Money Misperceptions of Young Adults

By Barbara O’Neill, Ph.D., CFP®

Misperceptions are widely-held, but false, beliefs or an incorrect understanding of topics, concepts, or events. A challenge that personal financial managers and other financial educators face is addressing persistent money misperceptions held by clients, particularly those who lack financial education and/or experience.

Below are twelve examples of common money misperceptions of young adults and why they are wrong:

Misperception: Social media financial influencers (e.g., those on FinTok) and celebrities in ads for financial firms are fiduciaries. Reality: A fiduciary puts the needs of clients first and influencers/ads often do not do this. Also, many have no financial background or credentials and it is a mistake to assume that they are experts.
Misperception: Buy Now, Pay Later (BNPL) is not debt. Reality: Surveys show many consumers don’t realize BNPL plans are a form of credit or a loan. Instead, they think of it simply as “a way to pay for things.”
Misperception: To have good credit, you must carry a balance on a credit card. Reality: Good credit occurs by making at least the minimum payment by the due date. If you carry a balance, you will be charged interest.
Misperception: Making minimum payments is fine. Reality: While making timely minimum payments will not result in late fees, interest will accrue significantly over time. Example: minimum payments on a $2,000 credit card balance with an 18% APR will result in $1,654 in interest charges and take 11 years to repay.
Misperception: Applying for a loan will not hurt your credit score. Reality: When you apply for credit, a lender will run a “hard” credit check to assess creditworthiness and this lowers credit scores for a while.
Misperception: Credit cards are terrible. Reality: Credit cards are a financial tool. What people do with them is what matters. If they overspend and accrue high-interest debt, that is a problem. On the other hand, credit cards can help build a positive credit history, facilitate convenient purchasing, and accrue cash-back rewards.
Misperception: You only have one credit score. Reality: There are three major credit bureaus (Equifax, Experian, and TransUnion) and each has multiple scoring models. Therefore, people likely have many scores.
Misperception: Having a bunch of expensive “stuff” = wealth. Reality: Wealth is measured by financial assets listed on a net worth statement and not by possessions (e.g., a car) that typically depreciate in value.
Misperception: The stock market isn’t a safe place for money. Reality: Stock prices are volatile in the short term, but over periods of 15+ years, stock indexes have generally outperformed other investments and outpaced inflation. All investments have some type of risk and diversification can reduce the risk of loss with stocks.
Misperception: Cryptocurrencies are safe, proven investment vehicles. Reality: Cryptocurrencies are still very much the “wild, wild west” of investing with very volatile prices and a high degree of uncertainty.
Misperception: Money buys happiness. Reality: Studies do show a correlation between money and happiness. However, it tapers off as income rises and some wealthy people are unhappy. Other key happiness factors are relationships, health, and a sense of purpose.
Misperception: You can save for retirement later. Reality: While technically true, because people can save whenever they want, the loss of compound interest from early years of saving (in one’s 20s) is substantial. For every decade that someone delays saving, the amount of savings required to reach a goal approximately triples.