Spring has sprung here in The Sunshine State. The birds are chirping and the bees are buzzing once again in my home state of Florida, where we’ve just planted the tomatoes and the rest of our spring garden (my apologies to our friends in Minnesota who still face two more months of frigid air and leafless trees). March is known for more than just warmer weather in tropical climates, the assassination of Julius Caesar (“et tu, Brute?”), and the college basketball tournament affectionately known as March Madness. It’s also National Credit Education Month. The nonprofit National Foundation for Credit Counseling (NFCC) started the holiday in 1989, and while most of these invented holidays are spun up by creative marketing teams, this might be the most interesting National Credit Education Month in about 15 years with what appears to be a looming recession. I know I’m breaking the rules by even saying that word, the equivalent of saying ‘good luck’ to an actor behind the curtains at a Broadway show. But an economic downturn feels all but inevitable following a rough week on Wall Street that saw the S&P 500 enter correction territory and the release of a consumer sentiment report that was the opposite of warm and fuzzy. Mike Croxson, the CEO of NFCC, expressed concerns about credit card delinquencies last month. Its latest Financial Stress Forecast from a month ago predicted higher levels of financial stress in response to reported higher credit card debt and debt delinquencies in Q4 2024 data from the Federal Reserve Bank of New York. ‘Our data, combined with the Fed’s report, paints a concerning picture of the financial landscape for many Americans,’ NFCC CEO Mike Croxson said in a press release. ‘We are particularly concerned about rising credit card delinquency rates.’ Financial interventions often become necessary for people who are overextended from a credit perspective. I’ve interviewed enough financial counselors in recent years to know that most of them are skilled at walking the tightrope between being mathematicians and grief counselors. Because many people don’t seek help until they are already up to their eyeballs in the deep end, initial conversations about debt are often emotionally charged. Americans Have a Lot to Learn About Credit While financial counselors may be educated on inner workings of personal finances, most consumers are not. In a 2023 episode of ‘Who’s Talking to Chris Wallace?’ on Max, Wallace asked Suze Orman, the personal finance guru and host of popular podcast ‘Women & Money,’ how many people she thought were financially illiterate. Orman said, ‘Truthfully, probably 95%.’ While that number is (hopefully) high, it’s certainly true that most Americans have a lot to learn about credit. While money lending dates back to around 3000 BC, FICO scores are just turning 35 this year with the Fair Isaac Corporation and the Big Three credit reporting agencies—Equifax, Experian, and TransUnion—cooperating to launch what has become the most popular and broadly accepted credit scoring system. FICO scores are used nationwide by a variety of lenders when deciding on what constitutes a fair rate and whether a consumer would actually pay them back over time. ‘The idea that there’s a generic model means that lots of different companies can use a credit score for the first time and this makes credit scoring much more accessible and popular among lenders,’ said Josh Lauer, associate professor of communication at the University of New Hampshire and author of ‘Creditworthy: A History of Consumer Surveillance and Financial Identity in America’ in an interview with CNBC Select. My point is that it makes sense that many borrowers don’t understand credit scores because they are a pretty new phenomenon. Plus, a lot of people have been left out of the loop. Reasons for Optimism Around Credit Education As recently as 2022, fewer than half of U.S. states required personal finance classes for high school graduation, meaning that in the majority of states at the time, high school students were basically on their own if they didn’t have someone in their family steering them in the right direction. The good news is that today more than two-thirds of states require personal finance training to graduate, with 15 states mandating a semester-long course, or what the Council for Economic Education calls their ‘gold standard.’ Nan J. Morrison, the President and CEO of Council CEE, celebrated a banner year in 2023 with a big uptick in states requiring personal finance education in high schools. ‘Requiring all high schools to teach principles of personal finance and economics and all students to study it creates equity and possibility,’ said Nan J. Morrison, CEE president and chief executive officer. ‘Putting life-essential financial knowledge into the hands of more and more kids is cause for celebration.’ While this is reason for optimism, the truth is that despite the massive good this will do, there will always be a few kids sleeping in the back of the class when the topic of credit comes up. And there will always be borrowers who make financial mistakes that land them in the subprime scoring range. Credit Education Month offers the credit industry and financial services professionals an opportunity to help raise awareness around the ever nebulous topic of credit. That means they can take an active role in reducing delinquencies and defaults that hurt their bottom lines while ensuring Americans by and large remain solvent through disciplined repayment behaviors. America needs a healthy credit mix, and embracing and promoting credit education is one way to help.

Opinion: March Reminds Us That Embracing Credit Education Can Reduce Defaults

This article discusses the importance of National Credit Education Month in March, highlighting the potential for credit education to reduce defaults and financial stress amid concerns about a looming recession. The National Foundation for Credit Counseling (NFCC) and other financial experts emphasize the need for financial literacy, noting that most Americans are financially illiterate. The article also mentions that FICO scores are a relatively new phenomenon, and that many borrowers do not understand them. The good news is that more than two-thirds of U.S. states now require personal finance classes in high school, creating a more equitable financial education environment.