Financial intelligence isn’t about how much money you have but how well you understand and manage your finances. Many unknowingly exhibit behaviors that signal low financial literacy, which can impact long-term economic health.
Let’s explore these nine common behaviors and learn how to address them.
People with low financial intelligence (FI) often display these nine behaviors without realizing it:
1. Living Under the Weight of Unmanageable Debt
A LendingTree analysis shows that the national average credit card debt was $7,236 in the third quarter of 2024. Unmanageable debt often starts innocently—with a few large purchases on credit cards, a personal loan for a vacation, or using one credit card to pay off another.
This pattern indicates a fundamental misunderstanding of debt and its long-term implications. The actual cost of carrying high-interest debt compounds over time, creating a financial burden that can take years to overcome.
To break free, start by listing all debts with their interest rates, then implement either the snowball method (paying off the smallest debts first) or the avalanche method (focusing on the highest interest rates first). Carrying high-interest debt is the opposite of investing; it allows compound interest to work against you and take your cash flow.
2. Struggling with Basic Money Management
A recent report from the Global Financial Literacy Excellence Center reveals that the average American scored only 48% on a financial knowledge evaluation, with only 16% scoring between 75% and 100% on financial literacy tests in 2024.
Essential money management forms the foundation of financial success, yet many struggle with fundamental tasks like tracking expenses or maintaining a budget. This is step one in the journey to financial literacy. Without budgeting, nothing else will work.
The solution starts with simple steps: tracking every dollar spent for a month, categorizing expenses, and creating a realistic budget based on actual spending patterns. Digital tools like Mint or YNAB can automate much of this process, making it easier to maintain good financial habits.
3. Falling Into the Payday Loan Trap
The Pew Charitable Trusts confirms that approximately 12 million Americans use payday loans yearly. The average payday loan borrower pays an average of $520 in fees on top of the $375 they originally borrowed. With 12 million borrowers, this translates to approximately $6.24 billion in fees annually.
With interest rates often exceeding 400% APR, payday loans are among the most expensive forms of borrowing. This cycle typically begins when people lack other financial options or misunderstand the actual cost of these loans.
Alternative solutions include negotiating with creditors, seeking assistance from credit unions, or exploring employer-based advance programs that often offer much lower fees.
4. Living Without a Financial Safety Net
A 2023 Bankrate survey revealed that 57% of Americans couldn’t cover a $1,000 emergency expense from savings. The absence of an emergency fund makes people vulnerable to financial shocks and more likely to rely on high-cost debt solutions.
Building a safety net starts small – aim to save just $25 from each paycheck in a separate account. Gradually increase this amount until three to six months of essential expenses are saved. Start saving whatever amount you can and build from there.
5. Making Money Decisions Based on Feelings
Financial decisions driven by emotions rather than logic often lead to poor outcomes. Research indicates that emotional states can significantly influence purchasing behavior, with studies showing that individuals may be more likely to make purchases when experiencing negative emotions such as sadness or anxiety.
It is widely accepted that emotions are crucial in driving consumer decisions. For instance, emotional triggers can lead to impulsive buying behaviors, as people often seek to alleviate their negative feelings through shopping.
Creating a 24-hour rule for non-essential purchases helps combat emotional spending. Before making any significant financial decision, write down the pros and cons and discuss them with a trusted friend or financial advisor.
6. Choosing Instant Gratification Over Future Security
The preference for immediate rewards over long-term benefits significantly impacts financial health. A famous Stanford marshmallow test experiment demonstrated that children who could delay gratification achieved better financial outcomes later in life.
This principle applies to adult financial decisions, too. Create specific, visual goals for your future self and automate savings contributions to remove the temptation of immediate spending. Most financial problems are behavioral, not mathematical.
7. Avoiding Money Conversations at All Costs
Financial avoidance often stems from shame or anxiety about money. A 2024 study by Fidelity found that 45% of couples argue about money at least occasionally, and many avoid having meaningful conversations about their finances.
While many couples recognize money as a significant relationship challenge, effective communication is essential for navigating these discussions and improving financial harmony within relationships.
Start small by having regular “money dates” with yourself or your partner. Review your financial situation honestly, celebrate progress, and make adjustments as needed. Open communication about money builds confidence and leads to better financial decisions.
8. Becoming an Easy Target for Financial Scams
The FBI reports that Americans lost over $12.5 billion to financial fraud in 2023. This figure includes various types of fraud, with cryptocurrency-related scams accounting for more than $5.6 billion of the losses.
Those with low financial literacy are particularly vulnerable to scams promising quick returns or guaranteed investments.
Protection starts with education—learn common scam tactics, verify all financial opportunities independently, and never make rushed decisions under pressure. If an opportunity seems too good to be true, it usually is.
9. Mishandling Debt Payments and Credit
Poor debt management often reflects a lack of understanding of how credit works. Missing payments or making only minimum payments can cost thousands in extra interest and damage your credit score.
A strategic approach to debt management includes understanding your credit report, prioritizing high-interest debt, and setting up automatic payments to ensure timeliness. Not paying bills on time every month shows that your finances are completely out of control, and you must rein them in immediately.
Conclusion
Financial intelligence develops through education, practice, and mindful decision-making. By recognizing these behaviors in yourself, you can improve your financial literacy and build better money habits.
Start by addressing one behavior at a time, seeking education through reputable sources, and possibly working with a financial advisor. Small changes in financial habits today can significantly improve your financial future.