Tuesday, July 31, 2018

Financial literacy: What good is it without financial health?



Financial literacy is overrated.  I’m hoping not too many of you spit your morning coffee on your monitor when you read that!  

Why would a champion of financial wellness say such a thing?  An analogy may help explain why I would make such a provocative statement. 

Imagine learning you have diabetes. To get a handle on the disease, you attend workshops about what it is and how to treat it. After sitting through your 4th workshop you are pretty literate about diabetes and the steps you must take to control it. 

So you go home intent on exercising and eating well.  You quickly encounter challenges. There isn’t a gym close by. You try running after work, but you’re too tired. Cooking healthy meals takes too long, and they don’t taste very good. After a week you give up. It’s too hard and, besides, you’re not seeing any real difference in how your diabetes was affecting you. If anything you feel like it’s gotten worse.

What went wrong? Those workshops made you highly literate about diabetes. Why didn’t that help you manage the disease? 

Now imagine you have a diabetes management coach. Rather than just giving you information she walks with you through your journey. She helps you find exercises that you enjoy. She shows you how a well-timed afternoon snack can give you the energy for post-work exercise. She helps you identify healthy foods you like to eat. She finds recipes that don’t take too long to prepare.  She meets hurdles with you and guides you over them. Step by step, you become healthier. Your quality of life soars.

We believe the same principles hold true when it comes to financial literacy and financial health. A 2013 meta-study found that “financial literacy interventions” and so-called “measured financial literacy” both produce questionable downstream benefit for participants. (See “The Effect of Financial Literacy and Financial Education on Downstream Financial Behaviors,” Daniel Fernandes, John G. Lynch Jr. and Richard G. Netemeyer). The authors suggest “the need for re-examination of public policy around how financial education is used to improve financial decision-making.”

Stephanie Furches, left, saw her financial profile
improve with coaching from ACFCU. Learn how here.
We’ve seen firsthand how well coaching works. Only 18 percent of our clients who have stayed the course with coaching report experiencing high financial stress after coaching. The figure is 90 percent before that coaching. Those clients’ average credit scores increase 194 points, from 441 to 635, while their average “debt-to-income” ratio drops from 43 percent to 19 percent. Average delinquent debt decreases by more than two-thirds, and their average amount of predatory loans falls by nearly half.

We are taking a “both/and” approach to this challenge. We continue to promote and offer financial literacy, including workshops. We’re helping a partner, Tusculum University, design a course that will prepare students to teach financial literacy to the school’s freshmen and in local high schools.

Jessica Handy, right, started her credit journey the right way
by working with ACFCU's Haley Jones. Check out her story.
But someday those high school seniors will get their first credit cards. Those college freshmen will buy their first cars and homes. Some will face significant student loan debt. Others may be challenged by medical bills.

Whatever the circumstances, we know financial stress’s impact on people’s work, on their physical health and on their quality of life. As we continue seeing positive results, we’ll keep financial coaching services at the forefront of our approach to helping people achieve financial health.

Ultimately, this approach stems from our belief that all people have dignity. We agree with this assessment by Fernandes, Lynch and Netemeyer: “The financial environment that consumers face today has become dramatically more perilous just in one generation.”

We hope our coaching-centered financial health approach, and others like it being adopted around the country, can contribute to a discussion about how to help Americans achieve healthy financial lives.

(Jeff Keeling is vice president of communications and community relations for Appalachian Community Federal Credit Union.)

Friday, July 20, 2018

Safe at home: Teamwork transforms family's life

James Robinette

James Robinette of Clintwood, Va. will tell you: The little things in life – like being able to shower in your own home – can loom large.

“I was having to come up to the hospital to take showers,” says James, a double amputee, referring to the substandard home he and his family recently vacated.

Fortunately, the Robinettes are now in a modest but livable home, but that move almost didn’t happen. The story of James, Lisa and their son William and how close they came to not getting into their home, shows how tenuous life can be in Central Appalachia even with supportive services in place. (So does this article from the Business Journal of the Greater Tri-Cities detailing a King University study of Southwest Virginia’s economy and the rise in non-wage “transfer payments.”)

A King University study details the growing
reliance on "transfer payments" in the economy
of Southwest Virginia.
The Robinettes’ experience also reveals the important role Community Development Financial Institutions like Appalachian Community Federal Credit Union (ACFCU) can play in preventing families like the Robinettes from slipping through the cracks – and how financial coaching can lay the groundwork for long-term financial health.

