Building Financial

Capability

J. Michael Collins & Leah Gjertson,

UW-Madison Center for Financial

Security

Peggy Olive, UW- Extension

September 2013

• Name, Agency

• 1 financial issue your clients face

Financial Capability Projects

6%9%

-14%

0%

-12%

-6%

32%

92%

-20%

0%

20%

40%

60%

80%

100%

Debt Level Bill collectors last 3 mos Downloaded Credit Report Have written budget

Comparison Program

Money $mart in

Head Start

• Community Response Program – parents

with unsubstantiated child abuse/neglect

cases offered financial information/support

• Pilot 2010 in La Crosse

• Expanded Fall 2011 in Milwaukee

Financial Capability Projects

Helping professionals play an essential role

in building an individual’s financial security.

Societal financial management challenges:

• Late 2000’s economic recession

• Culture of conspicuous consumption

• Complexity of financial products and services

• Rising cost of living

• Wealth inequality

• And more

Source: Gallup (2011). Accessed: http://www.marketingcharts.com/wp/wp-content/uploads/2011/07/gallup-current-financial-worries-jul11.gif

Challenges to talking about money:

• Past experiences

• Attitudes, moods, and emotions

• Culture

• Inherent tendencies/biases

• Personal values

• And more

Personal Values

Financial management has a time and place.

Let’s talk

about your

options…

Increasing financial security is not just

about financial literacy.

• What a person knows about positive money management

Knowledge

Financial Capability

• What a person does with their financial knowledge

• What a person knows about positive money management

Knowledge Action

Financial Capability

• Availability and use of appropriate financial products and services

• What a person does with their financial knowledge

• What a person knows about positive money management

Knowledge Action

Access

Financial Capability

• Availability and use of appropriate financial products and services

• Factors that contribute to beliefs, attitudes, and behaviors

• What a person does with their financial knowledge

• What a person knows about positive money management

Knowledge Action

AccessInfluences

Financial Capability

Financial Capability Worksheet

Spending & Bill Pay

• Unexpected• Irregular• Seasonal• Reduced

Income & Expenses can be…

The median checking account:

•Disclosure form = 111 pages

•Fees 49 different fees

•ChexSystems record limits access

•Overdraft penalty = $35

– $38 Billion in overdraft fees in 2011

Example: Checking Accounts

Example: Prepaid Debit Cards

• Often more transparent costs/fees – but vary

significantly by card

• Many allow direct deposit and bill pay

• Cannot overdraft

• ChexSystems record does not prevent

Overdue Bills & Borrowing

Debt & Credit Issues

• Action ASAP

• Prioritizing bills

• Different types of credit =

different consequences

Overwhelmed

Shut down

“What’s the use?”

Non-Traditional Financial Services

• Check Cashing

• Payday Loans

• Auto Title Loans

• Pawn Shops

• Rent-to-Own

• Subprime Car Financing “Buy Here, Pay Here”

• Subprime Credit Cards

• Tax Return Prep & RAL/RAC

• Credit Counseling & Repair

• Debt Consolidation & Management

Non-Traditional Financial Services

COACH Model

• Competencies

• Outcome

• Action

• CHecking

Financial Coaching

A tool for reaching financial goals

STEPS:

• Pick a specific financial goal

• Pick tasks to be completed

• Figure out when you want to

complete it

• Choose how/when you want to

check in on progress

Ways to Help People Change

Information and:

• Goal Setting & Action Planning

• Awareness

• Motivation

• Support

• Empowerment & Self

Confidence

• Practice

• Accountability

What do we know about

behavior change?

•Choice + behavior = important

factors related to financial capability

•Understanding psychology of

decision making + behavior allows

practitioners to adjust approach and

create context that builds financial

capability

Understanding our behavior:

• People tend to stick with current situation

• People are sensitive to hassle factors

• People usually choose immediate

gratification

• Making choices is difficult - More choices

makes people less able to choose

• People categorize and use money in

different ways

Goal-Setting

“I want to organize my financial

paperwork.”

1.What does “organizing papers” look like?

What needs to be done?

2. What could you do in the next 3-4 weeks

to make progress towards that goal?

3. Create an action plan: I will…

• History of borrowing & repaying money

– How much debt

– On time payments

At the individual level (not household or

couples)

What is a credit report?

Who cares about your

credit report?

• Creditors / Lenders

• Landlords

• Employers

• Utility Companies

• Insurance Companies

• Government Agencies

• YOU!

The Nature of Credit Data

• Privately owned

– But all of the data track individual behavior

• Each individual is responsible for accuracy

• Unusual market

– Relatively new, and many people not accustomed to idea of “checking” report

• Identifying information

• Credit accounts history

• Inquiries

• Public record information

• Optional consumer statement

• Directions to correct errors

What’s in your credit report?

• Criminal background

• Race, gender, religion, national

origin

• Medical information

• Buying habits / transaction data

• Bank account information

• Credit risk scores

What’s NOT in your credit report?

