These are the biggest money mistakes we make in our 20s, 30s and 40s

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Financial literacy peaks at age 54, according to a 2022 study. That’s around the time you’ve gained enough knowledge and experience to make sound money decisions — and before your cognitive ability might start to ebb.

“As we get older, we seem to rely more on past experience, rules of thumb, and intuitive knowledge about which products and strategies are better,” said Rafal Chomik, an economist in Australia who led the study.

If people in their mid-50s tend to make smart financial moves, where does that leave younger generations?

Advisers often educate clients at different stages of life to avoid money mistakes. While those in their 50s usually demonstrate optimal prudence  in navigating investments and savings, advisers keep busy helping others — from twentysomethings to mid-career professionals — avoid costly financial blunders:

Navigate your 20s

Perhaps the biggest blunder for young earners is spending too much and saving too little. They may also lack the long-term perspective that encourages long-range planning.

“The mistake is not establishing the saving habit early, and not appreciating the power of compounding” over time, said Mark Kravietz, a certified financial planner in Melville, N.Y.

Similarly, it’s common for young workers to delay enrolling in an employer-sponsored retirement plan. Not participating from the get-go comes with a steep long-term cost.

Better to prioritize debt with the highest interest rate, which can result in paying less interest over the long run.

People in their 20s process incoming information quickly. But their high level of fluid intelligence can work against them. Cursory research into a consumer trend or hot sector of the stock market can spur them to make rash investments. Such impulsive moves might backfire.

“It’s important to resist the hype,” Kravietz said. “Don’t chase fads or try to make fast money” by timing the market.

Many young adults with student debt juggle multiple loans. Eager to chip away at their debt, they fall into the trap of choosing the wrong loan to tackle first, says Megan Kowalski, an adviser in Boca Raton, Fla.

Rather than pay off the highest-interest rate loan first (so-called avalanche debt), they mistakenly focus on the smallest loan (a.k.a. snowball debt). It’s better to prioritize debt with the highest interest rate, which can result in paying less interest over the long run.

Navigate your 30s

Resist the temptation to lower your 401(k) contribution to boost your take-home pay.

By your 30s, insurance grows in importance. You want to protect what you have — now and in the future. But many people in this age group neglect their insurance needs. Or they misunderstand which coverages matter most.

“If you have a life partner and kids, get the proper life insurance while in your 30s,” Kravietz said. 

It’s easy to get caught up in your career and assume you can put off life insurance. But even low odds of your untimely death doesn’t mean you can ignore the risk of leaving your loved ones without a cash cushion.

Another common blunder involves disability insurance. If your employer offers short-term disability insurance as an employee perk, you may think you’re all set.

However, the real risk is how you’d earn income if you suffer a serious and lasting illness or injury. Don’t confuse short-term disability insurance (which might cover you for as long as one year) with long-term disability coverage that pays benefits for many years.

Assuming you were wise enough to enroll in your employer-sponsored retirement plan from the outset, don’t slough off in your 30s. Resist the temptation to lower your 401(k) contribution to boost your take-home pay.

“You want to give till it hurts,” Kravietz said. “Keep putting money away” in your 401(k) or other tax-advantaged plan until you feel a sting. Weigh the minor pain you feel now against the major relief of having a much bigger nest egg decades from now.

Navigate your 40s

‘The 40s are often the most expensive in anyone’s life. Life is getting more complicated.’

For Kravietz, the 40s represent a decade of heavy spending pressures. Mid-career professionals face a mortgage and mounting tuition bills for their children.

“The 40s are often the most expensive in anyone’s life,” he said. “Life is getting more complicated.”

As a result, it’s easy to overlook seemingly minor financial matters like updating beneficiaries on your 401(k) plan or completing all the appropriate estate documents such as a will.

“People in their 40s sometimes fail to update beneficiaries,” Kravietz said. For example, a new marriage might mean changing the beneficiary from a prior partner or current parent to the new spouse.

It’s also easy to get complacent about your investments, especially if you’re the conservative type who favors a set-it-and-forget-it strategy. Instead, think in terms of tax optimization.

“In your 40s, you want to take advantage of what the government gives you,” Kravietz said. “If you have a lot of money in a bank money market account and you’re in a top tax bracket, shifting some of that money into municipal bonds can make sense” depending on your state of residence and other factors.

If you’re saving for a child’s college tuition using a 529 plan — and you have parents who also want to chip in — work together to strategize. Don’t make assumptions about how much (or how little) your parents might contribute to your kid’s education.

“Rather than assume you’ll have to pay a certain amount for educational expenses, coordinate between generations of parents and grandparents” on how much they intend to give, Kowalski said. “That way, you’re not duplicating efforts and you won’t put extra funds in a 529 plan.”

More: 7 more ways to save that you may not have considered

Also read: ‘We live a rather lavish lifestyle’: My wife and I are 33, live in New York City and earn $270,000. Can we retire at 55?

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