Debt in Focus

Sponsored by: SavvyMoney
Innovation brief: Debt in Focus: Rethinking Financial Guidance

Debt in Focus is an anonymous, online financial assessment tool written in easy-to-understand language that breaks down traditional barriers to financial guidance. This solution allows consumers to quickly and easily receive free customized financial guidance from their credit union around the clock, from anywhere with an Internet connection. Users are never required to input any self-identifying information, freeing them to openly share even the hardest-to-discuss financial data. The program examines debt-to-income ratios, revolving debt loads, and credit score information and suggests payment plans that can eliminate debt as efficiently as possible. Users also receive a workable budget based on submitted expense information, as well as guidance on how their spending across budget categories compares to suggested allocations. Debt in Focus guides users through life stages by suggesting ways to handle things like buying a first home, retiring, and paying for college.

In sum, Debt in Focus delivers financial help to consumers who are intimidated by traditional financial guidance.

Thrift is the new black. Seventy percent of consumers are cutting back on the amount they spend each week. In a break from the carefree financial behavior of the last decade, one in four Americans now worry about keeping up with debt obligations, and 88% are watching spending very closely.

Though at first blush it seems like consumers have changed their behavior for the better, they still prefer to go it alone. While personal saving as a percentage of disposable income rose from 1.4% in 2005 to 5.9% in 2006, only 28% of Americans use a financial planner. Despite a deep recession that has us all dealing with a supposed “new normal,” this number has actually decreased in the past two years.

Why?

Why would nearly three out of every four consumers prefer making financial decisions on their own? Why, even in a time in which we realize the importance of financial literacy, do so many individuals remain financially illiterate? It is certainly not due to a lack of options. Google returns 3.9 million results for “financial planner,” 3.5 million for “financial counseling,” and a whopping 9.9 million for “financial guidance.” The airwaves and phone directories are chock full of financial advice resources for consumers, which pale in comparison to the quantity of resources available at places like Consumer Credit Counseling, public libraries, financial institutions, and nonprofit groups. Why, with all of these options, do so few people seek help? What barriers associated with traditional financial educa- tion offerings prevent consumers from using these resources?

A working theory submits three explanations for this consumer behavior. First, it is embarrassing for consumers to talk about financial matters publicly. Open discussions about things like income, spending habits, and debt load are uncomfortable even in the privacy of one’s home. Why do traditional offerings assume that consumers would freely discuss these matters with strangers? Second, traditional financial counseling services are inconvenient and often expensive. Juggling the demands of modern Americans’ work/life balance is hard enough. The perceived commitment of time and money required to get customized financial guidance can no doubt seem like an impossible barrier to overcome. Third, when consumers actually work up the courage to reach out for financial guidance, they often find themselves sitting through an uncomfortable sales pitch that has more to do with the advisor’s well-being than the consumer’s. Adding insult to injury, the sessions are usually filled with so much industry jargon that consumers end up more confused than when they started.

A 2009 study by Barron and Staten found that financial counseling over the Internet or telephone is no less effective than face-to-face delivery when consumers choose the delivery channel. Further, the study found that many consumers strongly prefer the convenience of electronic or telephone delivery. The golden opportunity here for credit unions is to find a way to conveniently offer financial guidance to those who, even though they realize they need help, are uncomfortable with traditional delivery channels and structures.

Debt in Focus delivers an actionable plan to help improve members’ credit profiles and reduce debt with a web-based debt management tool that:

• Is completely anonymous.
• Is simple to use and extremely user friendly (non-financial jargon).
• Provides the end-user with a summary of their debt (totals, ratios, estimated budget).

Generously created by Ent Federal Credit Union’s IT department, Debt in Focus began taking shape in late 2008. Xceed Financial Credit Union helped with the design, while Centra Credit Union and America First Credit Union were the first to pilot the program with their members.

Encouraged by feedback from these limited pilots, Debt in Focus was beta-tested at 288 North American credit unions in March 2009. Participating credit unions received a customized web link with a branded version of the program for their websites. Traffic to each credit union’s installation, as well as anonymous information about users, was tracked by a centralized reporting system. Usage stats during the beta test far exceeded expectations. Even better, beta testers of Debt in Focus provided priceless feedback on how to improve the program with future enhancements.

After several enhancements, a trademark registration, the selection of a secure data server provider, and a thorough security assessment, Debt in Focus was officially released to the credit union world in April 2010. Over 30 credit unions have subscribed to the service, helping to push the total usage of Debt in Focus to over 500,000 visits.

In 2012, Debt in Focus teamed up with SavvyMoney to take Debt in Focus to the next level and complement the company's robust suite of debt management tools.

Contact SavvyMoney to learn more about this idea from Filene i³. Try the program yourself by clicking here.