An inside look at the world of consumer debt collection.

Occasionally on the blog, we like to direct you to interesting findings outside of our organization, and this New York Times article on the collection industry is too good to keep to ourselves. The title might lead on to what you can expect: Paper Boys: inside the dark, labyrinthine, and extremely lucrative world of consumer debt collection.






(Note: in support of his full-length book on this very subject, the author of the article, Jake Halpern, will be featured at the Texas Book Festival this weekend!)






Not only is it an interesting (and shocking) read, but it can clue coaches into the potential dangers that their clients face at the hands of collectors. It can also offer a little perspective from the other side of the table (or phone line), and alert us to scams and behaviors to watch out for. Knowing just how murky the industry is, it's our job to arm our clients against any abuses.

Now, that is not to say that all collection agencies can't be trusted, or that our clients should forgo paying out their debts out of fear. As coaches, it reinforces our need to take caution, and to send out those debt validation letters any time we intend to follow up with an agency. This article pairs well with a useful volunteer-created resource--our Credit Counselor Q&A--with Seth Mason of the great local organization (and referral for clients needing more hands-on assistance) Cornerstone Financial Education.

Enjoy!

How can Goodwill serve our Financial Coaching Clients?

Who does Goodwill serve?

Everyone! While there are age-specific programs for youth (ages 14-21), Goodwill helps anyone along the spectrum, including the elderly, temporarily unemployed, and long-term unemployed clients. While it is typically easier for them to find full-time positions, they will also assist folks who are looking for part-time work to supplement their income.

What’s the difference between Workforce and Goodwill?

While both provide an important community service, Goodwill has the capacity to pair clients 1:1 with a caseworker. In fact, Goodwill has never waitlisted a potential client!

Aside from locating potential employers, what else can an employment specialist provide? 

Through their case managers, clients can receive job readiness training, resumes, cover letters, and other supportive services, such as vouchers for public transportation and interview outfits.

My client receives disability. Is there a way for s/he to supplement that income? 

Yes! Depending on the severity of the disability, clients can still seek out Goodwill’s services even when receiving SSDI. Clients will need to take into consideration any earning limits to retain their benefits, but can use Goodwill to seek out part-time work. The Community Rehabilitative Programs specifically serve clients who are in the DARS system.

My client has trouble getting to interviews. Is there a way around this problem? 

Of course! After a client has met with an employment specialist and sought out job opportunities, he or she will be given transportation vouchers in order to access public transportation and get to their interview.

What’s this I see about occupational trainings? 

Goodwill’s occupational trainings will offer clients certifications in specific career-paths. Programs are offered on either full or part-time schedules, and are taught by accredited organizations such as ACC. At the end of the course, clients are able to attend a career fair with organizations who are searching for employees with that particular skill. To get your daily acronym overload, take a look at the list below:

o   CDL: Commercial Driver’s License

o   CAMT: Certified Apartment Maintenance Technician

o   HVAC: Heating Ventilation Air Conditioning

o   CNA: Certified Nursing Assistant

o   Hospitality

o   PC Tech

How can my client get involved in one of their programs? 

Aside from being open to walk-ins and appointments here at the Community Financial Center from 1-5 on Tuesday afternoons, clients can also call 512-637-7580 to set up an appointment, or walk in to any of Goodwill’s three locations:

o   North: 1015 Norwood Park Blvd

o   Central: 1817 E. 6th Street

o   South: 6505 Burleson Road

Boy, that wasn't comprehensive at all. Now what?

For more information on any of these programs, please visit www.Goodwillcentraltexas.org

Coaching against bandwidth poverty.

Howdy Coaches,

We recently stumbled upon a great NPR segment on the behavioral effects of poverty (about 12 minutes long, but worth the time), so take a look!

The segment talks about the stress imposed by poverty, and how that stress can lead to "bandwidth poverty." If you have ever met with a client in an emergency situation, you will recognize it. A client sits down, starts talking about their finances, but gets stuck on the details of an upcoming bill cycle. The loop looks like this: I have a car loan due tomorrow, I get paid on Friday, and rent is due Monday. You try to look forward to the next pay period, but it's hard for the client to imagine what will happen between now and then, and even harder to try to plan for it. It's a stalemate, and you know that it will happen again next month if the client can't plan ahead for it. You may have chalked it up to being scattered or unfocused, but in reality, this lack of focus is not the cause of the problem, but the effect. Their "bandwidth poverty" has forced them to focus on immediate needs, and they can't think beyond the next few days.

To think about this segment from a coach's perspective, it reinforces some of our key roles: to attend to an emotional sense of well-being, to help our clients make informed and deliberate decisions, and to hold the client accountable to his or her goals. Even if it's just for an hour a week, it can make a big difference for a client to sit down and think about their finances, and to take a look into the future at how their decisions will play out over time. It's important to remember that our personal and financial lives are impossible to separate, and even more so for folks living paycheck to paycheck. This is why we are here to encourage, support, and focus our clients on the potential of a less hectic life. And unlike your own personal ISP, we will offer our bandwidth free of charge!

