Why Financial Literacy Is Not Just a Buzz Term
- Data shows that many Americans could use a refresher in financial literacy.
- Educating yourself could help you meet goals and improve your financial situation.
- Focus on building skills like budgeting, saving money, and managing debt.
- Financial literacy includes investing for the future and protecting your money with insurance and an emergency fund.
- Scam and fraud awareness is part of staying financially literate.
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Many Americans lack financial literacy because they never learned it at school or at home. Lawmakers want to change that, and help more people avoid the need for debt relief later on.
Next Gen Personal Finances says that 30 states require students to take a personal finance course to graduate from high school. In 2022, only 15 states had that requirement. The push for financial literacy is a relatively new thing. If you’ve been out of school for a good number of years, chances are it wasn’t part of your curriculum.
Given how recent this shift toward financial literacy is, it’s not surprising that only 30% of Americans feel very confident managing their finances, according to recent data from Thrivent. And MarketWatch reports that the average American scores 46% on a basic quiz on financial literacy. So if you could use some help in that area, you’re not alone.
Boosting your financial literacy skills can help you make savvy financial decisions and improve your personal finances.
What Is Financial Literacy?
Financial literacy is the ability to understand and use money skills like budgeting, saving, investing, managing debt, and protecting your money. It helps you make informed decisions about your income, spending, and financial goals. These skills could help you handle everyday expenses and plan for long-term goals like retirement or a home purchase. Below are some details on these skills.
Budgeting
Some people end up in debt because they were never taught how to follow a budget. Setting up a budget is simpler than you might think.
You can write one down your expenses on paper, create a spreadsheet that lists them, or download an app like EveryDollar or PocketGuard. Don’t be afraid to try different apps until you find one that works for you.
Once you've listed your expenses, you can compare them to your take-home pay. If your expenses are higher than your pay, it's time to figure out how to cut costs or raise your income. Once you've identified how to keep expenses under your income, the important thing is not to spend more than what's in your budget.
The nice thing about budgeting is that it shows you where your money is going every month. It can also help you make informed decisions about what you should and shouldn’t spend money on.
One popular framework is the 50/30/20 rule. Say your monthly take-home pay is $4,000. Under this rule, you’d aim to put $2,000 (50%) toward needs like rent and groceries, $1,200 (30%) toward wants like restaurant meals or travel, and $800 (20%) toward savings or debt payments.
Saving money
Having money set aside is the ticket to avoiding debt. If you have an emergency fund, you may be able to dip into it rather than use a credit card to pay for an unplanned expense.
As a general rule, it’s a good idea to have a three-month emergency fund—savings that can cover all of your expenses for three months in the event you lose your job. Once you get into the habit of budgeting, you may find that you have an easier time saving money. And if there’s not much wiggle room in your budget for savings right now, a side hustle could be your ticket to extra cash.
Investing for the future
Financial literacy also includes learning how to invest. This includes keeping emergency savings safe and easy to access. It also includes knowing how to invest long-term savings so they can grow to help you meet major goals like funding retirement.
Many employers offer a 401(k) retirement plan with matching contributions. Contributing enough to get the full employer match is a good way to start. An individual retirement account (IRA) is an alternative for people without access to an employer plan. While IRAs don't benefit from employer matches, they do offer tax advantages that can help your retirement savings grow.
Your goals, your timeline, and your comfort with risk all play a role in how much you invest and which type of account fits your situation. A little research before you start could help you feel more confident about the choices you make.
Managing debt
It’s not an unusual thing—or always a bad thing—to have debt. Debt only becomes a problem when you can’t keep up with your payments.
Part of being financially literate is understanding the difference between good and bad debt. Good debt serves a helpful purpose. In the case of a mortgage, it helps you build equity in a home that can gain value over time. In the case of an auto loan, it gives you access to a vehicle that may help you get to work and earn an income.
Credit card debt, though sometimes unavoidable, is generally considered bad debt because it can cost you a lot of money in interest. And often, credit card debt doesn’t serve a helpful purpose like a mortgage or auto loan (though there can be exceptions, such as if you took a class to further your career and charged it on a credit card).
Try to keep credit card debt to a minimum so you don’t have to spend a lot of money on interest. And, if possible, don’t make just your minimum credit card payments each month. Aim to pay down as much of your balance as possible, if not your whole balance.
And be careful with good debt, too. A mortgage you can’t afford won’t help your financial situation.
Once you have your budget set up, you may have a better sense of how much debt you can afford to take on. And if you're already in debt and are struggling to manage it, you may want to consider getting professional help with debt settlement. A debt settlement company can negotiate your balances with your creditors to help you get debt free.
Debt settlement applies to unsecured debt, like credit card balances, rather than secured debt such as a mortgage or auto loan.
People just like you are seeking debt relief in Phoenix, AZ and across the country. The first step is the most important one—explore your options.
Protecting Your Money
Protection matters just as much as earning and saving money. Insurance, such as health, auto, home, or renters insurance, helps cover the cost of unexpected events so a single setback doesn’t undo your progress.
Scam awareness is also part of financial literacy. Common warning signs include unsolicited calls or texts asking for personal information, offers that guarantee results, and pressure to act immediately. A quick check before you respond could help protect your accounts and your credit.
Financial Literacy Isn't Just a Buzz Term
Financial literacy might seem like one of those buzz terms you keep hearing on the internet, but it’s actually a very important thing. And there are plenty of resources to help you improve your financial literacy.
