Not so long ago, cash was the preferred method of payment 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 to 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.
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.
This, as you may be aware, is a critical problem nationally. Having a basic understanding of how credit works is key to making sound financial decisions. This is why, as a large corporate citizen of Arizona (Freedom Financial Network employs approximately 2,200 in Tempe), we applaud the recent passage of SB 1184 in Arizona. This vital bill will require that high school students in the state receive education in personal financial management before graduating. This is a critical period for most Americans; SB 1184 will ensure that Arizona students receive an important financial foundation before they begin to make financial decisions that will impact them into adulthood. Governor Doug Ducey, Treasurer Kimberly Yee, Senator Sylvia Allen, and all the supporters of the bill should be applauded for backing such an important piece of legislation that will have an impact on so many Arizonans.
As the co-CEO of Freedom Financial Network I see consumers experiencing financial hardships and who are in critical need of assistance to manage their personal debts every day. Our family of companies’ collective goal is to help consumers overcome debt to achieve financial wellness. We believe that providing our 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, Freedom Financial Network is hopeful that the enactment of SB 1184 will better prepare Arizona high school students to make sound financial decisions as they set out and start their adult lives. Collectively, we hope that with increased financial capability, these young men and women 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.