FAQ for Credit Counselors

This is a compilation based on a very insightful United Way Financial Empowerment Boot Camp, as well as a follow up meeting with one of the presenters, Seth Mason of Cornerstone Financial Education. Our very own Kristina D., a volunteer Credit Counselor was there to collect a great FAQ based on her and Seth's experiences. We're certain you will find it useful. Enjoy!

Are all debts in collections the same in terms of the damage they do to a person’s credit? 

No, they aren’t.   A medical collection does less damage to a person’s credit than another bills that has gone to collections.   The philosophy is that it is worse when action you’ve taken by choice (such as getting cable service, a cell phone, etc.) has resulted in an unpaid bill going to collections, as opposed to something that a person has little control over like a medical condition.  

Another important aspect of an unpaid bill in collections is that there are two negative factors at play:  one is the unpaid bill, and the other is that the bill went to collections.  The larger the unpaid amount, the worse it is.   But even if you pay the bill, there will still be a negative effect from the fact that it ever went to collections.   This is not meant to encourage you to not pay bills due, but rather to understand that there still will be a negative effect from the collections, although with time (and assuming no more bills go into collections) this negative effect will decrease.

Is it better to settle and try to pay less? 

A ‘settlement’ note on a credit report is not positive.  What is best to do, if you truly cannot pay, is to negotiate to pay less BUT have this reported as “paid in full.”  This promise should be obtained by the collections agency in writing before you pay.    You should also be wary of a ‘recourse clause’ in a contract, as if that exists the collections agency can try to collect on the remaining debt.  

Do not call the collections agency unless you are prepared to pay the debt.  If you are making an general inquiry, it is best to call “from a place of skepticism.”  In other words, be careful not to acknowledge that the debt is yours, but rather call to say you need to verify the debt, you aren’t sure it is yours.   

Also be aware that if you pay off one collections agency, other collectors may see that (by pulling information from credit reports) and start calling. 

What about dealing with collections agencies.  What are they allowed to do, and what not?

According to the Fair Debt Collections Act, a collections agent:

• Can only contact you between 8:00 am and 9:00 pm in your time zone (you can request that they call at different hours, though this may not work)

• Must identify themselves in every call - - though many will identify themselves by their names, not their company.    You can always ask, “Is this a collections call?”

• Can contact you at your place of employment but only if permitted.  If you do not want this then tell them they are calling at your place of work and that such calls are not permitted.

• Cannot contact you directly if you have hired a lawyer to handle the case

• Cannot threaten false legal actions (though you may hear the words “we reserve the right to sue)

• Cannot discuss the debt with third parties in any form unless expressly approved by you.  They can, however, contact others to try to locate you, and some will do this to ‘shame’ a person into paying. 

• They can call as much as they want but cannot call you in a ‘harassing manner’ (in order to dispute this you would have to show a pattern of harassing behavior)

It’s also important to remember that some collectors feel that they are doing a good deed in finding delinquent payers, and this is what is behind their motivation. 

My client is paying too much in auto insurance and wants to call a few places to gets some quotes but is worried that this will be a mark against her credit.   What’s the best strategy? 

If you are legitimately shopping for credit, such as trying to lower your car insurance rates, you can safely shop around for 14** days knowing that only the first inquiry into your credit will count against your score.  This works for inquiries for the SAME type of credit, (all inquiries related to car insurance) not for different ones (inquiries related to car insurance and home mortgages). **In some cases a credit agency gives you a 45 day window, though it’s unclear how you’d know if you have a 14 day or 45 day window, so the 2-week period is a surer bet. 

Make sure your client is aware that ALL inquiries will be listed on the credit report, even if they did not affect the credit score.   This is a good list to check if you are worried about identity theft.   If there are a lot of inquiries that you can’t remember or explain, check into it!

They say that ‘new debt’ accounts for 10% of your score.  How does one define “new?” 

A credit card is ‘new’ for the first 12 months.   For a home loan, the first 4-5 years.   For smaller loans such as car loans, something in between the two – 2-3 years. 

 “Kinds of Debt” also accounts for 10% of a credit score.  Sometimes clients ask if they should get a loan to improve their credit score, or get a credit card.  I’m not sure what to advise.

Generally the lenders don’t want to see more than one type (revolving debt, auto loan, mortgage) of each loan.    A “healthy mix” of debt is two (2) revolving accounts, 1 mortgage and one auto loan.    However if you have 5 credit cards and are using them all responsibly, you are building up a lot of positive payment history, which can supersede any negative effects of having so many lines of revolving credit. 

The other day my client mentioned “old people credit,” by which he meant good scores that come with age and time.    Can you elaborate?

