Financially Distressed Credit Counseling Clients and the InCharge Financial Distress Scale

1. Financially Distressed Credit Counseling Clients and the InCharge Financial Distress Scale Benoit Sorhaindo, InCharge Education Foundation E. Thomas Garman, Professor Emeritus, Virginia Tech University William Bailey, University of Arkansas Jinhee Kim, University of Maryland Jing Xiao, University of Rhode Island Presented to the Annual Meeting of the Eastern Family Economics and Resource Management Association Tampa, Florida February 27, 2004

2. Overall Well-beingand Financial Well-being • Personal finances is a key domain of overall well-being (Campbell, 1981; Larsen, Muxen, and Wilson, 1989) • A key component of psychological well-being is economic situation(Grasmick, 1992) • Economic distress is a good predictor of well-being(Blumstein and Swartz, 1983; Pittman and Lloyd, 1988) • Personal finances have been linked to health(Bagwell, 2000; Drentea &Lavrakas, 2000; Sorhaindo and Garman, 2002)

3. Financially Distressed Consumers 9 millions consumers contacted credit counseling organizations (2003). Credit counseling and debt management are popular strategies to address consumer debt problems. In fiscal year ending Sep 2003, 1.6 mil filed for personal bankruptcy, up 7.4% from prior year. Anecdotal evidence exists suggesting credit counseling is effective.

4. Research on Credit Counseling • Credit counseling clients experience a high degree of stress about financial matters (Garman, Camp, Kim, Bagwell, Redican & Baffi, 1999). • Credit counseling clients instituted positive financial behaviors after one year(Bagwell, 2000), (Sorhaindo and Garman, 2002). • Credit counseling session (without debt management plan) affected later credit use and payment behavior in positive ways(Staten, Elliehasen, & Lundquist, 2002).

5. Research on Credit Counseling (cont.) • Research on the effectiveness of a debt management plan (DMP) on financial stressors, behaviors and perceived financial well-being (Sorhaindo, Garman and Kim,2003).

6. Study Objectives • In general, we want to learn more about credit counseling clients • Specifically: • Test hypotheses relating financial well-being, financial behaviors, work life, family life, and health using 2003 data. • Use 2000 dataset to help develop the beta version of InCharge FDS.

7. Methodology • Questionnaires were mailed to financially distressed clients of a national non-profit credit counseling organization. • Clients joined program between Feb and Apr 2003 • In June 2003 a sample of 7,200 received a 32-item questionnaire • 316 questionnaires were undeliverable. • 2,781 returns were usable. • 40.4 usable response rate (n=6,882)

8. Factors Associated WithFinancial Behaviors and the Effects of Financial Behaviors on Financial Stress and SatisfactionJing Xiao, University of Rhode Island

9. Research Findings Financial Well-being Behaviors Stressors Demograhics and Financials

10. Measures • Financial behaviors - Nine items with each constituting a positive accomplishment (e.g. “followed budget,” “reduced debts,” “developed a plan for my financial future”). • Perceived financial stress - Financial stress today with (1) overwhelming, (2) severe, (3) moderate, (4) low, (5) none • Financial satisfaction - Single self-anchoring 10-stair step question • Financial stressor events - Twelve signals and symptoms of financial distress (e.g. “received overdue notice from creditor,” “paid credit card bill late”) • Work time use – Eight items about hours spent at work attending to personal financial matters • Work conflict – Single question about whether personal financial concerns interfered with work.

11. Financial Behaviors • Three most frequently reported: • reduced some of my personal debts • cut down on living expenses • followed a budget or spending plan • Three least frequently reported: • contacted a financial planner • participated in and contributed money to pre-tax dependent care or health care program • tried to determine how much I will need to live comfortably in retirement.