The Robinettes were days away from closing on their home thanks to a U.S. Department of Agriculture Rural Development program. In June, though, the family learned they needed more than $1,000 to pay a year of homeowners’ insurance up front. They didn’t have the money.

“I was like, everything we’ve done since February when we started looking at the new house is in danger of just being flushed down the drain,” James says.

 James worked for years but is on disability due to complications from diabetes. Lisa is deaf. William, 19, works full time in a long-term care facility. The Robinettes’ income was limited and their credit was poor, but the USDA program was able to help. Then the insurance conundrum reared its head.

“We checked online at first with what I call ‘loan shark places.’ Everywhere we looked we were denied totally.”

Adam Taylor
ACFCU Financial Coaching Specialist
Those denials were a blessing in disguise. “I said, ‘let’s go to ACFCU,’” James says. ‘The worst they can do right now is tell us no. Everybody else is telling us no.’”

The folks at ACFCU’s Norton, Va. branch didn’t say no. They told James he and Lisa would need to meet with a financial counselor. Recognizing that short-term fixes don’t get at the root of people’s financial issues, the credit union places financial health and financial coaching at the center of much of its work with families in Appalachia. “I agreed to it,” James says. “I’m like, ‘of course. I’ll do anything at this point.’”

By the end of an initial meeting with Adam Taylor, an ACFCU Financial Coaching Specialist, things were looking up. Adam got real with the couple about finances and James, who says he’s always had a little trouble with money, realized they could do more than just make ends meet if they followed a plan. “It’s very doable,” James says. “We’ve already sat down and started getting the bills for next month, I’ve prepared for unexpected expenses, and we’ve budgeted to start saving.”

Adam also worked with Matthew Potter of ACFCU’s partner insurance agency, who found the Robinettes a good policy for less than $500. They secured a loan for the money with their truck and agreed to maintain a coaching relationship with Adam. Instead of a predatory loan or no new house at all, the family has a foundation for a solid future.

“Adam and Matthew were miracle workers for us, because we had turned to everybody and everybody had said no,” James says.

Even had the “loan sharks” said yes, he adds, “they would have said, ‘here’s $1,000, 100 percent interest.’”

It’s early days for the Robinettes. The trio, who are very active in walks and other fundraising activities to support the broader amputee community, isn’t asking for extravagance. They simply want to enjoy the activities that bring them joy – Lisa’s sewing, crafting and gardening, James’s painting of war gaming miniatures, William’s growing interest in a health care career. Their new home makes those things possible.
William, Lisa and James Robinette.

“It’s an older house, but it’s a beautiful, nice little country house,” James says. “It gives Lisa a sewing area, it gives me a man cave and William an apartment.”

That motivates James to take the long, slow steps toward financial health. “Every time I had a doctor’s appointment we would go someplace to eat. If we just drive up here to Norton, there’s no reason to go out to eat, and you could take that $15 you spend at Taco Bell and buy enough food supplies for three or four meals at the store.

“If we do it like (Adam) said, we’re going to have this much left that we can throw into savings by about the middle or towards the end of the month.”

ACFCU’s purpose is “Building Financial Relationships One Member at a Time.” In Central Appalachia, that can be an intensive, all-hands-on-deck journey. When a journey is rooted in the belief of every human’s dignity and potential, though, what cost is too great?

(Jeff Keeling is vice president of communications and community relations for Appalachian Community Federal Credit Union.)

Monday, July 16, 2018

Student debt and homeownership – the conundrum continues


The July 31, 2017 headline on forbes.com heralded good news: “New Rule Makes It Easier To Get A Mortgage With Student Loan Debt.” Forbes contributor Nick Clements, a finance industry veteran, outlined a change in Fannie Mae’s underwriting rules that appeared set to help people on income-based student loan repayment plans by eliminating a longstanding barrier to qualifying for a mortgage.

Not so fast. Nearly a year after Clements’s rosy prediction, those involved in the homeownership process at Appalachian Community Federal Credit Union (ACFCU) can tell you: People who are otherwise qualified and ready to take on a mortgage are being stymied by how student debt is treated in the process. (Important caveat: This is a complex, some might even say intractable, problem, and I believe institutions, Fannie Mae included, want to find a solution to it.) 