Sure.  What your client referred to is that high credit scores can only be achieved with both time and good debt management habits.   A person cannot usually achieve a score of 800 early than in his/her early 40s.   You’d have to really know what you were doing in terms of building a credit score to achieve such a high score at a younger age.    Once you reach a score of 750, there is no action you can take to increase your score  (i.ee. there is no reason to take on a new loan, get another credit card, etc.) except to keep on doing what you are doing.   With time it will keep on increasing. 

My client has defaulted on a non-government (private) loan and is worried about going to jail.   What can I advise?

Actually, you cannot go to jail for defaulting on a private debt.  It is true that practically any debt can be sued for, given proper documentation.  The purpose of a debt lawsuit is to prove excessive income or fraud, but does not always result in garnishments.  You may simply end up with a judgment against you.  

In your client’s case, please advise that if he/she is sued, that it is necessary to go to court to prevent a default judgment being made.   Also, if a person is court-ordered to appear and does not, the person can go to jail for failure to appear.  It’s critical to pay attention to all mail received to know a situation – even if there’s a desire to hope a problem will go away if you don’t read or open your mail, this is not a good strategy.

My client wants to keep on checking his/her score in the future after our counseling session.   Is there a way to access this information for free?

The best way to access a free score is CreditKarma.com.   TransUnion established this site so it shows their scores (TransUnion historically used a broader range so their score may be on the high end compared to the other bureaus).    You do have to provide your SS# and set up an account.   It has a neat educational feature that explains what is affecting your score and how your score would change if you took various actions such as getting a loan, a new credit card, etc. 

Statesman Op-ed on Pilot Program

Some of you may remember an announcement we made a few months back concerning the change in how coaches like you can address college savings. Coaches are now able to introduce and even assist with the application for a Texas 529 plan. With more freedom to connect your clients to a valuable savings tool, families in a good position to make this investment will have better access to help. This change is due to findings from our (and other Texas nonprofits') Child Support for College pilot program, which you may have heard a little more about through our Blog Competition Runner-up.

Below is a recent op-ed piece in the Austin American Statesman that gives a nice summary of the program, its outcome, and the reasons why it's important. Take a look! (And for the full report on the findings of the program, follow this link).

Annibale, Widrow: How a small rule change made Texas 529 college savings plans more inclusive

By 

CFED

 on April 24, 2014 4:09 PM | Permalink

Austin American Statesman
By: Bob Annibale, Woody Widrow
April 23, 2014

Research has shown that college savings accounts are critically important to promoting higher college enrollment. A child whose family has saved $500 or more toward college is about seven times more likely to attend college than a child with no savings account. Over the long term, a college degree has a dramatic impact on a person's earning capacity. A Texas community college graduate earns, on average, $240,000 more than a high school graduate over a lifetime; a four-year college graduate earns $790,000 more.

Yet many low- and moderate-income Texans lack easy access to college savings accounts, and they struggle with finding free and independent financial advice. Although 529 programs have no eligibility requirements based on income, research indicates that only 5.4 percent of 529 account holders in Texas earn less than $50,000. Nationally, the median income for families with 529 accounts is $142,000, about three times higher than those without the plans.
Now thanks to a little-heralded rule change by the Texas State Securities Board in February, low-income Texans will be able to take advantage of assistance from nonprofit financial coaches and counselors to better navigate savings plans applications, including the tax-advantaged 529 plans sponsored by the state.

The rule change is important to bolster Texas' growing efforts to promote greater college enrollment among low- and moderate-income populations. Enrolling in the Texas Tuition Promise Fund, one of the state tax-advantaged 529 programs, enables low-income families to take full advantage of the Texas Save and Match Program, administered by the Texas Match the Promise Foundation.

For a group of low-income single-parent families who participated in the innovative pilot program that led to the rule change, the implications are especially important.

More than 100 single-parent families took part in the Child Support for College Program, an 18-month pilot program where custodial parents were encouraged to deposit child support payments into 529 Texas college savings plans. Until the regulation was rewritten, nonprofit financial coaches involved in the program were prohibited from advising the families on the state's 529 programs because most of them were not registered financial planners in Texas. RAISE Texas, a statewide asset-building coalition, worked with the Texas State Securities Board to address this anomaly.

While college savings accounts may not be the panacea for ensuring that all Texas high school graduates have the funds to complete college, they do help families to begin the financial process, along with the educational preparations and expectations, for completing further education. Thanks to the families that participated in the pilot program, low-income parents in Texas have a better shot of saving to send their kids to college. Easier access to 529 accounts and more readily available financial coaching advice are invaluable tools for funding their educational goals. They also are major stepping stones in ensuring the state's college savings efforts are both accessible and inclusive.

