In 2025, several trends in consumer credit are expected to impact how Americans borrow and manage debt. From rising interest rates to the growth of alternative financing, understanding these trends can help consumers navigate the evolving financial landscape.

High-interest rates persist

The Federal Reserve’s policies to combat inflation suggest that interest rates will likely remain elevated into 2025, even as rate cuts are expected. High interest rates affect variable-rate loans, such as credit cards and home equity lines of credit (HELOCs). Personal loans are generally fixed-rate, but borrowers may still see rates change as lenders adjust their offerings in response to overall market conditions.

Borrowers may need to adjust by focusing on reducing high-interest debt and managing their credit wisely.

Rising credit card debt

Credit card balances in the U.S. have already surpassed $1 trillion and may grow further into 2025 as families deal with existing balances and repayments. Credit cards typically carry high interest rates, especially for consumers with lower credit scores. Rising credit card debt could contribute to long-term financial instability if not managed carefully.

It’s crucial to stay on top of credit card payments and consider consolidating high-interest debt into a lower-rate loan if possible.

Growth of Buy Now, Pay Later services

Buy Now, Pay Later (BNPL) services continue to gain popularity as a way to make purchases more affordable. However, BNPL services can lead to overspending, as they allow consumers to delay payments without fully understanding the risks involved. If payments are missed, late fees can accrue, and some BNPL providers report payment activity to credit bureaus, potentially affecting your credit score.

Use BNPL responsibly, ensuring you can meet the repayment schedule to avoid penalties and negative credit impacts.

Homeownership affordability still a challenge

High mortgage rates continue to put homeownership out of reach for many Americans. As of late 2024, the average 30-year fixed mortgage rate remains around 7%, a significant increase from previous years. Many prospective homebuyers struggle to keep up with the rising costs of buying a home and servicing debt.

Prospective homebuyers would be wise to focus on improving their credit score and saving for a larger down payment to offset higher borrowing costs.

Increased focus on financial literacy

Financial literacy continues to gain importance, especially as Americans face more complex financial products. More states are adopting financial education requirements in schools, and organizations are working to provide resources for adults. Financial literacy is important in managing credit and debt effectively, helping individuals make informed decisions that protect their financial health.

Preparing for 2025

Manage your finances as these credit trends unfold:

• Monitor your credit regularly
• Pay off high-interest debt
• Budget wisely
• Use financial tools and education

By understanding consumer credit trends for 2025 and taking proactive steps, you can stay on top of your financial health in 2025 and beyond.

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Disclaimer: The article and information provided here are for informational purposes only and are not intended as a substitute for professional advice.

The post U.S. consumer credit trends for 2025 appeared first on Credit Sesame.

The three Rs in education are Reading, wRiting and aRithmetic. Most people agree that those basic skills are necessary for life. What about money management? Knowing how to spend, borrow, save and invest wisely. It could be argued that financial knowledge is as important as the three Rs. Since April 2023 is Financial Literacy Month, it’s a good time to discuss why financial literacy should be taught in schools.

Why financial literacy as a 4th basic skill?

Why do we need to improve our financial literacy? Because in the US, financial ignorance is taking a terrible toll, and financial problems tend to spill into other parts of life. Researchers reported in the Journal of Marriage and Family that money stress often leads to health problems, emotional issues and poor marital relationships.

Poor credit ratings

Being uneducated about money is linked to lower credit scores, and failure to build credit can deny families home-buying opportunities. Harvard University’s Joint Center for Housing Studies claims that homeownership is the most reliable way to build wealth and that the average homeowner’s wealth is 40 times that of the average renter.

In addition, consumers without good credit pay much more for everything they finance, including autos, homes, credit card balances, and education. Credit card rates for people with excellent credit run about 10% lower than those with fair or poor credit (just under 19% vs nearly 29% as of March 2023). When families spend more on financing costs, less money is available for savings or other purchases.

Student loan balances

Researchers at Old Dominion University surveyed over 1,000 grads and most said they were unprepared for the impact of their loans and wished that they had received “more financial literacy” during the college decision process and at college orientations. “I had no idea what I was getting myself into at the age of 18 signing all those forms for financial aid,” one grad said ruefully.

Today, it takes students who finance college education an average of 21 years to repay their student loan balances. The difficulty in repaying their loans completely blindsides many grads because they don’t know how much the accruing interest will increase their balances. In addition, students often choose degrees without considering their earning potential or even if they can successfully complete the program. It is clear why financial literacy may be useful before enrolling at college and taking out a loan.

