Where Do Americans Learn About Credit?

Highlights

• 4 in 10 Americans learn about credit from their credit card companies

• Credit card companies provide some financial education resources to customers, but there’s no incentive to require financial education.

• Americans generally regret taking on debt yet credit card balances have increased since 2021 for 80% of Americans

From the age of 18, all Americans are eligible to open their first credit card. For many, this is a rite-of-passage and sign of financial freedom that creates one of the first opportunities to start building credit. 

Credit cards provide the opportunity to kickstart credit growth, earn rewards, and smooth spending if used wisely, but can also lead to a large amount of debt if someone overspends. And bad outcomes have become more common in recent years – Americans’ credit card debt levels have increased by nearly 50% over the past 10 years and delinquency rates have begun to increase again after falling during the Pandemic. 

Financial education can often make-up the difference between a successful story of someone using a credit card to help them qualify for their first mortgage and someone falling into debt and hurting their credit score. But who is responsible for teaching people how to use credit effectively?

We surveyed 2,956 Americans and asked them “Where is the primary place you learned about managing a credit card and other debt?” and found that 37% of people learn about credit directly from their credit card company. This is almost the same percentage of people who learn about credit from their friends (21%) and family (21%) combined.

Key takeaways from the survey results

Many people don’t learn about how to use credit cards until they’re using a credit card for the first time. While more high schools are teaching personal finance courses than in previous years, only 25% of students graduating in 2022 will learn about credit cards and other important topics from their high school teachers. This means that when these students open credit cards, and more than 80% of them will if current trends continue, they will be relying on what they have learned from their friends, family, social media, and most commonly, what their credit card companies tell them. 

Credit card companies play a large role in teaching Americans how to use their product properly. For some products, this isn’t a bad thing – it’s pretty common to learn the specifics of appliances you buy online or how to set-up a piece of furniture directly from the company from which you bought it. Other products, however, require education provided by a third-party. The government isn’t comfortable with teenagers learning how to drive a car from the car company after they drive it off the lot and most parents wouldn’t support beer companies teaching their children how to drink responsibly. So where do credit cards fit in? They likely don’t come with the same level of immediate risk to one’s health (or that of society) as a new driver learning on the fly, but they also have a larger potential downside than incorrectly assembling a new coffee table. And that begs the question: should credit card companies be responsible for teaching people how to use their products? And if so, what are their responsibilities to make sure that people learn everything they need to about managing a credit card? 

Firstly, what resources are credit card companies providing to help their users learn about credit cards? Among the five largest credit card issuers, Bank of America, Capital One, and Chase all link to learning resources on the front page of their websites. Bank of America has perhaps gone the furthest in providing strong education resources by establishing a partnership with education non-profit Khan Academy to build “Better Money Habits.” All of these sites provide strong resources on understanding credit scores, understanding interest, and paying down debt. Bank of America has even received Financial Health Support certification from J.D. Power. So if credit card holders are making effective use of the information provided, they likely have a lot of the information they need to use their cards effectively. But none of these banks require consumers to access this education to be approved for or use their credit cards so it’s difficult to tell how many consumers are using the resources provided to learn about their cards, or if consumers do use the resources, how it’s impacting their outcomes.

So should credit card companies be responsible for teaching people how to use their products? In one sense, the status quo isn’t working. Americans held nearly $900 billion dollars in credit card balances at the end of June 2022, more than 80% of which is revolving, meaning that it isn’t completely paid off every month. This means that Americans pay roughly $120 billion dollars in credit card interest and fees or $1,000 per household and almost everyone regrets at least some of this debt. This is money that comes straight out of the paychecks of many American families and makes it harder for them to afford their everyday necessities and straight into the pockets of credit card companies. These companies are financially invested in the mistakes consumers make managing their credit card and may not have a strong incentive to change behavior through financial education.

At the same time, many of the most comprehensive educational resources about credit cards and debt come directly from credit card companies and these free resources are meant to provide customers with accurate information. And where would people be getting this information otherwise? Taking a financial education course in school is still rare and information coming from friends, family, and social media is not vetted or filtered.

The problem here is not that credit card companies don’t provide good enough resources for consumers to learn about credit, but that credit card companies are willing to give consumers a large credit line and a high interest rate without requiring them to engage with any of these resources. This is akin to sending someone to the Great Barrier Reef with SCUBA gear and an operating manual, but not requiring them to read the operating manual or showing them how to use the gear before sending them on their way. It may be fun at first, but many people don’t read the manual until something has already gone wrong, which is often too late.

Our survey results found that 80% of peoples’ credit card balances increased in 2022, which held constant across income levels, FICOs, job types, and age. People are more indebted than ever and as consumers look for ways to decrease their debt, many turn to their credit card companies for resources. While many of these companies provide resources to help people learn about their finances, they are also heavily invested in the profit that comes from interest and late fees. Including financial education links on a website or laying out terms in fine print does not go far enough in providing a real pathway to a sustainable financial future. Consumers would do better off with a credit card company that they can count on to have their back and provide them with the information they need when they need it to get and stay out of debt.

Meet Arro

We built Arro because we believe that a credit card company can take responsibility for educating consumers as a part of delivering an excellent credit product. Our responsibility goes beyond providing education material, but also making sure that every person who gets access to credit knows how to most effectively use it to achieve their goals. We used behavioral science to create our own financial education content integrated directly into the credit card experience, creating the only credit card that allows you to raise your credit line and lower your APR through financial education. We can do this because our long term goal isn't just to offer a credit card, but to help our customers achieve their financial goals by unlocking better financing options for cars, homes, and other necessities. 

"With high inflation and interest rates rising, credit card companies need to be doing right by consumers, which starts with more transparent communication of rates and how they impact individuals. At Arro, we have taken a different approach to credit focused on building up knowledge, skills, and habits instead of incentivizing overspending and debt. We recommend paying off debt and are not raising our starting interest rate. In fact, as users progress through our financial literacy modules, we decrease their rates further." 

- Ryan Duitch, CEO and co-founder of Arro

At Arro we’ve made it our responsibility, our imperative, our mission to make sure that every person who opens an Arro Card starts on a pathway to achieving their financial goals. If you are interested in learning more about how we are disrupting the credit system or want early access to our beta app, sign up to learn more.