Annibale is global director of community development and microfinance for Citi. Widrow is executive director of RAISE Texas.

http://www.mystatesman.com/news/news/opinion/annibale-widrow-how-a-small-rule-change-made-texas/nfgMT/

Hiccups

by Lauren P.

I remember when I was scheduled for my very first client session; I made sure I had pens, pencils, erasers, scratch paper, reference documents and was well versed in everything I had been taught in training. I arrived about half a day early, scanned through the office supplies, and watched the door patiently—only to be no-showed. Being prepared for that, I lost my jitters, and was able to carry my enthusiasm over to my second scheduled appointment about a week later. This one was legit.

She’s a kind woman with a difficult story: her husband is disabled, her son is deaf, she works a full-time job while taking on the role of primary care-giver, and is drowning in debt. After reviewing her situation on that first day, we decided that taking care of one of her Pay Day Loans would be the best way to start. We took the necessary steps to enter her into a program that protected her from the outrageous interest rates that pollute Pay Day Loans, and she would make reasonable payments from then on (Editor’s note: this client has almost paid back her Fresh Start Loan in full!).

Great, I thought – go me! I totally helped this woman out. Well, in our second meeting, I realized it’s not that easy. Yes we tackled a large, money-sucking monster, but that wasn’t the only issue she faced. She was also having a hard time paying her energy bill. Riding the euphoric wave from our last success, I approached this challenge with the same optimism. We would review her financials, create a budget, and methodically pay off her energy bill. Right? Not right.

After extensively reviewing her income, expenses, debts, and cash flow, neither of us could see a solution. Over the course of our hour together, we discussed possible cut-backs, forms of additional income, and what realistic options we could find. But no matter where we looked, there didn’t seem to be a fix that would fit her family’s situation. At the end of our meeting, I knew I had failed her; we hadn’t come up with an answer. She left with an energy bill that, on paper, was not going to get paid.

Editor's caption: the paradox of coaching!

Despite my lack of solution-generating ability during that meeting, she scheduled another one with me. When we sat down, I asked about the energy bill and how things had turned out. She relayed that it had been paid in full by a local church that often reaches out to people who are struggling. Wow. I would have argued with a psychic that her bill wasn’t getting paid, but I was so happy to see that she was a resourceful woman. It reminded me that we were in a partnership, and when one of us struggled, the other could buckle down and pull through. Well anyway, great – another hurdle jumped! Now how to pay the energy bill for this month? (Deflation).

This woman and I have met over six times, and I have become fully invested in her successes. I realized quickly that success will be measured from week to week, because I know that once we tackle a problem, there is another one right behind it. Financial debt is not a game. It’s not easy. It’s not trivial. It consumes your thoughts, influences your quality of life, and takes years to remedy. Meeting with this woman and others has taught me an extremely valuable and rewarding lesson: nothing is fixed with just one patch. While it’s important to celebrate small successes, you can’t lose sight of the ultimate goal. Persistence can move mountains.

The Love of Money

by Matt D.

I realize that I’m in a unique position as a volunteer of the Child Support for College program, but my most rewarding moments with clients have been opening college savings accounts for single mothers.

The first time I met with a client who was inclined to open an account for her child, I was quite conflicted.  I know the importance of a college education, but rationally and numerically, I thought it best to place emphasis on other priorities – like paying off debt and establishing emergency funds. She did have a job but was squeaking by. Just to make a small opening deposit would have been tough on her budget. Not to mention that in my professional practice, I advise prioritizing retirement over college education (there are no loans, grants, or scholarships for retirement). And besides, I knew that Mom’s $100 might only buy one textbook when it came time to use it.

 (Editor’s note: Every dollar counts! According to a recent study, “A low- and moderate-income child who has school savings of $1 to $499 prior to reaching college age is over three times more likely to enroll in college and four times more likely to graduate from college than a child with no savings account.”1).

When she kept pushing for the account, I didn’t exactly stand in her way, but I voiced my reservations. I told her about the plans that were available to her, but also mentioned the possibility of putting this money elsewhere, where it might make a bigger impact down the line. But Mom remained steadfastly committed to a college account, and while the numbers still never convinced me, seeing the commitment she had to giving her daughter a head-start was an eye-opener. Giving her daughter this account, no matter what the amount, meant a lot to her. She didn’t want her daughter to squeak by, but to get the education that Mom hadn’t been able to get.

With my first client, I learned that value isn’t only numerical.  The money might not have been the key to her daughter’s success, but there is an emotional component that often matters just as much, and in this case, more than the numbers.  These moms were eager to do something, anything, to set aside college funds for their children.  So, they did, and I was able to help them.  As I met with more of these single mothers, I changed from being hesitant (even discouraging) to open such accounts to eager. Each of them left the office with smiles on their faces and true senses of satisfaction.  These mothers had given children gifts for their future – small in number, but huge in significance.