Financial insecurity

According to a recent LendingClub survey, two-thirds of Americans lived paycheck to paycheck in 2022. And nearly three-fourths of those consumers experienced difficulty just covering their bills. Living paycheck to paycheck means nothing is left over after paying your living expenses. In addition, half of Americans have under $500 in an emergency fund. This is far less than the three months of living expenses recommended by experts.

Spending without a budget or emergency savings leaves households vulnerable to unexpected costs or hiccups in their income. In the NPR article Paycheck-To-Paycheck Nation: Why Even Americans With Higher Income Struggle With Bills, exasperated consumer Rhonda Alvarez said, “I make decent money now, and I shouldn’t have to live paycheck to paycheck.” Rhonda also said that she wished schools would teach children money management. “It’s way more important sometimes than algebra or geometry.”

Excess debt

People without much financial knowledge are more likely to experience excessive debt loads, credit problems and bankruptcy. Getting a grasp as to why financial literacy is important may help to avoid these basic financial mistakes.

On the other hand, studies have shown that financially literate consumers are less likely to have credit card debt and more likely to pay off their balances each month. They also refinance their mortgages when it makes sense to do so to minimize interest expense. In addition, financially savvy adults avoid borrowing against their 401(k) plans and are less likely to resort to expensive loans from payday lenders, pawn shops and auto title lenders.

Unprepared for retirement

A recent McKinsey study found that 80% of Americans are financially unprepared for retirement. That’s a serious problem because those who fail to save for retirement may depend on Social Security payments to survive, and the average Social Security check in 2022 was $1,656.30.

Why would so many be setting themselves up for poverty once they stop working?

Theresa Ghilarducci, professor of economic policy analysis at The New School for Social Research in New York, claims few of us have the financial literacy needed to retire successfully under our current system. “The U.S. is the only industrial country that depends on untrained individuals supplementing their own basic Social Security and long-term savings with a system of voluntary contributions and retail investment products,: she said. “It’s like requiring everyone to do their own home electrical wiring and dental work.”

American retirement is unlikely to change in the near term, so future generations need a better understanding of how savings, investing, and compounding interest work. The sooner, the better, since the earlier you start, the easier it is to save enough for a secure retirement.

Understanding why financial literacy is important

Financial literacy means acquiring these important basic financial skills, which may be considered life skills.

• Establish a savings habit.
• Avoid unnecessary debt.
• Create and stick to a budget.
• Borrow wisely when necessary.
• Establish and protect a good credit rating.
• Plan for retirement.
• Invest correctly for different life stages.
• Insure against catastrophic losses.

Studies have shown that students with higher financial literacy are less likely to incur late fees, use payday loans or make only the minimum payments on their credit cards. And states that have deployed financial literacy programs are getting good results. For instance, within three years, Georgia, Idaho and Texas saw credit scores rise and delinquency rates fall. These are good reasons why financial literacy should be part of a high school, or even younger, curriculum.

Financial literacy coursework

What should be taught in a high school financial literacy class? The Federal Reserve Bank has developed this standard personal finance curriculum for older students. Our kids should know these things, and so should we.

Unit 1: Decision making

• Lesson 1.1: The Art of Decision making
• Lesson 1.2: Opportunity Cost
• Lesson 1.3: Making Choices and Identifying Costs

Unit 2: Earning Income

• Lesson 2.1: It’s Your Paycheck: Invest in Yourself
• Lesson 2.2: Investing in Yourself
• Lesson 2.3: Teaching Human Capital and the Importance of Postsecondary Education
• Lesson 2.4: What Are Taxes For?
• Lesson 2.5: Understanding Taxes
• Lesson 2.6: It’s Your Paycheck: “W” Is for Wages, W-4, and W-2
• Lesson 2.7: Individual Income Tax: The Basics and New Changes

Unit 3: Buying Goods and Services

• Lesson 3.1: Making a Budget—It’s All Spending
• Lesson 3.2: Budget Trade-Offs—A Penny Here and a Penny There
• Lesson 3.3: Big Spenders
• Lesson 3.4: Smart Phones and Budget Changes
• Lesson 3.5: Advertising: Dollars and Decisions

Unit 4: Saving

• Lesson 4.1: Time Preference—Why It Is Hard to Save
• Lesson 4.2: Simple and Compound Interest—Why It Is Great to Save
• Lesson 4.3: Time Value of Money
• Lesson 4.4: No-Frills Money Skills: Growing Money

