Financial Health Check
Sendhil Mullainathan, Harvard
Antoinette Schoar
Schoar, MIT Sloan
Piyush Tantia, ideas42
Carter Powers, ideas42 (Project Manager)
November 19, 2010
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http://www.ideas42.org
id
42
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1
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Self-control is hard
2
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People have limited attention
3
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Financial Health Check (FHC)
 1 hour in-person session with financial coach
– W
Workk with
ith credit
dit union
i iin P
Portland
tl d
– Session is voluntary and free
– Go over monthly budget and set savings and debt reduction
targets
 What are the treatments?
– Automatic transfers to build savings, reduce debt (self control)
– Automatic bill pay to reduce “leakage” of high fees (limited
attention)
– Set savings goals (self commitment)
– Email and SMS reminders as a fall-back option (both)
4
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Objectives of FHC
 Does FHC have lasting impact on household finances?
– Does better financial management free up resources and reduce
debt levels or do clients just increase spending?
 Who (self) selects into treatment?
– Do financially more fragile clients come for a health check or do
only conscientious (and stable) clients seek out service?
 Can FHC be sustainably provided by a financial service
firm or credit union?
– Does improvement in client finances decrease credit risk for bank
or allow for provision of additional services?
– Is it a screening device to find good clients?
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Ongoing pilot: Outreach
 People are interested in FHC but scheduling
meeting is difficult
–
–
–
–
–
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13,577 letters: ~1.5% response rate
1 202 calls: ~3
1,202
~3.5%
5% response rate
10%+ response rate among those reached
111 sessions scheduled for randomly selected 50%
83 sessions completed to date (25% no-show rate)
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Positive (self) selection
 Customers who sign up for FHC have lower credit
scores and greater credit usage
30%
25%
Credit Score Responder vs. Non‐Responders Distributsion at time of FHC solicitation
Non‐Responder Freq (N = 6,256)
Freque
ency
20%
Responder Freq
(N = 151)
Responder Non‐Responder
Responder
Non Responder Mean
Mean
15%
10%
5%
0%
450 470 490 510 530 550 570 590 610 630 650 670 690 710 730 750 770 790 810+
Credit Score
7
*Credit scores as of are only available for members with existing credit products at the
credit union
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Continuing Work
 Additional FHC sessions are currently implemented
 Data
D t on future
f t
financial
fi
i l ttrajectory
j t
off FHC participants
ti i
t
 Credit bureau data
 Testing
T ti other
th outreach
t
h channels
h
l
8