DEFINING FINANCIAL WELL-BEING

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DEFINING FINANCIAL WELL-BEING

APRIL 2015

NATIONAL DISABILITY INSTITUTE

WASHINGTON, DC

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Moderator/Presenter

Michael R. Roush, MA

Director, Real Economic Impact

Network

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National Disability Institute

A national research and development

organization with the mission to promote

income preservation and asset development for

persons with disabilities and to build a better

economic future for Americans with disabilities.

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NDI’s Real Economic Impact Network

• An alliance of organizations & individuals dedicated to advancing

the economic empowerment of people with disabilities.

• Consists of more than 4,500 members located throughout the

United States.

• Includes non-profits, community tax coalitions, asset

development organizations, financial education initiatives,

corporations & private-sector businesses, federal/state/local

governments & agencies, and individuals & families with

disabilities.

• All partners join forces to embrace, promote & pursue access to

& inclusion of people with disabilities in the economic

mainstream.

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Today’s Agenda

• Overview of Consumer Financial Protection Bureau

(CFPB) and resources/tools available

• Overview of financial well-being

• Highlights of CFPB’s report titled “Financial well-being:

The goal of financial education”

• Highlights of CFPB’s report titled “Consumer Voices on

Credit Reports and Scores”

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Presenter

Irene Skricki

Senior Financial Education

Program Analyst

Office of Financial Education

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Consumer Financial Protection Bureau

Financial well-being and consumer credit reports

presentation

Webinar for the National Disability Institute April 8, 2015

Irene Skricki

Senior Financial Education Program Analyst Office of Financial Education

This presentation is being made by a Consumer Financial Protection Bureau representative on behalf of the Bureau. It does not constitute legal

interpretation, guidance or advice of the Consumer Financial Protection

Bureau. Any opinions or views stated by the presenter are the presenter’s own and may not represent the Bureau’s views.

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The Consumer Financial Protection Bureau

The CFPB helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by

empowering consumers to take more control over their economic lives.

Educate

An informed consumer is the first line of defense against abusive practices.

Enforce

We supervise banks, credit unions, and other financial companies, and we enforce federal consumer financial laws

Study

We gather and analyze available information to better understand

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Office of Financial Education within CEE

Con

sum

er

Ed

uc

ation

an

d

En

gag

ement

Consumer

Engagement

Special Population

Offices

Financial

Empowerment

Servicemember

Affairs

Older Americans

Students

Financial Education

OFE Mission: Educate and empower consumers to make better

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Office of Financial Education (OFE)

Promote more effective financial education for more

consumers through trusted sources.

Support and strengthen channels for delivering financial education to consumers.

Encourage consumers to ask, plan and act and support them with tools to do so.

Undertake foundational research to

improve the impact of financial education and identify elements of effective practices.

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Tools and Resources

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Owning a Home

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Paying for College

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Submit a complaint

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CFPB Community Education Project

Goal: Making libraries the go-to resource

for financial education in every community

National Partners:

 Institute of Museum and Library Services

 American Library Association

 Public Library Association  Reference and User Services

Association

 FINRA Investor Education Foundation

 USDA Cooperative Extension Service

 Money Smart Week by the Federal Reserve Bank of Chicago

 Federal Deposit Insurance Corp.

 Federal Trade Commission

Over 1700 library branches nationwide are involved to date

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Your Money, Your Goals

• Training enhances confidence about

discussing finances with clients

• Training provides clear examples of

effective communication techniques

• Modular toolkit is user-friendly with

plain language text

• Available for download in English and

Spanish

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Issues facing older Americans

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

Managing Someone

Else’s Money

Guides



Reverse Mortgage

Guide



Senior Designations

Guide



Protecting

Residents from

Financial

Exploitation



Money Smart for

Older Americans

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Tell your story

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CFPB Financial Education Discussion Group on LinkedIn

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• Consumer behaviors, motivations, perceptions, and attitudes,

including the challenges facing consumers in the financial products and services marketplace

