Sindhi Polubothu | Assistant Director of Data Analytics and Evaluation
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.
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.