1. Elliott, W., Song, Hyun-a, & Nam, I. (2013). Small-dollar children’s saving accounts and children’s college outcomes by income level. Children and Youth Services Review, 35 (3), p. 560-571.

Excerpts from the contest: honorable mentions!

While they weren’t our grand winners, some of our coaches brought up moments that were worth sharing. Here are some excerpts from coaches’ blog entries that seemed to be representative of the experiences we see as coaches. Take a look at what your fellow coaches had to say!

Here, a coach gets to the heart of the matter:
Rob S.
“Money does not solve the problem or even create the problem. Money is simply a tool used during our day-to-day lives...As a coach, it is important to share the tools we have available, but it is just important to spend the time listening and coaching or clients on personal habits that impact their financial solution. Habits and ideals must change for lasting financial success.”

Here, a mini-story about habit change:
Elsa D.
“Chloe spent over $150 dollars at Wal-Mart in 1-wk on things she admitted she didn’t really need: snacks so her son won’t cry while shopping, things for her fingernails, on and on. We were on the right track, because Chloe was acknowledging her bad habits. Similarly, the husband went to a check-cashing store every payday because he wanted to see the money he earned. This led to a long explanation about the money he was not seeing, the money he would save if he opened a checking and savings account. I suggested that he deposit his paycheck into a checking account, and save the amount that he'd been spending at the check-casher. For both of them, it did not take a lot of extra effort, but simpsimple, habit-forming tasks that would allow them to save.”

And here, a coach realizes the power of empowerment:
Larry G.

“I was almost finished with the first session, but we hadn’t accomplished enough. Yes, we knew the items on her credit report, and yes, she had an idea of how to get started, but I could still see that this information hadn’t connected with her yet. I wanted to explain to her how important would be down the road when she decided they were stable enough to buy that new car, or go back to school, or even buy a home. But instead of telling her these things that she already knew, I asked her what she intended to do about it.”

Stay tuned for more coaching blog fun!

Curse of the Shiny Object

I have a client—let’s call her Sue—who was locked in battle with a formidable but conquerable opponent: medical bills. The problem was that Sue was never one to get behind on bills, and when her son broke his arm, she paid a lot of the bills in full (yikes!) at the expense of her mortgage, on which she then fell quickly behind. Luckily, she had a steady income, so it was a comfort to know that her problem had a simple (if stressful) solution. She just needed to cut back, track her spending, and weather this storm with patience and planning. In a few months, Sue could be back on track and ready to start saving. But after the first meeting, I wasn't so convinced that she had the drive to do it.

I’m sure that “steady income” alone has made some of you jealous. In my experience with clients, this is often the deciding factor in whether or not a coach will be able to help a client make progress. So to hear that Sue had a steady income was exciting for me, because I consider myself a problem solver. I like to experience new challenges and unfamiliar territories, because that’s what fuels my curiosity in life.

Unfortunately, that curiosity comes with a curse: the Curse of the Shiny Object (AKA a short attention span). When a problem pops up, I want to solve it—right here and now, before it floats away on the breeze. So when it comes to coaching, I run into problems with my patience and focus. That’s not to say that I’m a bad listener. I always work to hear my clients out, empathize, and find myself asking good, leading questions (after all, I've been through training over a dozen times by now). Where I run into problems is in taking all the information they've given me, and narrowing down my focus onto a few manageable pieces. When we touched upon the idea of a budget, I started a budget. While working on the budget, we ran into student loan payments, and I switched gears into debt prioritization. When we entered her interest rates, I suddenly wanted to know what her credit situation looked like. Sue tuned out, and for good reason. I had the skills to lead her to water, but when I didn't slow down to prioritize and focus, she assumed that she needed to drink the whole lake.

When we met for her next appointment, she was quick to let me know that she “didn't do any of that stuff we talked about last time.” I asked why, and she told me what I should have known: “There was just too much to look at.” Since she was kind enough to identify where we went wrong, it was easy to correct it, and in that second meeting we made an emergency budget to get her through to the next meeting, for which she’d be bringing bills and a list of her debts. I realized quickly that Sue was a very driven woman, but she needed someone to help her map out a plan and hold her accountable. I needed to be her focus, so that she could worry about doing the work.

I know it sounds so basic, but it really dawned on me that in the hour we meet with our client, we are seeing just a brief glimpse of what composes their life. While it might seem like they’re presenting us a dozen different problems, that doesn't mean we need to solve them all at once. As with habit-change, even the most basic tasks take time and effort to accomplish. As a coach, it’s my job to make the process as simple and logical as possible. I’m now happy to report that Sue is nearly caught up on her mortgage, and is still waiting on a large tax refund. I’m also happy to report that the tax refund is the only item on our agenda for the next meeting, as we allocate it one account at a time.

