Center for Financial Security Quarterly Newsletter

CFS Quarterly Vol. 2 Issue 1    

January 2012 

The mission of the Center for Financial Security is to conduct applied multidisciplinary research that informs practitioners, policymakers and the general public on strategies that build financial capacity and security over the life course.

The New York City Office of Financial Empowerment (OFE) and the Center for Financial Security (CFS) are partnering to assess the impact of financial counseling on the bank account use and financial stability of individuals offered safe checking accounts as part of a transitional employment program. Access to banking products is an important element of financial health. Providing unbanked individuals with affordable, accessible, and sustainable banking products is one way to help them overcome barriers to banking. However, it is also important for individuals to have the knowledge and capacity to use their accounts, and counseling may provide needed education and assistance.

The pilot program will engage participants of the New York City Parks Opportunity Program (POP), one of the country's longest-running transitional employment programs. POP participants gain work experience in New York City parks and recreation centers. They learn transferable skills in maintenance, security, horticulture, administration, and customer service while receiving employment services, career counseling, education and vocational training.

POP participants represent a highly unbanked population. During the pilot, participants will be offered free, low-risk checking accounts with direct deposit of their City paychecks. Half of the participants will also be randomly assigned to financial counseling as part of the program. Counseling will be provided by NYC's Financial Empowerment Centers, whose counselors are trained to help clients individually on a range of financial needs, such as money management, budgeting, selecting safe and affordable financial products, and credit and debt management. For the purposes of this research, counselors will emphasize responsible account use in their counseling sessions.

The study will assess the effects of counseling combined with account access on (1) the beneficial use of a checking account by program participants and (2) the general financial well-being of participants. Outcomes will be measured for up to two years using a combination of administrative and self-reported data from bank records, credit reports, and surveys.

Findings from the research pilot will inform the development of future programs and initiatives that facilitate financial access and improve financial well-being of underserved, low-income adult populations. The study is funded by the U.S. Department of the Treasury and supported by the Corporation for Enterprise Development. 

Incentivizing Timely Payments for Subprime Auto Loans

The LIFT (Lower Interest for Timeliness) project targets the growing population of low-to-moderate income borrowers with subprime credit with the goal of improving financial capacity by rewarding timely payments on automobile loans. Eligible borrowers at six credit union sites across the US will receive a reduction in the interest rate on their loan each time they make three consecutive on-time payments.

LIFT has the potential to improve payment behavior by focusing the borrower's limited attention on paying the auto loan payment and other bills due each month. Timely payments allow borrowers with impaired credit ratings to achieve improved credit. 

This study is being lead by CFS Affiliates Justin Sydnor and J. Michael Collins, with Leah Gjertson.  The project was developed by the Filene Research Institute and is funded by the Center for Financial Services Innovation as part of its Financial Capability Innovation Fund.

The LIFT project "lifted-off" at a November event with guest speaker and astronaut Janet Kavandi, director of flight crew operations at the Johnson Space Center.  See the full story in the Credit Union Times.

The Center for Financial Security recently launched a project aimed at developing a small set of standardized outcome measures for the financial coaching field. 

The project's overall goal is to finalize a set of 10 to 15 measures that are practical to collect and that have been statistically validated. Over the next year, the Center will work with four financial coaching organizations across the country to collect data on a standardized set of client outcomes. The Center is currently finalizing the selection of the four organizations. 

This project is funded by the Annie E. Casey Foundation. For more information email fincoaching@mail.sohe.wisc.edu

The Center for Financial Security recently launched its Financial Security Index, which asks users a series of questions across three categories: knowledge, behavior, and attitudes.

The Index is designed to help respondents identify their financial management strengths, along with areas where they may be able to improve. Respondents receive an individualized score and can see how their score breaks down across the three categories. Respondents can also enter some personal information (no personally identifiable information is collected) to see how their scores compare to others like them. This project was funded by the Annie E. Casey Foundation as part of the Center's work on outcome measures.  For more information or to provide feedback on the Index, email fincoaching@mail.sohe.wisc.edu.   

In December 2011, the New York City Department of Consumer Affairs' Office of Financial Empowerment (OFE) released a report outlining where they see early signs of an innovation that may help break apart the "perfect storm" of tough economic times:  increasing need for social services, dwindling government resources, and public pressure for solutions. 

In "Municipal Financial Empowerment: A Supervitamin for Public Programs," OFE highlights a thread that is common to many clients who participate in social services programs: financial instability. OFE deposits that integrating professional, one-on-one financial counseling into traditional social service programs they already receive might not only achieve better and longer-lasting outcomes, but quicker ones that would lead to lower program costs.   

More information on the report is available at huffingtonpost.com and wsj.com.  

The Office of Financial Empowerment partnered with CFS on the FLRC project Impact of Financial Counseling on Financial Stability and is a current research partner on the Assessing Financial Capability Outcomes adult pilot.  

Justin Sydnor is an Assistant Professor in the Actuarial Science, Risk Management and Insurance Program in the School of Business at the University of Wisconsin-Madison.  Justin is an applied microeconomist specializing in behavioral economics and his eclectic interests include the study of risk aversion and insurance choices, discrimination, and issues surrounding self-control and commitment.  Justin's research is widely-published in journals such as American Economic Journal:  Economic Policy, Journal of Human Resources, and Journal of Economic Perspectives.   

Justin is currently a co-PI on the CFS LIFT project and will present payday lending research as part of the February 2012 Family Financial Security Webinar.   

Justin received his PhD in Economics at the University of California, Berkley and his B.A. in Economics and German at the University of Wisconsin-Madison. 

CFS Faculty Director J. Michael Collins has been named to the Wisconsin Governor's Council on Financial Literacy.