 “I’ve coached two different couples with major student debt who have taken action items to lower their debt portfolio, pay some things off, consolidate some things, find equity in some assets,” ACFCU Financial Coaching Specialist Adam Taylor says. “But it turns out the student debt is still preventing them from taking the next steps to homeownership.”

It’s happened time and again, Taylor says. Here’s how it works – or doesn’t, rather:

A client has worked hard to put all the pieces in place for a mortgage. She has an income-based monthly student loan payment of, say, $150. Rolled in with her other debt, that $150 leaves her able to afford a house payment that can get her into a good starter home, but her total student loan principal is $75,000.

The $150 payment would, in most situations, be added in to calculate her debt-to-income ratio, or DTI. Most mortgage lenders allow total DTI, including auto loans and any other debt, in a maximum range of 40 to 45 percent.

In the case of student debt, though, if the borrower can’t show proof the current payment will be in place for at least three years, the calculation for DTI is based on 1 percent of the total loan principal. And most student loans on income-based repayment are recalculated every year.

With this Catch 22 in play, our theoretical borrower’s DTI availability takes a $600 hit. She’d been eligible for a house payment of up to $900 with the $150 figure. That has now dropped to $300. Here in Central Appalachia, $900 a month can get someone a decent house. $300? Not so much.

It’s discouraging, Taylor says.

“They feel overwhelmed by their student debt when this housing issue comes up, and they realize there’s no real answers or way out of it.”

Indeed, it’s not that the people in question are having trouble paying their income-based payments. They’re doing everything responsibly, and often they’re in the type of careers that make that income-based payment unlikely to adjust dramatically. And if that payment did increase, it would be in concert with an overall income increase that should keep the borrower’s DTI in a fairly tight range anyway.

Thus the Forbes story, and many others that are as close as a basic Google search. Few dispute that a problem exists. Folks with ACFCU’s mortgage origination team encounter the problem too, and say that despite frequent chatter that underwriting standards are going to address it, so far little has changed.

Taylor says people shouldn’t give up. Some institutions offer “in-house” mortgage options that can provide solutions. In fact, ACFCU leadership is working hard to find innovative ways the credit union can address this situation. Student loan servicers are easy to work with, too. His advice?

“Be as strategic about it as you can, understanding the income based repayment options and avoiding the rumors about those things.” 

And hope that someday, policymakers and underwriters find a practical way to adjust the current reality that is holding back many otherwise qualified people from the bulk of the mortgage market -- and the primary path to asset building in this country.

(Jeff Keeling is vice president of communications and community relations for Appalachian Community Federal Credit Union.)

Monday, July 9, 2018

Wrestling with your finances: Get coached to win

We have been working recently with a couple who know the sport of wrestling, and their journey toward greater financial knowledge and health contains some parallels to life on the mat.

I wrestled in high school and when I lost, it happened because my opponent was able to exploit my weaknesses. There is one guaranteed way to avoid losing a wrestling match: Don’t give up any points to your opponent. That means not letting your opponent take you down, escape when you have him in your control, or “reverse” control from you to him. Worse yet, let your opponent keep your shoulders on the mat long enough, and it’s over – you’re pinned.

In personal finance, your opponent is poor financial health and lack of knowledge. The opponent tries to defeat you by exploiting your weaknesses: lack of savings, high-interest “predatory debt” (think payday loans), accounts in collections or maxed out credit cards. Sometimes your opponent has those tools through no fault of your own, such as debt from an unavoidable medical expense or high student debt. Most often, you provide an opening that results from lack of preparation or a mental mistake. You don’t know how to defend a move, or you get sloppy and your opponent takes advantage.

To “win" in personal finance requires three main things: learning the right moves, practicing them, and staying fit. My wrestling fan clients have worked toward a win. They have a goal: to own their own home. They’ve begun applying their growing array of moves to defeat their opponent's main tactics against them – in their case, some old debt that’s in collections, some high-interest debt that costs them more than it should, and high credit card balances.

My financial wrestlers are saving, renegotiating and paying old debt, refinancing high-interest debt and budgeting  -- and they’re scoring points already. They know before the “match” is over, it will pay off in higher credit scores and a lower “debt-to-income ratio” (DTI). The weaknesses their opponent was exploiting will have become strengths. Their credit scores will be high enough to qualify for a mortgage and their DTI low enough for them to afford a monthly mortgage payment.

