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Data Dive: The Financial Capability Scale & Financial Well Being Scale

Sindhi Polubothu | Assistant Director of Data Analytics and Evaluation | The Financial Clinic

Data Dives:

In each Data Dive, we will analyze a different topic utilizing data collected from our financial coaching platform Change Machine. Change Machine combines our coaching blueprint, outcomes framework, content guides, customer engagement tools, specialized content for at-risk populations, and active community forum under one roof and make them accessible to programs working with individuals and families on their finances. The platform is utilized by hundreds of direct services practitioners across the United States serving over 55,000 customers as of 2019.

Financial Scales Overview:

This Data Dive will look into insights based on data we have collected from the Financial Capability Scale and the Financial Well Being Scale. At the Clinic, the financial coaches and practitioners on our financial coaching platform Change Machine utilize standard scales to measure the financial capability and well-being of their customers. The average customer that comes to see a financial coach in our dataset has the following characteristics:

  • Initial median income of $20,800
  • Initial median debt balance of $6,452
  • Initial median credit score of 601
  • Initial median liquid asset balance of $0
  • 89% identified as non-white
  • 67% identified as female
  • 57% had a highest education achieved of high school GED or less

The Financial Capability Scale was developed by the Center for Financial Security and measures one’s knowledge, skills, and ability to manage financial resources effectively. The Financial Capability Scale consists of 6 questions and an 8 point score scale. At The Financial Clinic, we collected the initial Financial Capability score of 29,015 customers that were seen by our practitioners as seen in the interactive histogram chart below. The average score for our customers is 3.6 which based on the Financial Capability score guide is between a low to moderate score. Interpreting Financial Capability levels based on the results of the scale can be done by using the following cutoffs (1) 0-3 points: Low financial capability, (2) 4-5 points: Moderate financial capability, (3) 6-8 points: High financial capability.

The Financial Well-Being Scale was developed by the Consumer Financial Protection Bureau and measures one’s ability to meet current and future financial obligations as well as if one feels financially secure and can make choices that allow them to enjoy life. The Financial Well-Being Scale used by the Clinic is an abbreviated version which consists of 5 questions and a 20 point score scale. We collected the initial Financial Well-Being score of 2,513 customers that were seen by our practitioners in our system Change Machine. The average score for our customers is 9.1 which is slightly below the mid-point of the abbreviated scale. Per the CFPB Financial Well-being user guide “A higher score indicates a higher level of measured financial well-being, but there is not a specific cut-off for a “good” or “bad” financial well-being score. Unlike credit scores, for example, which are often discussed as a series of ranges (such as 600-650, 650-700, and so on), the CFPB Financial Well-Being Scale scores have not been around long enough for research to have established meaningful ranges for different “levels” of scores.”

Characteristics that Impact Initial Score

Unsurprisingly, we found that people with higher initial incomes and credit scores are more likely to have higher initial scores on both scales. This finding was statistically significant.

An interesting characteristic that had a statistically significant impact on both initial financial scale scores was gender. We found that those who identify as female or transgender had lower initial Financial Capability scores than those who identify as male. We also found females have a lower Financial Well-Being score, and note we did not have any transgender customers who took the Financial Well-Being test. These findings can suggest that those that identify as female or transgender are less financially secure than men and also may mentally feel less financially secure than men. See below for interactive boxplots of initial score distributions by gender.

Impact of Financial Coaching on Financial Well-Being and Financial Capability Scores

To understand the impact of financial coaching on each financial scale score, we filtered the data for customers that had at least two survey records and compared the initial survey score to the final survey score. We found a positive increase in median score for both the Financial Well-Being and Financial Capability Scores post financial coaching as seen in the charts below.

Conclusion

Financial Scales can be helpful tools for financial services practitioners and financial programs to evaluate their customers and impact. Additionally, they can help us understand overall trends and patterns about people’s relationship with their finances. We encourage other programs to implement the Financial Capability Scale and Financial Well-Being Scale into their data collection processes and to compare trends to the ones we have found.

Change Machine: Built for ‘Transformative Scale’

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Stanford Social Innovation Review: Informing and Inspiring Leaders of Social Change

The last few weeks of 2014 abound in top trends: Best books, most Google hits, favorite movies.

I have a few “best of the year” observations, but a singular article stands heads and shoulders among all my reading for the year, “Transformative Scale: The Future of Growing What Works” by Jeffrey Bradach and Abe Grindle, published in the Stanford Social Innovation Review. Not only does it confirm the validity of the $900,000 investment The Financial Clinic has made to scale its mission and accomplishments, but affirms our investor’s expectations, like The Prudential Foundation’s recent $500,000 grant to promote financial security outcomes for neighborhoods across the country.

The subject of these investments is the Clinic’s Change Machine, cloud-based platform that enables nonprofit organizations and public agencies to incorporate powerful financial coaching strategies into their programs.