Now that you have a basic idea of budgeting, saving, and managing debt, don’t stop there. Pick a personal finance topic to explore every month and read up on it, whether it’s retirement, investing, or insurance. The more you educate yourself, the more confidence you’re likely to have in your financial situation.
Where to Learn More
If you’d like to keep building your financial literacy skills, these free resources are a good place to start:
The Consumer Financial Protection Bureau offers financial education tools and guides for adults at every stage of life.
MyMoney.gov organizes lessons around earning, saving, borrowing, and protecting your money. The federal government’s Financial Literacy and Education Commission maintains the site.
Both sites are free and don’t require you to sign up or share personal information to browse their resources.
Debt relief stats and trends
We looked at a sample of data from Freedom Debt Relief of people seeking a debt relief program during January 2026. The data uncovers various trends and statistics about people seeking debt help.
Credit card balances by age group for those seeking debt relief
How do credit card balances vary across different age groups?
In January 2026, people seeking debt relief showed the following trends in their open credit card tradelines and average credit card balances:
Ages 18-25: Average balance of $9,117 with a monthly payment of $272
Ages 26-35: Average balance of $12,438 with a monthly payment of $375
Ages 36-50: Average balance of $15,436 with a monthly payment of $431
Ages 51-65: Average balance of $16,159 with a monthly payment of $524
Ages 65+: Average balance of $16,546 with a monthly payment of $488
These figures show that credit card debt can affect anyone, regardless of age. Managing credit card debt can be challenging, whether you're just starting out or nearing retirement.
Home-secured debt – average debt by selected states
According to the 2023 Federal Reserve Survey of Consumer Finances (SCF) (using 2022 data) the average home-secured debt for those with a balance was $212,498. The percentage of families with mortgage debt was 42%.
In January 2026, 25% of the debt relief seekers had a mortgage. The average mortgage debt was $236504, and the average monthly payment was $1882.
Here is a quick look at the top five states by average mortgage balance.
Home-secured debt - top 5 states
| State | % with a mortgage balance | Average mortgage balance | Average monthly payment | |
|---|---|---|---|---|
| California | 20 | $391,113 | $2,710 | |
| District of Columbia | 17 | $339,911 | $2,330 | |
| Utah | 31 | $316,936 | $2,094 | |
| Nevada | 25 | $306,258 | $2,082 | |
| Massachusetts | 28 | $297,524 | $2,290 |
The statistics are based on all debt relief seekers with a mortgage loan balance over $0.
Housing is an important part of a household's expenses. Remember to consider all your debts when looking for a way to get debt relief.
Manage Your Finances Better
Understanding your debt situation is crucial. It could be high credit use, many tradelines, or a low FICO score. The right debt relief can help you manage your money. Begin your journey to financial stability by taking the first step.
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Author Information
Written by
Maurie Backman
Maurie Backman is a personal finance writer with over 10 years of experience. Her coverage areas include retirement, investing, real estate, and credit and debt management.
Reviewed by
Richard Barrington
Richard Barrington has over 20 years of experience in the investment management business and has been a financial writer for 15 years. Barrington has appeared on Fox Business News and NPR, and has been quoted by the Wall Street Journal, the New York Times, USA Today, CNBC and many other publications. Prior to beginning his investment career Barrington graduated magna cum laude from St. John Fisher College with a BA in Communications in 1983. In 1991, he earned the Chartered Financial Analyst (CFA) designation from the Association of Investment Management and Research (now the "CFA Institute").
What’s the #1 rule of budgeting?
Spend less than you earn.
How long does it take to build an emergency fund?
Try to save the first $1,000 within six to 12 months. Be aggressive and make sacrifices. Challenge yourself to make a budget, look for ways to save, and set milestones to reach and celebrate.
Here’s how one family of four might do it if their goal is to save $2,500.
Drag everything unneeded out of the closets and sell it, netting $700
Give up two subscriptions: $40 per month
Shave 10% off the grocery bill: $60 per month
Switch mobile plans: $50 per month
Cut one restaurant dinner out: $100 per month
Cut 10% of driving: $25 per month
Goal reached in less than seven months.
How much credit card debt is normal?
What’s normal for one person might be troubling for another. The best amount of credit card debt is the amount that you can afford to pay off when you get the bill. A person’s total financial picture, including salary, financial goals, and other debts, could give a better sense of what’s manageable.
What is the 50/30/20 budgeting rule?
The 50/30/20 rule is a simple budgeting method. You put 50% of your take-home pay toward needs, 30% toward wants, and 20% toward savings or debt payments. It’s a starting point you adjust based on your own expenses and goals. Those percentages may not work for you, but the idea is to set targets for how you want to use your income. Those targets could form the basis of your budget.
How can I tell if a financial offer is a scam?
Common signs of a scam include unexpected contact asking for personal or account information, guarantees of a specific outcome, and pressure to decide quickly. Legitimate financial companies give you time to review an offer and won’t ask you to share passwords or one-time codes.
Do I need a lot of money to start investing?
No, you don’t need a lot of money to start investing. Major brokerages like Vanguard and Charles Schwab have no minimum opening balance requirement to get started, and no minimum amount per deposit. Many employer retirement plans and IRAs accept small contributions, too. An early start gives your money more time to grow.
