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Q&A Navigating the path to financial freedom

54 percent of Americans define financial freedom as being debt-free. On the other hand, 33 percent of U.S. adults believe it means having a substantial emergency fund.

The dollar is struggling to bounce back after the Federal Reserve held interest rates
The dollar is struggling to bounce back after the Federal Reserve held interest rates - © GETTY IMAGES NORTH AMERICA/AFP MARK WILSON
The dollar is struggling to bounce back after the Federal Reserve held interest rates - © GETTY IMAGES NORTH AMERICA/AFP MARK WILSON

For many people, achieving financial freedom is an aspiration but it is something that remains a long way from reality. Yet there are paths and strategies that can be adopted. Christina Roman, Experian’s consumer education & advocacy manager explains to Digital Journal what is involved in relation to those living in the U.S.

One definition of financial freedom is to reach: “a state where you have complete control over your finances, allowing you to make choices based on your desires and goals rather than being limited by how much things cost.” (There are other, competing, definitions).

Digital Journal: Experian recently released survey findings related to financial freedom. What were some of the key takeaways?

Christina Roman: There’s a misconception that financial freedom means living comfortably without the burden of financial stress or constraint. The truth is financial freedom means different things to different people.

According to our recent survey, 54 percent of Americans define financial freedom as being debt-free. On the other hand, 33 percent of U.S. adults believe it means having a substantial emergency fund, while another 33 percent think it means being able to pay their current bills for six months without worry.

However people define financial freedom, we also found there’s a shared belief that it may be out of reach. Currently, only one-third of U.S. adults feel at least somewhat financially free, while nearly half of survey respondents feel financially restricted. Those statistics are sobering by themselves, but factor in that 54% of Americans believe they’ll never experience financial freedom, and you can only imagine how disheartening that can feel.

DJ:  What are some of the barriers that consumers experience enroute to financial freedom?

Roman: One of the more significant barriers to achieving financial freedom is some consumers just don’t know where to begin. Navigating the mainstream financial system has its complexities, and if consumers don’t have a baseline understanding, it can be overwhelming.

Additionally, millions of people have limited-to-no credit history, making it difficult to access financial resources, such as personal loans, credit cards, auto loans and mortgages. Without access to fair and affordable financial resources, it can be an uphill climb to achieve whatever the consumer’s definition of financial freedom might be.

DJ:  What are some steps that consumers can take to become more financially free?

Roman: Sometimes the only step you can take is the one right in front of you, and it seems some U.S. adults are doing just that. More than 58 percent of survey respondents are committed to paying off debts to achieve financial freedom, while 50 percent are spending less on nonessentials.

If consumers don’t know where to begin, there are some initial steps they can take to become financially free:

  • Establish a realistic budget. While a basic concept, creating a budget is an extremely important part of managing your finances. Tracking income and expenses can give consumers a better sense of where their money is going. Consumers who plan out a realistic budget will be more apt to stay within their means.
  • Identify needs vs. wants. Living within their means and avoiding unnecessary expenses can put consumers on a path to financial success. Cutting back on non-essential expenses can potentially save consumers hundreds of dollars a month. They can use some of that extra cash toward paying down some existing debt, as well as putting it towards emergency funds, savings and retirement accounts.
  • Use credit as a tool. Good credit can help consumers qualify for lower rates and better loan terms. Making small purchases and paying them off on time each month can help them build a positive credit profile.
  • Expand your financial knowledge. Taking steps to improve their financial literacy can help consumers navigate an otherwise complex financial system. Learning basic financial concepts, such as building and maintaining good credit and budgeting and saving, can better position consumers for financial success.

DJ: What role does the financial services community play in helping consumers expand their financial knowledge?

Roman: In a separate Experian survey, the findings showed 37 percent U.S. adults are unaware of where to access trustworthy information about financial literacy. So, first, and foremost, the financial services community must build trust with consumers. The means talking to them, not at them; engaging them on a personal level and understanding their day-to-day struggles.

Banks and credit unions also have to recognize they only hold one piece of the puzzle. By collaborating with other stakeholders across the financial services community, including nonprofits, community leaders and credit bureaus, banks and credit unions can provide consumers with a more comprehensive understanding of the different components of the financial system.

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Written By

Dr. Tim Sandle is Digital Journal's Editor-at-Large for science news. Tim specializes in science, technology, environmental, business, and health journalism. He is additionally a practising microbiologist; and an author. He is also interested in history, politics and current affairs.

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