A win for you on the financial wrestling mat may be qualifying for a car loan at a good interest rate. It may be getting your first credit card and using it to build your score, refinancing predatory debt or building an emergency fund. Whatever your goal, if you’re serious about it you’ll need good coaching. Good coaches are out there at Appalachian Community Federal Credit Union and elsewhere, so find one today. ACFCU's are trained and have your best interests at heart. Learn more today: Call (423) 230-2643 and let Adam Taylor schedule a financial assessment with him or another coach, or email Adam.

(Jeff Keeling is vice president of communications and community relations for Appalachian Community Federal Credit Union.)

Monday, July 2, 2018

Easy impact: Investing in CDFIs changes communities

What do Johnson City, Tenn. pastor Brandon Waite and Security Federal Bank of Aiken, S.C. have in common? Both know that when they invest in mission-driven lenders known as Community Development Financial Institutions (CDFIs), their money is helping move mountains in the lives of people in economically distressed communities.

For Waite and Security Federal, the CDFI is Appalachian Community Federal Credit Union (ACFCU). On a day when a Washington Post article outlines predatory lending’s often crushing effects on working people, it’s especially relevant to highlight the impact of investing in a mission-driven lender, whether you’re a bank depositing $250,000 at below-market rates or a family choosing a financial institution.  

Brandon Waite
Security Federal is among more than a dozen ACFCU-investing banks that recently learned they had received “Bank Enterprise Award” funds from the U.S. Treasury Department’s CDFI Fund. The performance-based program awards institutions that increase their investments in mission-driven lenders. ACFCU’s prominent role as a go-to depository CDFI is a clear indication that the credit union is “walking the walk” as it carries out its mission.

In ACFCU’s case, the deposits help support the kind of work that prompted Brandon and Kristen Waite to become members.

“It is far too easy, I think, to get access to very high interest loans that help people meet their immediate needs, they think, by giving them a quick influx of cash,” says Waite, of Grandview Christian Church. “Ultimately that just traps people in a cycle of never being able to pay off those loans and constantly being pushed further into poverty by the decisions that they’ve made.”

The problem is grave nationwide. It’s exacerbated by Tennessee laws that earn the state a spot in the National Consumer Law Center’s “Terrible Two” along with Mississippi in NCLC’s August 2017 report on predatory installment lending. NCLC referenced Tennessee having “amended its lending laws in 2014 to allow non-bank lenders to make cash advances at 279%.

ACFCU Financial Coaching Specialist Adam Taylor, left, has
helped member Leslie Brady escape predatory loans. 
Waite learned about ACFCU’s financial coaching, credit-building loans and other opportunities because Grandview Christian works with local families that often need financial counseling. “We reached out to ACFCU and they sent somebody over to meet with these families to provide some financial counseling,” Waite says.

“Before the credit union I didn’t know that there was a bank or another credit union or anything like that that was out there trying to help families who have been caught in this cycle escape from it… Without some kind of extra outside help there’s almost no hope that they’re going to be able to pay off these predatory loans.”

When the Waites learned that CDFI credit unions count on their members’ deposits and borrowing to help achieve the mission, they joined other community members such as Kathleen Moore, who explains in this video why she and her husband made the switch.

“All the features that we enjoyed about the bank we were at before are here at the credit union, so that made it easy to switch,” Waite says. “After you’ve made that initial investment of time to switch over to the credit union your money is not only working for you, it’s working for the other people in your community. And knowing that you can do something to help people in a real and tangible way that doesn’t really require much of you after a little initial work, I think that can motivate people to make the switch.”

Across the country, people and institutions are investing to help CDFIs create positive change for economically distressed communities and families who aspire for something better. Consumers can join a CDFI credit union and help the cause with a car loan, checking account or deposit account. Institutions can make deposits at rates that enhance a CDFI’s ability to fulfill its mission.

(Jeff Keeling is vice president of communications and community relations for Appalachian Community Federal Credit Union.)



EITC and tax refunds as life changers -- credit where it's due

The Tax Policy Center's new database is a great tool. In an informative post on the Tax Policy Center’s TaxVox blog, Richard C. A...