Checking Credit

• Only 42% of adults check report annually (FINRA,

2009)

• 15.9 out of 200+ million consumers use AnnualCreditReport.com annually (CFPB, 2012)

• 5% of records have errors that could have negative consequence (FTC, 2013)

Credit Report vs. Score

AnnualCreditReport.com does not provide a score

Score calculated using information in report

• Paying for a score generally unnecessary, but verify report accuracy

• Different scores exist

Paying for monitoring or a score is expensive, even if the first week or month is “free”

Credit Score Components Are All in the Report

The Free Credit Report

The Fair and Accurate Credit Transactions Act ("FACTA") of 2003 – access to reports

– process to dispute report items

AnnualCreditReport.com • Promoted by government agencies & credit bureaus

• Privately run by the Consumer Data Industry Association

• Each year: 1 credit report from each Bureau

• Equifax

• Experian

• TransUnion

of Imposter Sites

• Not “freecreditreport.com” or other

variations

• More information from the Federal

Trade Commission:http://www.consumer.ftc.gov/articles/015

5-free-credit-reports

1. If you pay attention, it will improve

2. Ensure accurate, complete, & up-to-date information

3. Guard against identity theft

Why should people check reports regularly?

Check Your Free Credit Report Campaign – “2/2, 6/6, & 10/10”

New campaign to encourage the use of AnnualCreditReport.com

“2/2, 6/6, 10/10” – One report every four months

fyi.uwex.edu/creditreport (Wisconsin Extension)

• Step-by-step instructions for obtaining & reviewing free credit reports

• Email alerts and calendar reminders

• Links and additional background information

• www.annualcreditreport.com

• By phone - 1-877-322-8228

• By mail (form needed)

Annual Credit Report Request ServiceP.O. Box 105281Atlanta, GA 30348-5281

Ways to Get Free Reports

Logging In• State of residence

• Past address if < 2 years

• Image with letters: e.g. “LGHA7Y”All CAPs

• Pick A Bureau

– Can only use each one once every 12 months

Request your free annual credit report.

It's QUICK, EASY and SECURE.

START HERE to view and print

your credit report now.

Fight identity theft by monitoring and reviewing your credit report. You may request your free

credit report online, request your report by phone or request your report through the mail. Free

credit reports requested online are viewable immediately upon authentication of identity. Free

credit reports requested by phone or mail will be processed within 15 days of receiving your

request.

This site is sponsored by:

This central site allows you

to request a free credit file

disclosure, commonly

called a credit report, once

every 12 months from

each of the nationwide

consumer credit reporting

companies: Equifax,

Experian and TransUnion.

AnnualCreditReport.co

m is the official site to

help consumers to

obtain their free credit

report.

We guard your

privacy.

Please be aware of how you

arrived at this site. To ensure that

you are visiting the legitimate

site,

typehttps://www.annualcreditrepo

rt.comdirectly into the address bar

on your browser. You will never

receive an email directly from the

Annual Credit Report Request

Service.

For

further

informati

on

please

read the

Security

Policy.

© 2013 Central Source LLC

Privacy PolicySite Use Security Policy

Verification

Your credit file indicates you may have a mortgage loan, opened in or around June 2009. Who is the credit provider for this account?

• HOMELAND FINANCIAL

• OLD KENT MORTGAGE

• SUNBELT NATIONAL MORTGAGE

• UNIVERSITY SYSTEM

• NONE OF THE ABOVE

What is your total scheduled monthly payment for the above-referenced mortgage?

• $2,425 - $2,524

• $2,525 - $2,624

• $2,625 - $2,724

• $2,725 - $2,824

• NONE OF THE ABOVEOK TO USE “NONE OF THE ABOVE”

Online Delivery Unavailable - Mail in Request

We're sorry, for your protection we are unable to deliver your Equifax Free Annual Credit Report online.

Request by Mail

To request your Free Equifax Credit Report by mail, please fill out the attached form (PDF file), along with the documents described below, and mail them to:

Annual Credit Report Request ServiceP.O. Box 105281Atlanta, GA 30348-5281

Please include with the attached form a copy of one item in EACH of the categories below in order to enable us to verify youridentification and address. The item you submit from the "Identity" category MUST contain your Social Security Number and the item you submit from the "Address" category MUST contain your current home mailing address.

IdentitySocial Security cardPay stub with Social Security NumberW2 form

AddressDriver's licenseRental or lease agreement/house deedPay stub with addressUtility bill (gas, electric, water, cable, residential telephone bills)

To ensure that your request is processed without delay, please enlarge photocopies of any items that contain small print (i.e. driver's license, W2 forms, etc.). To avoid additional delays, keep in mind that if photocopies you submit are not legible or contain highlighting, we may ask that you resubmit your request with more legible documents.

Your personal information is used solely for identification purposes and is not shared with anyone.

