Financial Mistakes Young People Make (and Should Avoid)

Being a young European in a fast-evolving environment comes with a great deal of opportunities. However, being able to optimally use them requires smart decision-making from a young age. Financial decisions are among those that can significantly impact your ability to have a quality life in the long term. Financial literacy, along with critical thinking, problem-solving, and reflective thinking, are tools to optimally use and generate your financial assets, regardless of your current financial situation. Are you concerned about where to start developing these competencies and how to enhance your ability to navigate your financial future from an early age? How about starting with understanding what mistakes to avoid?

While preparing a methodology for the MayFin educational game, which will help you with your current and future financial challenges, we identified some of the most common mistakes young people make. The following list of 34 common missteps will help you recognize the pitfalls you should avoid:

1. Incurring debts during your studies beyond fulfilling your basic needs (e.g., taking loans for leisure activities).
2. Choosing a degree/field of study that does not increase your earning potential after graduation.
3. Not taking advantage of student grants, scholarships, part-time jobs, and other opportunities to access financial assets for covering your expenses and/or building your financial history.
4. Not developing a financial history or building a history of irresponsible money management (e.g., late bill payments or lack of use of banking products).
5. Underestimating the power of building savings/investing portfolios at an early age.
6. Investing in things you don’t understand (e.g., investing in complex financial products promising high returns without understanding how they work).
7. Buying a car unless it is financially justifiable, or worse, taking a loan to buy a car.
8. Failing to stick to your budget or living paycheck to paycheck unnecessarily (e.g., spending money on all kinds of gratifications rather than deciding which are truly important to you and limiting leisure expenses accordingly).
9. Staying in a job you don’t like for too long (getting comfortable rather than developing a plan to advance your career with actionable steps and following them).
10. Forgetting to ask for a raise or negotiate your pay whenever you reach a relevant milestone.
11. Being unprepared for emergencies (e.g., job loss, repairs, natural disasters, illness, etc.). Living without an emergency fund and not being prepared for the unexpected.
12. Not having control over your finances (e.g., sharing an account with another person, such as a parent, or not having an account).
13. Failing to set financial goals.
14. Not reflecting on your spending habits and financial performance (“not knowing your numbers”).
15. Not protecting yourself against identity theft.
16. Incurring debts for wants and/or not engaging in income-generating activities to pay off your loans and credit cards (excessive and frivolous spending).
17. Paying too much for financial services (e.g., keeping accounts in an expensive bank when competitors offer cheaper solutions).
18. Treating tax refunds as “free money” and spending them in full.
19. Beating yourself up for making spending mistakes, rather than using them to reflect and learn from your errors.
20. Misunderstanding financial products (e.g., credit cards).
21. Not using discounts.
22. Not comparing prices when making purchase decisions.
23. Taking on rent that is too much of a burden.
24. Relying on continuous parental support (not preparing for financial independence and not anticipating the possibility of your parents being unable to support you long-term).
25. Failing to realize how “little things” add up (e.g., not accounting for expenses like small snacks or micro payments when planning your budget).
26. Generating financial fees by not anticipating your financial needs (e.g., incurring ATM fees by not planning for cash withdrawals for cash only payments, or currency exchange fees for online purchases in foreign currencies).
27. Forgetting automatic prepayments (e.g., online subscriptions).
28. Failing to regularly update your financial plans.
29. Failing to diversify your income sources.
30. Being ignorant about taxes.
31. Over-trusting financial advice from the web (e.g., basing decisions on social media posts, forgetting that online stories apply only to the specific situation of the person posting and not to your specific context).
32. Choosing an entry-level job based solely on the initial salary and missing long-term factors impacting your financial prospects (e.g., growth opportunities or the chance to acquire relevant skills).
33. Believing that a profession alone can make you wealthy and ignoring entrepreneurial skills and entrepreneurship as a potential late-stage career step to leverage your competencies and expertise to generate wealth.
34. Taking on never-ending payments (e.g., monthly payments that you may not need – cable TV, online subscriptions, high-end gym or club memberships).

Through the MayFin project activities, you can learn more about how to develop the skills needed to successfully face these challenges. Follow the project’s progress on social media and our webpage to learn more and enhance your financial literacy along with MayFin updates.