In this article, we will list the 20 biggest financial mistakes that young adults make. We will begin by discussing the financial advisory service market and credit card and student loan debt in the US.

According to experts, by the time you reach 30, you should have saved an amount equal to your yearly salary. For some, this target is achievable. However, for those who make financial mistakes as young adults, it becomes increasingly difficult. 

Individuals and businesses at all stages need to make sound financial decisions and avoid as many financial mistakes as possible. This is why the financial advisory service market is expected to grow at a rate of 5.3% for the forecast period of 2022 to 2032. It was valued at $94.8 billion in 2022 and will reach $157.7 billion by 2032. Businesses and individuals in this industry give financial services and advice to small and medium-sized businesses and high-networth individuals. In addition, more and more people are looking for alternative investments, which is why financial literacy is becoming quite important. 

Companies in the financial services market are some of the largest in the United States. One such is Morgan Stanley (NYSE:MS). It is an investment banking and financial services firm that also provides discretionary investment options to its clients. Morgan Stanley (NYSE:MS) earned a revenue of $54 billion in the past year leading up to September 30th. In the last quarter of the year, Morgan Stanley (Morgan Stanley (NYSE:MS) reported growth of $13.27 billion in revenue. 

The United States is the financial hub of the world with the largest GDP. However, many people in the country still lack financial literacy, the signs of which can be seen in its credit card debt. According to a Quarterly Report on Household Debt and Credit by the Federal Reserve Bank of New York, the average credit card debt was on the rise for Americans at least until the second quarter of 2023. The report tells us that credit card balances increased by $45 billion between quarter 1 and quarter 2 of 2023. This amounts to a 4.6% increase in a single quarter. As per the report, cardholders have a total debt of $1.03 trillion. 

The average balance of credit cards is $5,733 per cardholder. In addition, average credit card interest rates were 20.68% in quarter 2 of 2023. This means that those who pay only the minimum monthly payment on the average $5,733 balance on the credit card end up paying over $1,000 in interest payment. The situation is even worse when we consider the fact that many credit card holders pay their credit card amount in full, so actual balances on credit cards may be higher. The money they will end up paying because of the exorbitant interest rates could have been utilized elsewhere. 

Another financial burden on the American economy comes in the form of student loans. Student debt in the country has been piling up over the years, but 2023 saw a decline. Nevertheless, the outstanding Federal student loan is $1.7 trillion, and accounts for almost 93% of all student loan debt. There are currently more than 43 million student loan borrowers, and the average federal student loan debt balance is more than $37,000. 

However, The United States government recognizes this situation and sometimes carries out student debt forgiveness schemes. More recently, in January 2024, the Biden Administration approved debt cancellation of 74,000 borrowers. These borrowers include public service workers such as firefighters, nurses, and teachers. Amongst them, 30,000 had been paying back their student loans for at least 20 years. 

Taking out student loans and accumulating credit card debt, are part of our list of the 20 biggest financial mistakes that young adults make, although you would have to go through the list to find out where they rank. 

Methodology

To curate our list of the 20 financial mistakes that young adults make, we went to Reddit and sampled five related threads to read up on real-life experiences of people. We did this instead of sampling the opinions of financial gurus because we learn the best from our mistakes. We noted down each response with a financial mistake along with its upvotes. Then, we categorized these responses into twenty financial mistakes by identifying a common theme. Next, for each category, we summed up the total number of responses to come up with our Insider Monkey Score. The higher this score, the higher the financial mistake ranks in our article. As a tiebreaker, we used the total number of upvotes of the responses in each category. 

By the way, Insider Monkey is an investing website that tracks the movements of corporate insiders and hedge funds. By using a similar consensus approach we identify the best stock picks of more than 900 hedge funds investing in US stocks. The top 10 consensus stock picks of hedge funds outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). Whether you are a beginner investor or a professional looking for the best stocks to buy you can benefit from the wisdom of hedge funds and corporate insiders.

20 – Driving Under the Influence 

Insider Monkey Score – 1

While it might not be that obvious, driving under the influence (DUI) is one of the biggest financial mistakes young adults make. A DUI offense can set you back $10,000. The costs include legal fees, court fines, and car towing expenses. In addition, DUI increases your probability of getting injured, which will lead to additional expenses in the form of medical expenditures and loss of income. 

19 – Not Managing University Expenses Efficiently 

Insider Monkey Score – 1

Apart from tuition fees, university expenses can take a toll on your overall finances. A University student can be expected to spend up to $50 weekly on books and study materials. A Reddit user notes that buying brand new books for university when second hands were available at a fraction of the cost was their biggest financial mistake. 

18 – Reckless Driving

Insider Monkey Score – 1

Reckless driving is one of the biggest financial mistakes that young adults make. In case of an accident, a person can spend thousands on repair and treatment and potentially lose income temporarily or permanently. 

17 – Making Bad Career Growth Decisions 

Insider Monkey Score – 2

One of the biggest financial mistakes that young adults make is making bad career growth decisions. Some people stay at a certain job for too long with limited learning and monetary increments. On the other hand, others switch their jobs too frequently and lose the trust of potential employers, limiting their career growth in the long term. 

