Why Financial Literacy Is Not Just a Buzz Term
UpdatedJun 11, 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.
Debt relief stats and trends
We looked at a sample of data from Freedom Debt Relief of people seeking a debt relief program during May 2025. The data uncovers various trends and statistics about people seeking debt help.
Age distribution of debt relief seekers
Debt affects people of all ages, but some age groups are more likely to seek help than others. In May 2025, the average age of people seeking debt relief was 53. The data showed that 24% were over 65, and 14% were between 26-35. Financial hardships can affect anyone, no matter their age, and you can never be too young or too old to seek help.
Student loan debt – average debt by selected states.
According to the 2023 Federal Reserve Survey of Consumer Finances (SCF) the average student debt for those with a balance was $46,980. The percentage of families with student debt was 22%. (Note: It used 2022 data).
Student loan debt among those seeking debt relief is prevalent. In May 2025, 27% of the debt relief seekers had student debt. The average student debt balance (for those with student debt) was $48,703.
Here is a quick look at the top five states by average student debt balance.
| State | Percent with student loans | Average Balance for those with student loans | Average monthly payment |
|---|---|---|---|
| District of Columbia | 34 | $71,987 | $203 |
| Georgia | 29 | $59,907 | $183 |
| Mississippi | 28 | $55,347 | $145 |
| Alaska | 22 | $54,555 | $104 |
| Maryland | 31 | $54,495 | $142 |
The statistics are based on all debt relief seekers with a student loan balance over $0.
Student debt is an important part of many households' financial picture. When you examine your finances, consider your total debt and your monthly payments.
Tackle Financial Challenges
Don’t let debt overwhelm you. Learn more about debt relief options. They can help you tackle your financial challenges. This is true whether you have high credit card balances or many tradelines. Start your path to recovery with 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.
