13 Money Myths Many Americans Swear By Even Though It Hurts Them

What you think you know about money may not be as accurate as you assume. This is often the case for Americans who’ve been raised by financially illiterate parents.

According to an Ipsos study, 36% of Americans lack financial literacy. Of those who self-reported being financially literate, the financial quiz they took showed that about one in four weren’t.

These are some of the most common financial myths or misunderstandings many American households live by.

1: Dodging Taxes 

The more money you make, the more taxes you’ll have to pay. However, some Americans misinterpret this to mean that they should decline opportunities for more income so that they don’t have to pay more taxes.

But here’s the thing: Even though you’ll be paying more taxes, you’ll always end the day with more money than if you kept your old, lower salary. That’s because the Internal Revenue Service (IRS) operates on a bracket system. So, if your increased income places you in a higher tax bracket, you’ll only pay higher taxes on the income that qualifies for that bracket.

Here’s an example: The 2024 tax bracket for singles filing income up to $11,600 is 12%. If you make $11,650, you’ll be taxed 12% on the $11,600 and 22% (the next income bracket) on $50.

2: False Claims 

I’m all for donating. But when it comes to your tax return, purchasing items to donate with the expectation that you’ll get 100% of your money back come tax time is a myth.

A tax-deductible charitable contribution allows you to deduct the value of your donation from your adjusted gross income. So, If you spent $100 on a donation and your adjusted gross income is $50,000, only $49,900 of your income will be taxed.

3: Pricing Problems 

The stock market isn’t the economy, but some Americans confuse the two. While positive or negative press about the price of a given stock can significantly impact its price, it’s not the only indicator.

The perceived future of a company or a country/world event as a whole also impacts stock prices. So, the American economy could be in a downward trend while the stock market remains relatively unaffected if buyers feel like current negative sentiments are temporary.

4: Throwing in the Towel 

The concept that one can’t retire until 62 years old is false. You can retire whenever you’d like.

So, why do some Americans get confused? People can start collecting social security at 62 years old. If you retire before this age, you’ll need to do so feeling confident that you can 100% fund your retirement until you start receiving social security.

The government allows Americans to start receiving social security when they are between 62 and 70 years old. The longer you wait, the higher your social security check will be.

5: Terrible Taxes 

Some Americans move overseas to avoid paying loads of money in taxes. While there are situations when the math works out for this, it isn’t always the case.

Working and receiving local pay in another country can lead to fewer taxes you pay. However, similar to the first example we gave, you might make less money. Therefore, while you might pay less in tax, you could end up having less money in your bank account at the end of the year than if you were to have stayed in the U.S. paying more taxes.

6: Accountants Are Costly

Yes, the wrong accountant can be costly to a customer. But in many cases, accountants can help save you money, not to mention the stress that can come with filing taxes with mediocre math skills.

According to Vault Wealth Management, a survey of 2,000 taxpayers showed that Americans who filed themselves received an average tax return of $1,775. Meanwhile, those who went through a tax professional received a $2,615 return.

7: Losing Leasers

It’s true that people who lease a car can deduct their lease payments on their federal tax returns. However, leasing comes with financial downsides that might not make the savings worth it.

One of the biggest financial issues with leasing is that you won’t build equity on your vehicle. Since you can’t sell or trade your car to help reduce the amount you pay for your next car, many Americans sign leasing contracts after leasing contracts. The issue? There will never be a point when you don’t have a monthly car payment.

8: Do It Yourself 

It’s easier said than done to pull yourself up by the bootstraps when you’re drowning in debt. But some Americans who don’t struggle with finances believe this is the way to go.

The problem is there are a myriad of factors that go into whether a person is financially stable. Yes, personal responsibility regarding spending habits and work ethic play a role. However, some people have greater financial struggles that are of no fault to them, such as an expensive health condition. Furthermore, the environment one grows up in can shape the use or abuse of tools like credit cards.

9: Throwing Money Away 

Buying a 25-pack of soap on sale might seem like a great idea at the time. But let’s face it: It could take you years to work through it.

Let’s say, for example, you frequently buy a lot of things on sale that you don’t really need. Assuming that amounts to $30 per month, if you were to invest $1 in the stock market each day, after five years, you’d have $2,421.20 (assuming a 10% average annual return).

Fast forward to 30 years, and if you continued investing $1 per day instead of buying things on sale you didn’t need, you’d have $66,044.35.

10: Money Misunderstandings 

The sunk cost fallacy traps many Americans into believing they’ll make money when all they do is lose it.

One of the most common scenarios when the sunk cost fallacy rears its ugly head is someone starting a business. Time and money are both resources that a person devotes to their new endeavor. But there comes a point when they should throw in the towel if the company is among the 45% of businesses that fail during the first five years.

However, because of all the time and monetary resources a person puts into building their business, they often don’t want to give up, believing that investing more resources into it is the solution.

11: More Isn’t Always Better 

Credit cards can help you build credit, but you don’t need so many that you have to buy a second wallet to manage them all.

According to Equifax, keeping two to three credit cards in good standing is an excellent way to build credit. If you become a credit card hoarder, it’s easier to lose track of them, holding high balances or missing payments, two things that will hurt your credit score.

12: Refinancing Woes 

Refinancing your mortgage can help save you big bucks. It can also cost you, depending on your situation.

One of the biggest mistakes Americans make when looking to refinance is focusing solely on the lower interest rate. However, refinancing costs money, and a person with an already somewhat low interest rate on a mortgage that’s mostly paid off might end up losing money by refinancing.

13: Revved Up 

New cars purchased off the lot can lose as much as 20% in value during the first year of ownership. Over the course of five years, they can lose around 40% of their value. But that doesn’t mean that vehicles are an inherently bad investment.

For example, if you truly need a car to arrive at the job that keeps food on your table, it’s worth the investment.

Leaders in Finance

Baby boomers are the most financially literate Americans, with 71% passing a financial literacy quiz. Gen X and Millennials follow, with 63% and 59% literacy, respectively. Gen Z is the most financially illiterate, with only 42% of the generation understanding finances.

These numbers support the argument that the American school system needs to implement more finance-based teachings in the classroom.

25 Most Expensive Cities

Do you live in or are considering moving to one of the most expensive cities in America? These are the top 25 cities that’ll do a (lower) number on your bank account.

25 Most Expensive Cities in the US

How American Tipping Culture Is Changing

Nowadays, many customers are shown an iPad with extravagantly high tip recommendations. Pew Research Center dove into what’s changed about Americans’ views of tipping and tipping culture, and their results are revealing.

American Tipping Culture Is Changing and People Aren’t Happy About It, Research Shows