Bradach and Grindle put forth “nine strategies for transformative scale” that are so illustrative of what we’ve set out to accomplish with Change Machine that it’s worth reviewing each point, grouped into internal and external themes:

“Organizational pathways: Building on and expanding what individual organizations can do”
Change Machine combines the Clinic’s financial coaching blue print, outcomes framework, content guides, customer engagement tools, specialized content for at-risk populations, and active community forum under one roof and makes them accessible to programs working with individuals and families on their finances. All of these resources advance an organization’s capacity to embed financial development services into its program and consistently measure its performance, reaping enormous benefits from its investment.

1. “Distribute though existing platforms”: Bradach and Grindle observe that successfully scaled solutions “hitch a ride” to existing systems. The Clinic’s theory of change is premised on the hard reality that all the communities social service providers seek to support experience underlying financially insecurity. Whether its job seekers stymied by credit checks or formerly incarcerated individuals overwhelmed by debt, the Clinic has yet to encounter a system that can’t benefit from greater financial security.

2. “Recruit (and train) others to deliver the solution”: Since 2006, the Clinic has been training case managers and social workers on the front lines of anti-poverty efforts. After building the capacity of over 1,600 practitioners in 260 organizations across 19 states, we’ve honed a set of strategies and tools that enables practitioners across diverse sectors to build their own participants’ financial security. This early success inspired us to cast Change Machine’s goal as reaching all 1.8 million practitioners
in the country to work to alleviate poverty.

3. “Unbundle and scale up the parts that have the greatest impact”: While the Clinic defines its mission as a combination of its six outcomes around assets, banking, credit, debt, taxes and financial goals, a critical turning point in our evolution was decoupling these activities to focus on the specific participants’ barriers. Unlocking identity theft for domestic violence survivors or building credit histories for individuals seeking to own homes allows us to zero in on the most relevant and impactful aspects of financial security.

4. “Use technology to reach a large audience”: The Clinic didn’t need to spend untold hours printing ToolKits or spend outrageous sums on shipping to appreciate how powerful a cloud-based platform could be. Instead, we honed in on how technology facilitates access to new audiences. Scores of programs and practitioners have sought the Clinic’s training and technical assistance, but don’t have the same resources as many larger organizations and networks. Enabling technology can radically reduce costs, thus Change Machine allows us to better meet the market demand and unlock interest among vast new audiences.

“Field-building Pathways: Pushing the field and its constellation of actors towards a shared target”: Bradach and Grindle argue that to be truly transformative, strategies must also bring together disparate actors to advance the field in concert. This reflects the Clinic’s distinction between its mission and vision. While our day-to-day is all about building financial security one milestone and outcome at a time, our vision is to transform those on-the-ground lessons into large-scale, system-level solutions and social innovations that will have an impact on working poor people nationwide.

5. “Don’t just build organizations and programs, strengthen a field”: Throughout its history, the Clinic has consistently applied a systemic-change lens to its programs and services. It’s why we were eager to participate in the Consumer Finance Protection Bureau’s randomized control trial assessing the impact of financial education and coaching. The evidence base created though the study will be key to establishing new “best practice” standards to lead the field, build the case for additional resources and investments, and expanding financial security for working poor Americans. Change Machine is a dissemination tool well-positioned to take the lessons we are learning and share them with the field. For example, during the study we have learned more about customer outreach and retention, and those observations were immediately translated into practitioner tools now featured in Change Machine.

6. “Change public systems”: Systemic change can also be reflected in new strategies for public systems. Bradach and Grindle put forth “a simple truth: the path to transformative scale in sprawling public systems requires changing the systems themselves.” The Clinic illustrated this in a partnership with New York City’s Human Resources Administration Emergency Intervention Services in identifying financial obstacles among domestic violence survivors seeking support, and then knitting solutions into the fabric of existing services. As a result, HRA-EIS’s contracts with service providers prominently feature financial security activities
as a core component of the services delivered at community-based domestic violence programs.

7. “Embrace the need for policy change”: A driving impetus for building Change Machine has been the promise to drive policy change. Already Change Machine is generating “big data” –an unprecedented body of information about working poor people’s financial security and the steps required to achieve their financial goals. We are eager to engage researchers and policy makers to analyze the data for policy and advocacy efforts.

8. “Don’t ignore for-profit models for scale”: Change Machine must be a viable business in order to be sustainable. The Clinic will learn a lot over the next year as Change Machine comes to market, and it is likely that we will modify the business model as a result, but like all widgets, its long-term success will depend on practitioners finding and paying for its value.

9. “Alter people’s attitudes, beliefs, and behaviors”: Here, Bradach and Grindle point to the very essence of financial coaching. At the core of coaching is to emphasize people’s strengths and hold them accountable to their goals, which is what makes this intervention so powerful. So powerful, in fact, that in training, practitioners typically apply their new skills and tools to themselves and their families first. In doing so, they become advocates for the very capacity we are looking to build and the systems we are seeking to change.

As if the preceding themes weren’t enough, the Clinic knows Change Machine will achieve transformative scale because it was built by practitioners, for practitioners. The platform is fundamentally a solution created locally to resolve the financial insecurity among the communities we care so deeply about. As such, Change Machine will transform the lessons the Clinic has learned on the ground into large-scale, system-level solutions.