Unit 5: Using Credit

• Lesson 5.1: The Three Cs of Credit
• Lesson 5.2: Evaluating the Benefits and Costs of Credit
• Lesson 5.3: Credit Bureaus: The Record Keepers
• Lesson 5.4: Cards, Cars, and Currency: The Car Deal Package
• Lesson 5.5: Bankruptcy: When All Else Fails
• Lesson 5.6: On the Move: Renting Basics
• Lesson 5.7: Fast Cash and Payday Loans

Unit 6: Financial Investing

• Lesson 6.1: Meeting Financial Goals—Rate of Return
• Lesson 6.2: Managing Risk—Time and Diversification
• Lesson 6.3: Evaluating Investment Options
• Lesson 6.4: No-Frills Money Skills: Get Into Stocks
• Lesson 6.5: Diversification and Risk
• Lesson 6.6: No-Frills Money Skills: Understanding Bonds

Unit 7: Protecting and Insuring

• Lesson 7.1: Insurance: Coverage and Cost Basics
• Lesson 7.2: Is Insurance Worth Buying?
• Lesson 7.3: The Three Ds of Identity Theft

Parents can take control now

While only about one-third of students have access to financial literacy content at school, parents don’t have to wait to help their kids. The FDIC has created financial literacy coursework that you can download for every grade from K through 12.

Here’s an example of a budgeting activity a parent can do with kids in the third through fifth grade:

“Ask your child to save your grocery store receipts for a week. At the end of the week, to help with the family budget, have your child add up how much money was spent on food.

Discuss ideas to save money on future food shopping trips to meet budget goals. You can also
invite your child to collect the receipts for a longer period of time (several weeks or months) to keep
track of progress toward goals. Check in regularly to discuss as a family.”

That exercise seems like it would be good for most adults as well.

The good news is that with the right personal finance skills, most people can build a decent credit score, learn to budget, avoid excess debt and save for retirement. With the right tools, you can live better today and enjoy more security tomorrow.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post Beyond the 3 Rs: Why financial literacy should be a 4th basic skill appeared first on Credit Sesame.

Financial Literacy Month happens every April. Its current form launched as the Financial Literacy for Youth Month in 2000. In 2004 it was recognized by the US Senate as an official annual event, the “for youth” disappeared, and it became simply Financial Literacy Month. This acknowledged that many adults want to want to improve their financial literacy. Now open to everyone, it may be fair to say its focus remains on helping teachers to promote financial wellness and understanding in schools. Jump$tart is the “owner” of Financial Literacy Month. They describe their mission as follows:

Jump$tart is a coalition of diverse financial education stakeholders. These organizations work together to educate and prepare our nation’s youth for life-long financial success.

Is Financial Literacy a Problem in America?

In 2021, the Milken Institute published a study, “Financial Literacy in the United States.” Its authors wrote:

“The empirical evidence suggests that many individuals in the US — both young and old — lack the basic knowledge and skills required to engage in sound financial decision-making, a situation that significantly threatens their prosperity and financial wellbeing.”

Back in 2014, Standard & Poor’s commissioned another study, “Financial Literacy Around the World.” It seems American adults have a financial literacy rate of 57%, compared with a worldwide average of 33%. Good, right?

We’re doing better than many countries, but the findings weren’t all good:

• Australia, Canada, Denmark, Finland, Germany, Israel, the Netherlands, Norway, Sweden and the United Kingdom all did appreciably better than the United States
• If 57% of American adults are financially literate, it means 43% could better manage their finances

Why It’s Hard to Manage Your Personal Finances Better

There are other reasons to be worried about Americans’ ability to manage their personal finances well:

1. The US has fewer consumer protections over financial matters than many other nations, especially member states of the European Union. So, predators may be able to get away more easily with ripping us off
2. New and more complex financial products are launched all the time, and existing ones evolve constantly. These innovations are often difficult to understand, even for the financially literate
3. New technologies can be very helpful to many consumers. But they raise fresh issues, such as data security, privacy and who’s responsible for fraud and errors

The more you know, the more you realize there is to know. With the buzz around Financial Literacy Month, now is the time to take control of your finances, your financial wellness and enter a state of financial well-being.

Why Should You Care About Financial Literacy Month?