The need for emergency savings

With the opening of our Safety Net Savings program, we want to take this month to focus in on savings, and how important it is in establishing stability and avoiding financial catastrophe. Just yesterday, I caught myself saying the type of phrase that leads directly into an emergency: "I don't foresee any trouble on the horizon." But what would happen if you ran into a large medical expense? What would happen if you lost your job? What if your car breaks down? What if etc? It might be easy for some of us to say that everything would be fine, but statistically, approximately half of us have insufficient savings to weather the storm(3). So when those emergencies inevitably occur, what options do our clients have?

If for some reason you don't believe how hard it can be, we dare you to test your financial survival skills! 

While it would be great to have a support system of family and friends that is both willing and able to help, that support is a luxury that many people don't have. Instead, many turn to other sources of liquid assets, such as personal savings, early withdrawal from investments, and the sale or pawn of their possessions. Others find their way into debt, relying on credit cards, or payday and title loans, to keep them afloat. Those who do have assets might find their way through unemployment through a mortgage refinance or a home equity line of credit, jeopardizing what security they do have(3). Of those who do take out payday loans, 16% are forced to do so because of an unexpected expense(1). Those of you who have seen enough clients will know by now that the bills accompanying the crisis often go unpaid, ending up in collections where they drag down credit scores and haunt clients for years to come.

As a rule of thumb, emergency savings accounts would ideally have enough money for a family to survive for three months without a source of income. In Texas, the roughly 27% of families in asset poverty are two to three times less likely to weather the rainy days without incurring some form of debt. It's easy to see the negative effects of not having savings, but there’s also a positive correlation between savings and generational income—if the parents in a low-income household had high savings, there’s only a 33% chance that the child will remain in the bottom quartile, as opposed to the 50% of children who come from households with low savings(3). 

Knowing that savings can lead to greater financial stability, as well as safeguard against potential disaster, we're hoping all coaches will encourage their clients to save for the unexpected, and take a look at what it takes to set up an account. Just as we set our goals for an unknown future, we still need to take those first steps toward progress. We all need a safety net sometimes!

Sources:

1. http://www.pewstates.org/uploadedFiles/PCS_Assets/2012/Pew_Payday_Lending_Report.pdf
2. http://www.pewstates.org/uploadedFiles/PCS_Assets/2013/EMP_Report_Hard_Choices_Navigating_the_Economic_Shock_of_Unemployment.pdf
3. http://www.forabettertexas.org/images/EO_2012_10_RE_Savings.pdf

The times, they are a-changin Financial Programs!

There have been a lot of changes to the financial programs in the past months, and we wanted our coaches to know just what adjustments we've been making.

Express Matched Savings

Our Matched Savings program is now running an Express account for people who are ready to get their goals off the ground in the near-future. Funds available in the last year of our current grant will allow us to offer a year-long Express Matched Savings Program May 1, 2013 through May 30^th, 2014 (enrollment deadline October 15).  As opposed to the regular eligibility requirements for the program, applicants to the express program are not required to live on a Foundation Communities property or have a dependent, but will be required to have a letter of recommendation written on their behalf. The Express program is limited to applicants who are seeking higher education or the improvement/opening of a small business (no home-buyers), and must complete their education requirements on a shorter time-frame.

Because of the strict requirements for this year-long program, we are seeking participants who are serious about saving and using the funds for college or their business. Since we are not releasing this information on a large scale, we strongly encourage you to share this information with any students or entrepreneurs if they have demonstrated the ability to save, will be able to complete our education requirements, and are certain that they will be enrolled in school or have started their business by May 30^th, 2014. An overview and application materials are now in the resource drawer in the main coaching office.

Fresh Start Loan

The Fresh Start Loan Program has made some updates that are in line with what we have learned so far. 

• The requirement for employment income has been lifted.  Anyone with documentable income in the last 90 days is eligible, assuming they meet all the other qualifying criteria. 
• A client must have checks or be able to get checks to qualify.  This is the only form of payment Foundation Communities can accept (post-dated checks must be provided at the time of loan issue).  Collecting money orders has proven to be a large administrative burden that Foundation Communities does not have the capacity for.
• A client may be declined for a Fresh Start Loan if they owe Foundation Communities money through previous transactions, including residence at a housing property.

For those needing an refresher on all of the requirements, see the Fresh Start overview!  

Child Support for College

The incentives for the Child Support for College Program are more generous than they were when the program started.  Now, when a client opens a Texas College Savings Plan with the minimum $25, Foundation Communities deposits a $100 incentive.  Every $1 deposited beyond the initial $25 is matched with $1.  The maximum incentive that can be deposited in an account is $500.  The enrollment deadline is now August 21st, 2013 and all funds deposited by August 31^st, 2013 will be matched.  For all the details, visit the Child Support for College web page.

As always, if you have any questions or concerns, do not hesitate to get in contact with us. Thanks for reading!

Help Us Celebrate Financial Literacy Month!