12. Financial Behaviors • Most reported 3 to 6 financial behaviors • Higher number of financial behaviors if consumer • had a part-time job (versus being unemployed) • were older • felt more secure about their retirement • had better family relationships • had a higher overall score on self-evaluation of financial behaviors

13. Financial Behaviors • Higher number of financial behaviors if consumer • supported two or more family members (versus singles) • were younger • had a higher balance of credit card debt • felt more secure retirement • had better health • had better family relationships • had a higher number of positive financial behaviors

14. Financial Stress • Higher financial stress if consumer • was unemployed • was single • had higher debt load • was older • was less secure about retirement • had worse family relationships • had a lower number of financial behaviors • had a lower score on self-evaluation of financial behaviors

15. Financial Satisfaction • Higher financial satisfaction if consumer • was older • had longer years at residence • had lower balances of credit card debt • felt more secure about their retirement • had better family relationships • had a higher number of financial behaviors • had a higher score on self-evaluation of financial behaviors

16. Research Findings Life at Work Financial Stress Absenteeism Demograhics and Financials

17. Relationships AmongFinancial Satisfaction, Work Conflict and AbsenteeismJinhee Kim, University of Maryland

18. Financial Satisfaction and Conflict at Work • Sample included only those who were employed at the time of data collection (n=2,372). • About three out ten (27.5%) reported that their financial concerns interfered with their work, such as getting to work on time, accomplishing daily tasks, working over time.

19. Financial Satisfaction andWork Time Use They spend 15.3 work hours attending their financial matters in the past month, including • Talking to co-worker about personal financial problem • Talking to creditor about past due payment • Talking to with co-worker about personal financial problem • Took time to handle personal financial concerns while at home

20. Financial Satisfaction andWork Time Use (cont.) • Asking employer about payroll advance. • Consulting with lender about consolidating debts. • Talking to lender about taking out a 2nd mortgage to pay debts. • Talking to a lawyer about bankruptcy.

21. Conflict at WorkMore conflict with personal finances at work is related to: • Age (-) • Household income (-) • Health status (-) • Satisfaction with family relationships (-) • Satisfaction at work (-) • Financial satisfaction or well-being (-)

22. Work ConflictMore work time used dealing with financial matters is related to: • Age (-) • Married, not single (-) • Satisfaction with family relationships (-) • Satisfaction at work (-) • Financial satisfaction or well-being (-)

23. PresenteeismMore days with reduced productivity at work is related to: • Age (-) • Health status (-) • Satisfaction with family relationships (-) • Satisfied at work (-) • Financial satisfaction or well-being (-)

24. Creating the Beta Version of the InCharge Financial Distress ScaleTom Garman, Benoit Sorhaindo, Bill Bailey with valuable inputs from about a dozen other experts from around the USA

25. Data Sources for InCharge FDS The data reported herein about the InCharge FDS is not the 2003 dataset, rather it is data from a similar 2000 study. The other datasets have been used to confirm and support selection and phrasing of the FDS questions.

26. Demographics of 2000 Dataset • People who responded to surveys in 2000 were included in data analysis (n=175). • 70% were female. • The mean age was 39 years. • 58% were married. • Annual median household income was $27,300. • Annual median unsecured debt was $12,000. • Average number of dependents for those with dependents was 2.

27. Questions Used in the Beta Versions of the InCharge FDS • Variations of the 6 beta questions have been used in several previous studies. • Question 1 pertains to financial stress “right now” while question 6 asks about financial stress “in general.” • Questions 2, 3, 4, and 5 ask for different characterizations about one’s finances: present satisfaction (using stair steps), subjective description (well-off), feelings (current financial situation), and security (personal finances for retirement). • The beta version of the InCharge FDS is available in the proceedings of this EFERMA conference.

34. Construction of the InCharge FDS Will Result in the Publication of a Financial Distress Index (FDI) Compute Index with variance explained by constructs as weights Compute component scores Find constructs

47. Final Version of InCharge FDS andPublication of the InCharge FDI • Planned data collections in 2004 using the beta version of the FDS as well as other questions will result in publication of a final version of the InCharge Financial Distress Scale (FDS). • Norming information will be available in 2004 on a nationally representative population of financially distressed adults as well as the general population of consumers, and these data will serve as InCharge Financial Distress Index (FDI).

48. Thanks!Presenter’s Contact Information: • Benoit Sorhaindo, Director of Research, InCharge Education Foundation, 2101 Park Center Drive, Orlando, FL 32835; bsorhain@incharge.org; Phone: 407-532-5704; Web: www.InCharge.org; www.InCharge.Education.org. • E. Thomas Garman, Advisor and Author, Professor Emeritus, Virginia Tech University, 8044 Rural Retreat Court, Orlando, FL 32819; tgarman@bellsouth.net; Phone: 407-363-9048; Web: www.EThomasGarman.net