If there was any good news to come out of the Great Recession, it might be this: According to the Federal Reserve Bank of St. Louis, the average unsecured debt of a 50-year-old American decreased from $7,600 to $5,400 between 2008 and 2013. While awareness about the harms of debt has increased and debt burdens have decreased since 2008, debt itself has not disappeared and continues to strain resources and cause stress for many Americans.
There is no shortage of information available about how to reduce debt. Unsolicited emails and late-night commercials offer magic fixes for reducing or even eliminating debt in supposedly quick, painless ways. Yet many of us are aware that these solutions, while tempting, do not offer what is needed most in the face of debt: financial literacy.
Being financially literate — meaning you know how to make wise, informed choices about your money — is an important component of financial security, whether that means paying down debt, saving for a home or vacation, or planning for a child’s college education. In a 2012 interview, former White House economist Austan Goolsbee said that financial illiteracy was a significant factor in creating the Great Recession. And yet, while a lack of financial literacy may indeed have led some to experience economic hardship, many individuals and families simply faced circumstances out of their control. Lost jobs, decreasing stock values and other significant market forces combined to change the financial picture for those who are financially literate but who simply found themselves at the mercy of challenging economic times.
While financial literacy alone may not be enough to remain completely unaffected by economic turmoil, knowing how to handle unexpected difficulties is critical for anyone’s long-term financial security. As not-for-profit entities that operate with an education-based mission, credit unions work in partnerships with our members — regardless of their financial situation — to offer information and resources that empower them to reduce their debt and improve their financial position.
The current economy presents us with an opportunity to expand financial literacy and help people to overcome their financial challenges. In a 2014 report, The National Association of Federal Credit Unions references a study that showed “the benefits to credit union members due to lower loan and higher deposit rates are equivalent to a total of $9 billion per year in consumer savings (the typical yearly average household savings was valued at $250 per credit union member).” Statistics such as these demonstrate that improved awareness about what options are out there cannot only save people substantial amounts of money while paying down debt but also help them better invest for the future.
Thursday is International Credit Union Day. We encourage Idahoans to use this opportunity to improve their financial literacy and better understand how to eliminate their debt and get on a path toward financial health. Financial literacy, after all, is not something you accomplish in 10 easy steps; it is an ongoing understanding of your current financial situation and how the decisions you make affect your long-term financial future and ultimately your quality of life.
Tim Toy is vice president, Branches-Idaho at Mountain America Credit Union.