According to a recent LendingTree survey, Americans are less financially savvy than they think they are. 96% of Americans say they have at least one erroneous notion about money. For instance, 45% of people feel that having a credit card load improves your credit score, and more than 25% of those aged 40 and under believe that saving for retirement is not necessary.
- American financial literacy is lower than most people believe. Most people (87%) gave themselves a 3 or higher on a scale of 1 to 5 when asked to rate their level of financial literacy.
- However, 96% of respondents who were asked if they believed six distinct financial myths believed at least one of them.
- Almost everyone accepts at least one erroneous notion about money. Nearly half (45%) of Americans think their credit score will increase if they have a credit card balance.
- More than a quarter of Americans aged 40 and under believe they have no need to start saving for retirement.
- Instead of in schools, Americans learn financial literacy at home. A little more than half (47%) say their parents or other family members educated them about money, while 39% say they taught themselves. Just 29% know about money in high school, though 56% people think you should know.
- Comparing men and women, around a quarter (27%) of men and 15% of women evaluated themselves as extremely financially literate.
- Financial literacy is perceived to increase with age.
- Baby boomers were more likely than Gen Z to judge their own financial literacy as being very low, while Gen Z was more likely to rate their own financial literacy as being completely nonexistent.
- According to income, more than twice as many six-figure earners—2 in 5 (or 40%)—rated their financial literacy as being extremely high. Only 20% of people who earn between $75,000 and $99,999 a year thought highly enough of themselves.
- According to higher education: 28% of people with a bachelor’s degree or more and 15% of people with only a high school diploma thought they were extremely financially knowledgeable. In fact, compared to 78% of those who did not attend college, 94% of people with a bachelor’s degree evaluated themselves as a 3 or higher.
Myth 1: Maintaining a balance on your credit card will raise it.
73% have heard this claim before, and 45% believe it to be accurate.
Your ability to make on-time payments, how much of your credit you use, and the average age of your credit accounts are just a few factors that affect your credit score. Carrying a balance from month to month is one thing that won’t improve your score.
In fact, keeping a balance on your credit card is an excellent method to make sure you’re paying a somewhat high interest rate on previous transactions. Therefore, maintaining a balance may not be beneficial to your health, finances it is actually costly and burden to have debt on credit card.
Myth 2: Using a credit card is harmful. Always pay with cash or a debit card.
69% of people have heard this claim before, and 31% believe it to be true.
The majority of people (38%) who did not go to college agree with this assertion. People with lower incomes are likewise more prone to think this than people with higher incomes.
Credit cards aren’t necessarily bad, even though carrying a balance from month to month might be pricey. You can receive benefits like refunds on your purchases without paying any interest as long as you pay off the statement balance.
Myth 3: Renting is a waste of money.
57% of those who believe it to be true have heard it previously (77%).
Although it’s a widespread myth, the younger generation may be losing interest in it.While 57% of Americans as a whole believe this to be true, only 43% of Generation Z agree.
Depending on where you currently live and when you buy the home, purchasing a home might be a profitable investment. But renting may be a better option for you, given your circumstances and financial status.
For instance, if you don’t have the money on hand to pay for pricey maintenance, such as plumbing crises or mold treatment, purchasing a home may not be the best financial decision.
Additionally, a mortgage may be an expensive burden if you don’t have a sufficient credit score or a sizeable down payment due to increased interest rates and private mortgage insurance (PMI).
Myth 4: You shouldn’t invest until all of your debt is paid off.
63% of people have heard this claim before, and 42% believe it to be true.
While it may be true that you shouldn’t make riskier investments if you, for example, have a significant amount of credit card debt, this is not always the case. It truly depends on the kind of debt you have and the kind of investing you undertake.
As long as you have an emergency fund in place, low-interest, long-term debt, such as mortgage debt, won’t put undue strain on your finances. As a result, you can feel confident investing. You can invest with little risk even if you have some credit card debt, for example, by contributing to your retirement account.
Myth 5: If you’re under 40, there’s no need to start saving for retirement.
58% had heard this claim before, and 21% believe it to be accurate.
Among Americans under 40, 29% of Gen Z and 26% of millennials believe they do not need to be saving for retirement.
The more money you have later on depends on when you start making contributions to your retirement savings. This is due to compound interest, and starting to invest as early as possible is really the only way to ensure you’ll have a sizeable nest egg. The fact that almost 1 in 5 Americans thinks there is no need to save for retirement before age 40 is concerning, and even more troubling, that young Americans hold belief.