Experian: “Order”

• Up to 8 sections to review for accuracy

– Personal information

– Public records

– Potentially negative items

– Accounts in good standing (number, type, status, high credit, history)

– Optional consumer statement

– Hard inquiries

– Soft inquiries

– Directions to correct errors (generic)

What to Look For…

Reviewing A Report

Step #1: Check Personal Information

Personal information

Name: JOE Q. CONSUMEROther names: CONSUMER, JOSEPH Q.Report number: XXXXXXXReport date: July 4, 2009

SSN: XXX-XX-6789Date of birth: 04/1965Date of birth: 04/1965Telephone number(s): 555-1212

CURRENT ADDRESS:123 MAIN ST., NEW YORK, NY 12345

PREVIOUS ADDRESSES:17 BROOKLYN AVE., LONG ISLAND, NY 56789

EMPLOYMENT DATA REPORTEDEmployer name: CREDITCARDS.COMLocation: New York, NYDate reported: 06/2007

Employer name: UNIVERSITY OF TEXASLocation: TXDate reported: 08/2005

Position: PROGRAMMERHired: 05/2006

Position:Hired: 03/1999

#2 Public Records

• Are there Any Public Records Listed? (none is good, but don’t panic if there are listings)

Public records

ROCKWELL MUNICIPAL Docket#: 9B004875

5468 MLK AVE., SUITE 300, ROCKWELL, TX 97845

Type: Civil judgmentCourt type: MunicipalDate paid: 07/2004Assets: $1,089

Date filed: 12/2003Responsibility: Participant on accountPlaintiff: BANK OF TEXASPlaintiff attorney: RICHARD PERRYAmount: $1,089

Estimated date that this item will be removed 06/2011

#3 Negative Items• Adverse accounts (late pays, collections)

Adverse accounts, potentially negative items

COLLECTION RECOVERY SVC #321568

123 CHARLES ST.SUITE 202CORONA, CA 92877-0137(909) 898-4424

Balance: $0Date verified: 06/2003Original balance: $243Original creditor: SEARS ROEBUCKCredit limit: $500Past due: $0Terms: $72 for 23 months

Pay status: Payment after charge off/collectionAccount type: Installment accountResponsibility: Individual accountDate opened: 03/2000Date closed: 05/2003Date paid: 05/2003

Remarks: >Paid collection<Estimated date that this item will be removed: 08/2010

#4 Good Accounts

• In Good Standing (paid up)

Accounts in good standing, satisfactory accounts

GMAC FINANCING #640006137129

78901 JENKINS CIRFLOOR 15MIAMI, FL 33025Phone number not available

Balance: $1,145Date updated: 08/2004High balance: $31,546Collateral: 1998 Dodge Ram Credit limit: $24,568Past due: $0Terms: $72 for 23 months

Pay status: Pays as agreed Account type: Installment accountResponsibility: Individual accountDate opened: 11/1994Date closed: 07/2004Date paid: 07/2004

Loan type: AutomobileRemarks: Paid by insuranceEstimated date that this item will be removed: 12/2009

#5 InquiriesCredit history requests

CALTECH EMPLOYEE FCU

555 W. ADAMSSUITE 202LA CANADA, CA 91012(818) 555-1212

Requested on: 11/01/2003Inquiry type: Individual

Permissible purpose: Credit transaction

SUNSHINE APARTMENTS via RENTPORT

678 MARINE STREETSUITE 999LOS ANGELES, CA 90210(818) 555-1212

Requested on: 05/01/2004Inquiry type: IndividualLoan type: Real estateLoan amount: $90,000

Permissible purpose: Tenant screening

Other Items

• Check dates on judgments, legal proceedings

• Optional: Personal Statement

• Soft inquiries (only you see these)

• Dispute mistakes or outdated information

– (See directions at end of the report)

• Submit in writing with COPIES of related documentation

– If not resolved to your satisfaction, have the credit bureau add your version of the dispute to your file

• It will take time and effort (and patience)

What if there is an Error?

Fixing Errors

#1. Contact the bureau that provided the report, not AnnualCreditReport.com

• Report will contain instructions

• 30-45 day resolution period

#2. Contact the creditor that supplied the information

– Maintain a well-organized paper trail

Equifax – https://www.ai.equifax.com/CreditInvestigation/

Experian – http://www.experian.com/disputes/main.html

TransUnion – http://www.transunion.com/personal-credit/credit-

disputes/credit-disputes.page

Identity Theft

Security freeze – prevents access unless lifted

• Fee for setting, lifting, and ending (waived for ID theft)

• Can delay access to new credit

• Manage at all 3 bureaus separately

Fraud alert – free alternative to a freeze

• Triggers extra verification but does not block access

• Three types: initial, extended, and active duty

• Set up through 1 bureau, which contacts the other 2

Case Scenarios

Keep in mind:

• People don’t share everything

• Reinforce what people are doing well

• You can’t fix it

• Self-disclosure

• Confidentiality

• Legal boundaries

Reframing

Questioning

Challenging

Complimenting

Advice

Starting the conversation• Reactive vs. Proactive

• Time and place

• What is your agency already doing

that you can build on? OR

• Are there opportunities to start?

Money Management

Fact Sheets

fyi.uwex.edu/financialcapability