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Building Financial
Capability
J. Michael Collins & Leah Gjertson,
UW-Madison Center for Financial
Security
Peggy Olive, UW- Extension
September 2013
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• Name, Agency
• 1 financial issue your clients face
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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
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• 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
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Helping professionals play an essential role
in building an individual’s financial security.
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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
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Source: Gallup (2011). Accessed: http://www.marketingcharts.com/wp/wp-content/uploads/2011/07/gallup-current-financial-worries-jul11.gif
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Challenges to talking about money:
• Past experiences
• Attitudes, moods, and emotions
• Culture
• Inherent tendencies/biases
• Personal values
• And more
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Personal Values
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Financial management has a time and place.
Let’s talk
about your
options…
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Increasing financial security is not just
about financial literacy.
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• What a person knows about positive money management
Knowledge
Financial Capability
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• What a person does with their financial knowledge
• What a person knows about positive money management
Knowledge Action
Financial Capability
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• 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
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• 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
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Financial Capability Worksheet
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Spending & Bill Pay
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• Unexpected• Irregular• Seasonal• Reduced
Income & Expenses can be…
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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
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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
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Overdue Bills & Borrowing
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Debt & Credit Issues
• Action ASAP
• Prioritizing bills
• Different types of credit =
different consequences
Overwhelmed
Shut down
“What’s the use?”
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Non-Traditional Financial Services
• Check Cashing
• Payday Loans
• Auto Title Loans
• Pawn Shops
• Rent-to-Own
• Subprime Car Financing “Buy Here, Pay Here”
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• Subprime Credit Cards
• Tax Return Prep & RAL/RAC
• Credit Counseling & Repair
• Debt Consolidation & Management
Non-Traditional Financial Services
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COACH Model
• Competencies
• Outcome
• Action
• CHecking
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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
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Ways to Help People Change
Information and:
• Goal Setting & Action Planning
• Awareness
• Motivation
• Support
• Empowerment & Self
Confidence
• Practice
• Accountability
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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
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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
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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…
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• History of borrowing & repaying money
– How much debt
– On time payments
At the individual level (not household or
couples)
What is a credit report?
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Who cares about your
credit report?
• Creditors / Lenders
• Landlords
• Employers
• Utility Companies
• Insurance Companies
• Government Agencies
• YOU!
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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
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• Identifying information
• Credit accounts history
• Inquiries
• Public record information
• Optional consumer statement
• Directions to correct errors
What’s in your credit report?
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• 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?
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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)
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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”
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Credit Score Components Are All in the Report
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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
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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
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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?
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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
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• 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
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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
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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”
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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.
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Experian: “Order”
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• 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…
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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
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#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
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#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
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#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
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#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
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Other Items
• Check dates on judgments, legal proceedings
• Optional: Personal Statement
• Soft inquiries (only you see these)
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• 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?
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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
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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
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Case Scenarios
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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
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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?
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Money Management
Fact Sheets
fyi.uwex.edu/financialcapability