Did you know that April is National Financial Literacy Month? Probably not, but that won't stop you from celebrating, will it? Definitely not. In order for you to get your financial literacy boogie on, the Consumer Credit Counseling Service of Greater Dallas (CCCS of Greater Dallas), a nonprofit provider of free financial education as well as free housing and credit counseling, is offering 100 FREE live webinars. This is a good chance to brush up on your training, and to get guidance on familiar client issues. We wanted to let you all know of the opportunity, and to give you some direction on which of these we think will be most useful in dealing with clients. 

The 100 webinars will focus on 39 different personal finance topics, ranging from credit scores and getting out of debt, to buying a home and preventing foreclosure. You can feel free to take a look at the entire list, but here are some of the sessions that align with our clients' concerns:

• Vision Quest: Goal-Setting

• Dumb Money Mistakes We Make with our Family

• Surviving Financial Crisis

• The Psychology of Debt

• Alternatives to Payday Loans

You can see all of April's schedule here. Open sessions will indicate so with a yellow "Sign Up" button; just click to register.

Sessions will be running day and night to give you plenty of opportunity to tune in. You can polish your goal-setting over a bowl of cereal, spend your lunch hour learning the psychology of debt, or snuggle up with your computer and drift asleep to the gentle tones of financial crises. These webinars have the chance to make you a more informed, effective coach, so take Financial  Literacy Month to sharpen your skills!

Please feel free to forward this information to others who may benefit from this opportunity.  For further questions regarding these webinars, please contact Mr. Todd Mark at tmark@cccs.net. We hope you make the most of this opportunity! Thanks!

Financial Fitness Greater Austin Contest

We wanted to take this month's blog to make you aware of a city-wide financial literacy effort going on right now. Financial Fitness Greater Austin is now accepting applications for its Financial Fitness Contest, which engages its contestants in the quest for financial literacy. Participants will be responsible for completing different activities—dealing with either budgeting or credit—meant to give them a stronger connection to their money. Cash prizes are offered to top winners, and participants will get the chance to be involved in the promotion of a city-wide financial literacy effort. To participate, your client needs only to:

·         Select one packet (credit or budget – available for pick up at the CFC)
·         Complete all the activities in the packet
·         Write a 1-2 page essay on how the activities have helped them; how they shared what they learned with friends, family or co-workers and how they've taken action with some of the lessons learned

The deadline is April 12^th, so if your client is interested, please encourage them to get started on the exercises. This is a great way to guide your discussions with the client and focus the conversation around these topics. It will also help to give them some concrete goals and activities that can open the door to greater understanding. And it will give them the chance to win up to $500. Aside from the individual impact of improved financial literacy, this is also a good chance for the FFGA to get a better picture of the types of problems that clients are bringing to the table, and how to better serve the community. Just ask your greeter for an application, and get your clients headed in the right direction!

To learn more about Financial Fitness Greater Austin, visit www.financialfitnessaustin.org.

Financial Coaching and the Affordable Care Act

With certain parts of the Affordable Care Act guaranteed to have an impact on our clients’ finances, we thought it would be a good idea to give you a picture of what this might look like for the state of Texas, the Financial Coaching program, and our clients.

What does the Affordable Care Act do? With the passing of the ACA come multiple provisions that will have a direct impact on all Texans. On January 1^st, 2014, there goes into effect an individual mandate, stating that all citizens must be covered by some sort of health insurance. This will happen nation-wide, as the Supreme Court ruled in 2012 that the individual mandate was constitutional, serving the same function as a tax. This obviously cues a large shift in the state's health-care environment, since, as of 2013, over a quarter of all Texas residents do not have health insurance, giving Texas the highest rate of uninsured in the nation. To find out where Texas ranks on this and other indicators of financial security, follow this link to see the CFED’s assets and opportunity scorecard.

An optional clause of the ACA would then allow our state legislature the decision to accept or reject a plan to expand Medicaid coverage. This expansion would raise the income limits for pregnant women, infants, the “medically needy,” and low-income adults under age 65. If the state decides to accept expansion, nearly a million currently uninsured Texans will now fall within the boundaries of Medicaid. If they refuse the expansion, the entirety of our 6.2 million uninsured will be forced to either purchase a plan or pay a fine. As of right now, it appears that Texas will opt out of the Medicaid expansion proposal.

How will it affect our clients? Unfortunately, the combination of the individual mandate without Medicaid expansion will force many low-income Texas residents to take on the added expense of health insurance. Follow this link to see who will and will not need to purchase insurance. As you might expect, this leaves out a healthy (pun intended (but not very funny)) portion of our clients, primarily those who earn too much to qualify for health insurance through public assistance, but who still don’t earn enough to take on another bill. For these clients, the long-term benefits of having insurance will butt heads with their need to provide for day-to-day expenses. With the added burden of finding an affordable plan, many of these low-income individuals will find themselves at odds with an unfamiliar and complex subject that has the potential to strain their budgets.

