores

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 about $1.30?

No wonder the credit card company makes it so easy.

Related: Getting Out of Credit Card Debt When You Can Only Pay the Minimums

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 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.

Related: The Financial Folly of ‘Keeping Up with the Joneses’

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.

Related: Disputing and Correcting Credit Report Errors

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.

Related:

• A Guide to Avoiding the High Cost of Financial Illiteracy
• How To Break Bad Financial Habits
• Get Your Personal Finances In Order One Day at a Time

Reviewed November 2023

About the Author

Gary Foreman is the former owner and editor of The Dollar Stretcher. He's the author of How to Conquer Debt No Matter How Much You Have and has been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com.