Understanding Consumers

• What financial education practices are effective in educating and

empowering consumers to make well-informed financial decisions and improve their financial well-being

Understanding Effective Practices

• The landscape of the financial education field and the successes and challenges of financial education practitioners

Understanding the Financial Education Field

OFE’s Research Agenda

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Understanding Financial Well-Being

Project Contribution



A way to quantify the ultimate goal of financial education

strategies



Growing consensus that individual financial well-being is the

ultimate goal of financial literacy

Project Goals



Define financial well-being from the consumer perspective



Research the key knowledge, skills, attitudes and behaviors that

contribute to individual financial well-being

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Methodology

Worked with a team of expert researchers to:



Review and synthesize literature from multiple fields



Conduct in depth 1:1 qualitative interviews with diverse group of

consumers - both working age and older - and financial

professionals

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What financial well-being is

Summary: Financial well-being is a state of being wherein a

person can fully meet current and ongoing financial obligations,

can feel secure in their financial future, and is able to make

choices that allow enjoyment of life.

Elements of financial well-being:



Having control over day-to-day, month-to-month finances



Having the capability to absorb a financial shock



Being on track to meet financial goals, and



Having the financial freedom to make choices that allow one

to enjoy life

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The four elements of financial well-being

Security

Freedom of

choice

Present

Future

Control over your day-to-day, month-to-month finances

Capacity to absorb a financial shock

On track to meet your financial goals

Financial freedom to make choices to enjoy life

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What influences financial well-being

33 Social and economic environment What surrounds you in your family and community.

Personality and attitudes

How you tend to think, feel, and act.

Decision context How a particular decision is presented. Knowledge and skills

What you know, and what you know

how to do. Personal financial _well-being How satisfied you are with your financial situation.

Behavior

What you actually do.

Available opportunities

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Research led to hypotheses in three areas

Social and economic environment

What surrounds you in your family and community. Decision context How a particular decision is presented. Personal financial well-being

How satisfied you are with your financial situation.

Available opportunities

What options are open to you.

Behavior

Knowledge and skills

What you know, and what you know how to do.

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Hypotheses: Financial behaviors

Four behaviors support financial well-being:



Effective routine money management



Financial research and knowledge-seeking



Financial planning and goal-setting



Following through on financial decisions

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Behavior

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Hypotheses: Financial knowledge



Existing literature suggests that:



Factual knowledge in and of itself is not sufficient to drive

behavior or behavior change



The link between knowledge and behavior is mediated by

attitudes, personality, and decision context



Our primary hypothesis is that:



The type of knowledge most likely to support – or predict

financial behaviors supportive of – financial well-being is

a set of skills we call “financial ability”

Knowledge and skills

What you know, and what you know how to do.

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Financial ability is an influential part of financial

knowledge

What is financial ability?



Knowing when and how to find reliable information to make

a financial decision;



Knowing how to process financial information to make sound

financial decisions; and



Knowing how to execute financial decisions, adapting as

necessary to stay on track.

What influences it?



Upbringing, social context, personal networks, personal

observation and experience, education

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Hypotheses: Personal traits



Internal frame of reference

 Comparing yourself to your own standards, not to others



Perseverance

 Being highly motived to stay on track in the face of obstacles



Executive functioning

 Having a tendency to plan for the future, control impulses, and think

creatively to address unexpected challenges



Financial self-efficacy

 Believing in your ability to influence your financial outcomes

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Concluding Thoughts



This research is a foundation

 Developing measurement tools  Extending to youth

 Hypothesis testing



Novel contributions of this project are:

 Consumer-derived definition of financial well-being

 Testable hypotheses about the personal traits that support positive

financial behaviors

 A concept of “financial ability” to further explore the skill component of

financial literacy

 An overall framework for financial well-being that brings together

many existing threads of research, policy and practice

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Listening to Consumer Voices on Credit Reports

and Scores

Our goals:

 Help consumers make well-informed financial decisions and achieve their own financial goals

 Understand what consumers know and how they think about financial issues

 Listen to consumers to inform our financial education

initiatives

What we did:

 We listened to consumers talk, in their own voices, about their experiences with credit reports and scores.

