Financial illiteracy may be costing your members thousands per year

by Tim McAlpine at Currency

Choosing to remain ignorant about personal finance may seem harmless, but it can ultimately result in significant financial losses.
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According to a recent survey conducted by the National Financial Educators Council (NFEC), a lack of financial literacy and knowledge on managing personal finances cost many people money in 2022. The survey revealed that 38% of respondents reported losing $500 or more due to their lack of financial literacy, while 23% suffered losses of over $10,000. This marks a significant increase from the 10.7% who reported losses of $10,000 or more in 2021.

As a result, the estimated average cost of financial illiteracy to individuals in 2022 was $1,819, the highest average since the first annual survey six years ago. This figure correlates with record-high inflation rates and other economic challenges, the NFEC noted.

​Among the common and costly mistakes made by respondents, overdraft fees stood out as a prominent issue. The Consumer Financial Protection Bureau (CFPB) reports that the median overdraft fee charged on a debit card is $34. 

The survey, citing data from the CFPB, revealed that most debit card overdraft fees are incurred on transactions of $24 or less. These fees, along with non-sufficient funds fees, add up to a staggering $17 billion annually.

In addition to overdraft fees, not paying attention to credit card interest rates can also be a costly mistake. As of the week ending February 24, the average credit card interest rate was at a record high of 21.88%, according to WalletHub. Paying only the minimum balance each month can quickly add up over time.

​Other common mistakes identified by the survey include unnecessary luxury spending, purchasing overpriced new vehicles and falling victim to identity theft, scams and frauds.

Five ways to help your members lower costs in 2023

1. Prioritize financial literacy: Offer financial education resources, classes and workshops.
2. Promote responsible spending habits: Encourage members to review their spending and provide tips for budgeting and saving.
3. Emphasize credit scores: Educate members on how credit scores affect financial products and provide resources for improving credit.
4. Help members avoid fees: Offer guidance on avoiding overdraft and high-interest fees and tools for monitoring accounts.
5. Offer competitive products: Provide members with competitive rates for savings, loans, and credit cards.

By implementing these steps, credit unions can help members improve their financial well-being and save thousands in 2023.

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