Why Financial Literacy Is Not Just a Buzz Term
UpdatedJul 3, 2025
- Most Americans do not understand finances well.
- This lack of understanding can cause debt problems in American households.
- You can improve your finances and yur life with a little knowledge about how credit works.
Most Americans have very low debt literacy
Not so long ago, cash was the preferred payment method for daily purchases, but times have certainly changed. As consumer shopping behaviors have evolved (think Amazon and online shopping) so has our relationship with credit cards and debt.
Credit can cloud our view of spending, making it easy to forget how much we have spent on something and/or how we are tracking our monthly budget. It can also lead to unintended debt that stays with us long after the useful life of whatever we bought on credit.
A research study from M.I.T. showed that since the 1970’s there has been growing evidence supporting the theory that credit cards encourage spending. In addition, a Dartmouth College study found that most Americans have very low debt literacy – with only one third of the population understanding the principal of compound interest or how credit cards work.
How credit works is an important part of financial literarcy
Unfortunately, this lack of understanding about the fundamentals of how credit works has had a terrible impact on the financial situation of the average American.
Today, the average American household carries an astounding $137,063 in debt, according to the Federal Reserve’s latest statistics. Yet the U.S. Census Bureau reports that the median household income was just $59,039 last year – it doesn’t seem sustainable.
The development of financial literacy skills is a lifelong process
Every day, consumers experience financial hardships and are in critical need of assistance to manage their personal debts every day.
Providing your children with personal financial management tools and education is imperative to putting them on the path to financial security. The development of fundamental financial literacy skills is a lifelong process that begins with something as simple as putting a few coins in a piggy bank, and eventually grows into understanding complex ideas such as compound interest, revolving debt and creating a budget.
Although financial literacy on its own won’t solve the consumer debt crisis. However, with increased financial capability, young adults will be able to better manage their personal finances in a way that will enable them to minimize debt, build wealth, and achieve their own financial freedom.
A look into the world of debt relief seekers
We looked at a sample of data from Freedom Debt Relief of people seeking the best debt relief company for them during May 2025. This data highlights the wide range of individuals turning to debt relief.
Credit card balances by age group for those seeking debt relief
How do credit card balances vary across different age groups? In May 2025, 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 $274
Ages 26-35: Average balance of $12,438 with a monthly payment of $380
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 $528
Ages 65+: Average balance of $16,546 with a monthly payment of $498
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.
Credit card debt - average debt by selected states.
According to the 2023 Federal Reserve Survey of Consumer Finances (SCF) the average credit card debt for those with a balance was $6,021. The percentage of families with credit card debt was 45%. (Note: It used 2022 data).
Unsurprisingly, the level of credit card debt among those seeking debt relief was much higher. According to May 2025 data, 88% of the debt relief seekers had a credit card balance. The average credit card balance was $16,327.
Here's a quick look at the top five states based on average credit card balance.
| State | Average credit card balance | Average # of open credit card tradelines | Average credit limit | Average Credit Utilization |
|---|---|---|---|---|
| District of Columbia | $15,789 | 7 | $24,102 | 86% |
| Arkansas | $14,216 | 9 | $28,791 | 78% |
| Oklahoma | $14,158 | 9 | $27,261 | 78% |
| Alaska | $19,315 | 8 | $25,731 | 77% |
| Ohio | $15,397 | 8 | $26,156 | 77% |
The statistics are based on all debt relief seekers with a credit card balance over $0.
Are you starting to navigate your finances? Or planning for your retirement? These insights can help you make informed choices. They can help you work toward financial stability and security.
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
Betsalel Cohen
Passionate about helping people improve their finances. Worked in mortgage banking, private banking, and personal financial coaching. When he is not working, he loves running and spending time with his family.