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Why Do Credit Reports Matter?



Consumers who view their credit reports can identify and correct

errors in a credit file

.



Consumers with accurate perceptions of their credit standing may be

better equipped to access credit, or shop for favorable credit terms.



Consumers who check their credit reports have access to information

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What We Did: Methodology

 In May and June 2014, we conducted a series of focus groups with a total of 308 consumers

 In 4 regions: Atlanta, Boston, Saint Louis, Seattle

 We heard about consumer attitudes, perceptions, motivations, actions around credit reports and scores

 This gave us qualitative insights into a broad range of consumer thinking, but it was not a representative sample

 Since we screened for experience with financial products/decisions,

participants were generally more credit-active and had more knowledge of the credit reporting system than the general population

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Areas of some consumer knowledge

 High levels of awareness, interest, and concern

 Credit history affects access to credit, cost of credit, other issues

 Multiple bureaus and multiple scores

 Financial behavior impacts scores

 Some events “fall off” the credit report over time

Areas of some consumer confusion

 Difficult to disentangle credit reports and credit scores

 Puzzled by the differences in information across their various reports

 Uncertain how to access free credit reports

 Uncertain if accessing free report will impact scores

 Felt that scores were not within their control

What We Heard: Knowledge and Confusion

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How Did Consumers Check?

 Online, proactively accessed through AnnualCreditReport.com or other

sites

 Some consumers were uncertain which site offered free credit reports

 On a credit card statement, or online from their financial institution

 Some had questions about what actions to take once they had seen their scores

 Other ways, such as a credit monitoring service, as a result of a data

security breach, by lenders, or after being denied credit

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What We Heard: Difficulty Obtaining and

Understanding Credit Reports

 Consumers were uncomfortable with, or had difficulty

navigating, the security questions on AnnualCreditReport.com

 They were unsure if requesting copies of their credit reports could negatively affect their credit scores

 Many consumers felt overwhelmed when looking at their credit report

 Some consumers said that they were confused because they did not recognize the names of financial institutions on their credit report Obtaining credit reports/scores Understanding credit reports/scores

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What We Heard: Consumer Use of Credit Report/Score

Information

 Many consumers seemed to have a binary sense of credit scores: people with high credit scores received favorable offers, while all other received high-cost offers

 As a result, consumers were discouraged about value of incremental improvements

in credit scores

 Many consumers said they were not sure how to improve their scores

 Consumers rarely reported trying to use their credit reports/scores to negotiate around credit access or cost

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Consumer Credit-Checking Patterns

 Don’t see the need  Fear the process  Avoiding the pain

.

 Motivated by fraud or error  Gauging their progress

 Don’t need to now  Expecting no change  Tried it and didn’t like it

Active Checkers Former Checkers Non-Checkers Passive

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Implications of the Focus Groups

Help people take action

 Open Credit Score Initiative provides an opportunity to engage

consumers

 Consumers may be motivated to learn more, check their credit

report, and take action

Make it easier to check

 Consumers feel that credit reports are “hard to get, hard to read”  Efforts by credit reporting agencies could make it easier for

consumers to access and interpret their reports

Provide targeted financial education

 Design financial education to meet consumers where they are  Different messages or resources for different segments

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AMERICAN DREAM EMPLOYMENT

NETWORK (ADEN)

• Authorized national administrative employment network under the Social Security Administration Ticket to Work Program

• Administrative duties performed by NDI Ticket experts, employment services delivered by qualified service providers across the country

• Individuals receiving Social Security disability benefits age 18-64 who want to join the workforce can participate

• ADEN core services: job support and placement, work incentives counseling, financial wellness resources, and long-term employment supports.

• Partnerships with champion employers who strive for diverse workforce and hire individuals with disabilities

DEFINING FINANCIAL WELL-BEING