16 – Underestimating Child Care Expenses 

Insider Monkey Score – 2

Not taking into account or underestimating childcare expenses before starting a family is one of the biggest financial mistakes that young adults make. A high-quality infant childcare costs families $1,300 per month. Many individuals who are not financially ready underestimate this expense and start a family, which can be detrimental to their finances.  

15- Paying Only Minimum Credit Card Payment 

Insider Monkey Score – 2

Paying only the minimum amount due on credit card balances is one of the biggest financial mistakes that young adults make. By only making the minimum payment, cardholders incur interest charges that increase their balance over time, keeping them in debt for longer. It is also detrimental to the credit score report as credit scoring models consider the credit utilization ratio when calculating the score, making future borrowing more expensive. 

14 – Not Setting Up an Emergency Fund 

Insider Monkey Score – 2

Not having an adequate emergency fund can leave individuals vulnerable to unexpected financial crises. Major emergencies like job loss or serious medical issues can occur anytime, at which point an adequate emergency fund helps in covering expenses. 

13 – Not Choosing The Right Career 

Insider Monkey Score – 2

Not choosing the right career is a financial mistake that many people make. Users on Reddit note that an individual should try to find a balance between his interests and the financial potential of the job. 

12 – Not Planning For Retirement 

Insider Monkey Score – 2

Not planning for retirement is 12th on our list of the 20 biggest financial mistakes that young adults make. Users on Reddit note that young adults do not care about their retirement and, therefore, do not think about setting up their retirement portfolio until it’s too late. 

11 – Spending Too Much on Clothing 

Insider Monkey Score – 2

Clothing expenses can take a toll on an individual’s finances. Many Reddit users note that young adults often buy overpriced clothing, which they later regret, 

10 – Not Budgeting Enough 

Insider Monkey Score – 3

Failing to budget is one of the top 10 financial mistakes that young adults make. It helps in tracking expenses, so it is easier to control unwanted expenditures and invest the money for a return. 

9 – Indulging in Gambling 

Insider Monkey Score – 3

Indulging in gambling is one of the biggest financial mistakes that young adults make. Research indicates that young adults are vulnerable to the negative consequences of gambling, including addiction. 

8 – Not Opting For Employee Share Program 

Insider Monkey Score – 4

Not opting for an employee share program is one of the biggest financial mistakes that young adults make. This is particularly true for companies that allow the employee to lock in a price to purchase their shares in the future. 

7 – Not Saving Enough

Insider Monkey Score – 4

Not saving enough or not saving at all is 7th on our list of the biggest financial mistakes that young adults make. Having an inadequate saving leaves an individual vulnerable to financial insecurity in the future.

6 – Taking Out Student Loan for Unpromising Degrees

Insider Monkey Score – 4

Taking out student loans can potentially be detrimental to an individual’s overall finances, especially if taken for a degree that might not be helpful in a lucrative career. If the degree in question has the potential to improve the financial circumstances of an individual and enable them to comfortably pack back the loan, then it is a wise decision. However, many students take out student loans for degrees, which might not give an adequate financial return, and they struggle to pay back their loans in the future.

5 – Eating Out Frequently

Insider Monkey Score – 5

Eating out every once in a while can be important for several reasons. However, eating out frequently can be costly when the same meal can be prepared at home for a fraction of the price. Dining out frequently can lead to significant expenses that add up over time. These funds could be allocated toward more important financial goals such as savings for emergencies and making major purchases.

4 – Unplanned Mortgages and House Loans 

Insider Monkey Score – 5

One Reddit user notes that not understanding mortgages enough was the biggest financial mistake they made when they were young adults. Mortgages and house loans typically last for decades and locking yourself into continuous monthly payments for so long requires considerable planning.

3 – Not Investing Enough 

Insider Monkey Score – 8

Not investing enough is one of the 3 biggest financial mistakes that young adults make. By not investing in younger years, individuals miss out on the opportunity for money to grow over time through compounding returns. Investing early allows people to take advantage of the power of compounding.

2 – Spending Too Much On a Car 

Insider Monkey Score – 13

Spending too much on a car is second on our list of the 20 biggest financial mistakes that young adults make. Many Reddit users note that they unnecessarily bought a car they could not afford right out of college when they could have saved up for a used one and utilized the monthly payments on investments.

1 – Accumulating Credit Card Debt 

Insider Monkey Score – 17

The most recurrent theme in online discussions related to the biggest financial mistakes that young adults make is accumulating credit card debt. 

Many users note that one of the greatest mistakes they made as young adults was to think of their credit card limit as the money they own and have to spend. They also note that with their credit card, they spent more and were less careful about what they purchased. 

Credit cards often come with high interest rates, and accumulating debt increases the likelihood of carrying a balance from month to month. Accumulating credit card debt often results in a cycle of debt repayment that consumes a significant portion of one’s income. 

Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below. You can also take a peek at 15 Biggest Retirement Mistakes You Will Regret Forever and 13 Mistakes to Avoid When Divorcing Over 50. 

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Disclosure: none. 20 Biggest Financial Mistakes That Young Adults Make is originally published on Insider Monkey