Twenty years ago, people had a bank account at a bricks and mortar bank, one credit card and a mortgage — maybe. Enter the Internet and competition for online bank accounts, credit cards, mortgages, re-financing opportunities, and personal loans flooded the financial products available to consumers. Financial management suddenly became more complicated because of the number of possible solutions to every financial requirement. How to know which product is best? Why might you want more than one credit card? Should you re-finance your home mortgage? Is your credit score really that important?

Even if you are comfortable financially, you may be anxious to know for sure that you are using your hard-earned money as efficiently as possible. The better you understand and manage your finances, the better your financial well-being.

Central to financial well-being is understanding the products and services and how to compare them. What should you look at when seeking a credit deal for an important or expensive purchase? What to compare when looking for a loan? Financial Literacy Month wants to help people to understand:

• Annual percentage rates (APRs) and why is it a better indicator of a good deal than the raw interest rate.
• Compound interest and its impact on borrowing and saving.
• Inflation and how this affects the buying power of your earnings.
• Numeracy – for example, how percentages work.

A survey asked, “Suppose you borrow 100 US dollars. Which is the lower amount to pay back: 105 US dollars or 100 US dollars plus three percent?”

Lots of people got the wrong answer. Would you get it right?

The answer is $100 plus 3% ($103) is lower than $105.

Most people could also benefit from understanding more about saving and investing. Do you know about “risk diversification?” It just means not putting all your eggs in one basket. Instead you should normally spread your investments (and risks) across lots of different banks, funds, companies and sectors. This what professional investors do.

A basic understanding of these concepts helps you make better decisions.

Credit Scores are Key

Perhaps the biggest benefit of financial literacy comes when you learn to actively manage your credit score.

Syracuse University has published a report called, “The Cost of Bad Credit.” And it lists loads of examples of how much more someone with bad credit can pay for a loan than someone similar with great credit. Some of the numbers are scary:

• Want to enrol in an undergraduate degree? Bad credit could cost you an additional $48,425.24
• Need a car loan? Bad credit could cost you an additional $9,320.00
• Want a credit card? Bad credit could cost you an additional $4,975.23
• Need to rent a home? Bard credit could add an extra $1,006 security deposit
• Take out homeowners or car insurance? bad credit could add $1,934.60 to your premiums
• Seeking employment? A prospective employer might ask you to authorize a background check before offering you a job. It may access a credit report that includes most of the information a lender sees apart from your credit score and your date of birth.

These examples show clearly the disadvantages associated with bad credit. A little more financial savvy and you could be on your way to increasing your credit score and earning cash.

How You Can Harness Financial Literacy Month

Take advantage of the large amount of learning materials available online. Jump$tart’s Financial Foundation for Educators was initially set up for teachers and parents, but everyone is welcome to sign up and use the materials. You have to register (just first name, last name and email address) to begin downloading modules explaining:

1. Spending and Saving
2. Investments
3. Credit and Debt Management
4. Risk Management and Consumer Protection

At the time of writing, only the first two of those modules were available. The last two were still under development. Hopefully, they’ll be accessible soon.

Access Other Learning Tools

There are other materials available through Jump$tart’s website. It has a clearing house page that can help parents, other adults and kids understand a broad range of topics that can promote financial wellbeing. Search there for topics you need to understand. Popular subjects when we visited the page included “Credit Essentials for Everyone” and “Understanding Amortization.”

Everyone Has Something to Lean

People often feel embarrassed to have gaps in their financial knowledge. The truth is, we can all learn. I have been a financial writer for nearly 15 years and I still have to check facts about financial products. Jump$tart has excellent information and it is written to be understandable. Don’t be put off that much of the material is written with children in mind. This is a good thing. It means the text is not stuffed with complicated financial terminology.

Find help locally

Financial Literacy Month is a time when Jump$tart’s coalition partners promote their own efforts to improve financial wellness. You may be able to find help and materials from an organization close to you. Do a web search for “[Your state, county or city] Financial Literacy Month.” You may find special events or new publications launched to coincide with the month. Remember, the coalition partners operate year-round. Think of them as a continuing resource.

Who Makes Money from Financial Literacy Month?

No-one. It’s a non-profit. And it comprises well over 100 organizations, including at least one in each state. Financial Literacy Month is an initiative of Washington DC-based Jump$tart Coalition for Personal Financial Literacy, which is a 501(c)(3) tax-exempt organization.

The post How Financial Literacy Month Motivates Financial Wellness appeared first on Credit Sesame.