Financial literacy gaps could be costing you more than you think.
Asked to put a dollar figure on how much money they have lost in their lifetime due to personal finance missteps, nearly 25 percent of consumers estimated the cost at $30,000 or more, according to a new survey from the National Financial Educators Council. (The group polled 3,006 adults in mid-March.) More than a third put their losses at $999 or less.
Not surprisingly, the youngest cohort — consumers age 18 to 24 — were most likely to attach a low dollar figure to their lifetime losses, with 42 percent saying they'd lost $999 or less, and another 23 percent estimating a cost of $1,000 to $4,999. They were also less likely than older respondents to say they had lost more than $30,000. (See chart below for a breakdown by age.)
But even those consumers putting their total losses at five figures could be overly optimistic. Even one of these four mistakes can cost you tens of thousands of dollars:
1) Glossing over retirement account fees
Over a career, plan and investment fees can have a substantial impact on how much you end up with at retirement.
A 2014 report from the Center for American Progress estimated that fees of 1 percent versus 0.25 percent would cost a typical worker an extra $96,027 over his or her career, and a high-income worker, an extra $236,114. Someone in the higher-fee fund would need to work an extra three years to retire with the same amount of money as the worker in the low-fee fund, they estimated.
I hear a lot of, 'If I only knew about this stuff back then.'Douglas Boneparthpresident, Bone Fide Wealth
"The good news, if you have a workplace account, … [is that] the institutional fees for mutual fees are much lower than the average individual fee," said Victoria Fillet, a certified financial planner and a co-founder of Blueprint Financial Planning in Hoboken, New Jersey. "But that all depends on the person in charge of picking those funds, that fund company."
Strategies to cut fees might include switching to lower-cost investment options within your plan, contributing to savings other than your workplace account or rolling over funds from a former workplace account to your new employer's plan or an IRA, she said.
2) Cashing out a 401(k)
One in three employees has cashed out an old retirement account before hitting age 59½ — most often shortly after switching jobs, according to a 2016 Fidelity report. The average cash-out for young workers: $14,300.
That may seem like money you won't miss, but you're losing out on years of growth, said Douglas Boneparth, a certified financial planner and president of Bone Fide Wealth in New York City.
"This is supposed to be long-term money for a long-term goal," he said. "It shouldn't be the first thing you think about when you need capital."
By Fidelity's analysis, a 30-year-old who cashed out a $16,000 balance would lose out on $71,500 in earnings over the rest of his career, had he either left the money in the plan or rolled it over.
3) Over-borrowing for college
Almost half of grads who borrowed for their undergraduate degree say in retrospect they could have taken out less in student loans, according to a NerdWallet report in November. The survey of 522 adults estimated the average grad borrowed $11,597 more than necessary.
After factoring in interest, that misstep works out to an extra $119 each month over a 10-year student loan repayment period — or $14,280 total.
"I hear a lot of, 'If I only knew about this stuff back then,'" said Boneparth, who works with many millennial clients. (Another common regret, he said: borrowing substantially for grad school.)
"The impact is far greater than just what's coming out of the bank account each month," he said. "It's delaying their ability to move forward with other goals, like buying a home, having kids or saving for retirement."
4) Not checking credit reports and scores
One-third of consumers have not checked their credit score in the past year, including 13 percent who have never done so, according to a 2016 WalletHub.com survey. That's true even of people making a big purchase: Half of car buyers go into the transaction without knowing their credit score, Instamotor found.
Most people have a sense of whether their credit is good or bad, but what often surprises them is that there are break points, or buckets, where pricing changes, said Keith Gumbinger, vice president at mortgage site HSH.com.
"It's not as though you can't get a mortgage if your credit score isn't fantastic, but the cost of your credit is almost certainly going to be higher," he said.
Even a 25-point difference could be costly on a big purchase. On a $200,000, 30-year fixed-rate mortgage, a score in the 640-659 bucket versus one in the 680-699 bucket would cost you an extra $27,569 in interest over the life of the loan, according to FICO's calculator.
Checking your reports and score in advance of applying for a loan gives you more opportunity to fix any errors and take other steps to improve your score, Gumbinger said. And if your credit has improved since you opened that credit card or took out that loan, it may be worth checking to see if you can snag a better rate or terms.
