Individuals make mistakes from time to time when managing money, but the most important thing to remember is to limit and to learn from your mistakes. Here are a few of the top money management mistakes made by young adults and some helpful solutions.
1. Purchasing items on impulse. Each time you have the desire to buy something without any thought to why you are buying, and you charge the purchase on your credit card and fail to pay off the entire amount when it comes due, then you will pay interest on that charge. This could continue for months or years in the future depending on the amount charged, the interest rate, and the amount paid each month on the balance owed. Spending money on something you do not need is wasting money. If the charge is put on a credit card and the balance is not paid off, this increases the amount of money being wasted.
Young adults should take the time to research major purchases, and to do some comparison shopping before deciding to buy. Think before you act. Ask yourself, "Do I really need this item?" Follow the old cliché---sleep on the decision for a night or two before you buy. Make a habit of thinking things over before you jump and buy something you do not need. Charging items on a credit card is okay if you charge responsibly. If not, you could end up paying more in interest than the item cost initially.
2. Delaying bill payments. While one or two late payments on your loans or other debt obligations may tarnish your reputation, it could definitely tarnish your credit report. Credit bureaus prepare credit reports for use by lenders. These lenders could be employers, insurance companies, landlords, or other creditors who need to know if someone is reliable financially based on his/her record of paying bills and/or managing debt. As a result, you could end up paying higher interest rates and other fees on a credit card or loan you really need in the future.
Consumer Action, a consumer educator and advocacy organization, investigated 140 cards from 45 issuers for its 2004 Credit Card Survey and discovered that many banks charge late fees on any past due payments. These payments also carry high penalty interest rates after just one or two late payments or a change in credit performance with other creditors.
Late payments could also affect whether you get a job, an apartment, or auto insurance. Therefore, make an effort to pay monthly bills on time and periodically review your credit reports from the three major credit bureaus, Equifax, Experian, and TransUnion. For information about your rights to obtain free copies of your credit report and to have errors corrected, see the Federal Trade Commission's fact sheet Your Access to Free Credit Reports online at: www.ftc.gov/bcp/online/pubs/credit/freereports.
3. Owning too many credit cards. Owning two to four credit cards from department stores, oil companies, and other creditors are reasonable numbers for many adults. Direct mail credit card offers have been reduced, which could mean a reduction in the number of new credit card applications. Consumer Action reported that direct mail credit card offers dropped to 4.3 billion in 2003 after peaking at 5 billion two year ago. On average, 69 percent of U.S. households received 4.8 offers per month, compared to 75 percent of households receiving 5.1 offers per month in 2002. Ninety percent of direct mail offers come from the 10 largest card issuers.
4. Falling into debt. Avoid getting too deeply in debt. Because you can borrow money, this does not mean you should exploit the opportunity to do so. Taking on too much debt can cause stress and financial hardship to pay off loans, credit cards, or other bills. Learn to recognize the warning signs of a serious debt problem such as missing payments on bills, paying the minimum amount, and having to borrow additional money to satisfy your financial responsibilities. If you believe you are swiftly approaching a debt overload, take corrective measures immediately. Reliable credit counseling agencies can help you if you cannot do this alone.
5. Avoiding to save for your future. Making ends meet in today's economic climate is a tough act, but young adults are encouraged to start a savings plan early. Consider U.S. Savings Bonds or a mutual fund account. Saving as little as $25 or $50 monthly is far better than saving nothing at all. Employees are also encouraged to participate in company retirement plans and to take advantage of your employer's matching funds on such plans. Saving for retirement can also be done through traditional individual retirement accounts (IRAs) and Roth IRAs, for example. IRAs allow individuals to get a tax break, while Roth IRAs allow you to invest after income that has been taxed and you do not have to pay taxes on your return if you are over 59.5 years-of-age and have established the account for five or more years. There are other stipulations, so be sure to read the fine print.
As young adults, parents and/or other relatives may act as financial safety nets. Although you may have someone to turn to in times of financial distress, it is really up to you to take control of your finances. Granted, managing money can be intimidating for anyone. While everyone makes mistakes, the point is to try and rectify your mistakes.
Also, remember becoming financially independent does not mean you are entirely on your own. There is information and materials available to help you. Simply contact an Extension regional agent located at your nearest Extension county office.
References Consumer Action. (Spring 2004). Good credit is your shield against unfair risk policies. Consumer Action News. Annual Credit Card Survey 2004. Retrieved July 25, 2005.
Consumer Action. (2004). Make your money work for you: saving to build wealth. Money Wise. Retrieved July 25, 2005.
FDIC Consumer News. (Spring 2005). Common mistakes young adults make with money and how to avoid them. Federal Deposit Insurance Corporation. Washington, D.C.