What will we be able to do for them? The Financial Coaching program will be finding ways to get involved with the health initiatives that are already in action at Foundation Communities. At our properties, we currently provide fitness and health programs for both children and adults, as well as screening residents for SNAP and Medicaid eligibility. We are hoping to reach beyond our properties and into the community through the Community Financial Center and the Financial Coaching program. We will do that in two ways:

1. As you may know from experience, our clients often come in with crippling medical debt. We intend to provide further training to volunteers in regard to the rights, assistance, and strategies that our clients have in dealing with that debt. 
2. We also intend to prevent such a problem's inception by helping clients navigate their options in the foreign territory of health insurance.  Foundation Communities will apply to be part of the Health Navigators program, which is part of the Affordable Care Act.  This means that Health Navigators will be available at the CFC and other locations to help clients access in-person assistance and information about the available types of coverage, the best value for their money, and enrolling in the appropriate program. 

By taking these steps, we can help dodge another obstacle on our clients' paths to financial stability. With your help, we hope to make this transition easy and informative for the people it hits the hardest!

Community Tax Center services

This month's featured resource is the Community Tax Center!  Today is officially the first day that the Community Tax Center is open for business.  Hours and locations can be found on our web site:  www.communitytaxcenters.org.  Below are some things to make sure to let your clients know as well as some things you should know about how your experience volunteering will be different during tax season.

Things to tell clients:

• The IRS will start accepting returns on January 22.  Before then, we will prepare a paper return and the client can come back on the 22nd to sign paperwork for e-filing.
• Call 2-1-1  or go to www.communitytaxcenters.org to get information or schedule an appointment.
• Clients who do not want to wait can use our drop-off service - when they arrive at a Tax Center location, they can tell the intake specialist that they want to drop off their return and Tax Center staff will contact them when the return is complete.
• Clients who need an ITIN should come in during our ITIN Acceptance Agent hours, Tuesdays 3-7 pm.
• We will prepare basic self employed and small business taxes. 
• We will help with prior year returns starting in March.
• Clients who buy at least $100 in savings bonds through their tax return can get a $25 HEB gift card.
• Clients who have questions about taxes we prepared for them can email taxes@foundcom.org or call (512) 610.7374
•  www.irs.gov has a wealth of information. Including “where’s my refund?”

Things you should know:

Office Space - We have very limited office space during tax season.  Please be sure to put future appointments in Appointment Plus before you and your client leave to make sure an office is available. If you don't have time, or if you don't have your login information, let a staff member know and we will put it in Appointment Plus for you.

Parking - If you do not have a physical handicap that makes it difficult for you to walk, please park off-site for the duration of tax season.  We have very limited partking available at the CFC and we need to save those spots for clients.  There are a couple options for parking:

• Park on Buffalo Pass, two streets east of the Community Financial Center.  Buffalo Pass is part of the Cherry Creek Duplexes neighborhood, a Foundation Communities property!  It is about a 5-7 minute walk at a leisurely pace, no crossing of streets involved.
• Park on Cherry Creek Drive, on the other side of West Gate (my favorite).  You’ll have to cross the street but there is a handy cross walk.  It’s about a 3-5 minute walk depending on how you hit the traffic light at the crosswalk. 
• Park on Stoutwood Circle east of the Community Financial Center on the south side of Stassney.  While this is an option, I don’t encourage it.  There is no pedestrian cross walk, so you have to be EXTRA careful when crossing Stassney.

Wherever you park, please take caution not to park in front of mailboxes, or in front of garbage/recycling bins on collection day.  We want to be good neighbors! 

Name Badges - We encourage you to wear your Financial Coaching name badge when you are here.  There will be lots of people at the Community Financial Center and we would like to be able to easily identify what everyone's role is.  We have name badges for most of you in the Financial Coaching office.  If you can't find yours, please let a staff member know.

Financial Coaching staff - During all Financial Coaching hours, you will see Erika Leos, Jasmine Kotlarz, Nick Banach or Clint McManus.  Whatever you need, let us know!

Financial Coaching holiday schedule

Financial Coaching will be closed for the holidays from Saturday, December 21, 2012 to Saturday, January 5, 2013.

We hope you enjoy this time with friends and family.  We look forward to another wonderful year in 2013.

Randolph Brooks Federal Credit Union

RBFCU not only offers a credit builder loan to help clients establish or improve credit, they also offer membership to Foundation Communities' staff and volunteers.  Check out www.rbfcu.org or pick up materials at the Community Financial Center for information about:

• The Credit Builder Loan for Financial Coaching clients:  The money borrowed is secured in a savings account for the term of the loan and dividends are paid on the money while clients are establishing credit.  Once successfully paid in full the money becomes available in their account.  Maintaining scheduled payments for a minimum of six months will allow the payment history to be reflected on their credit report.
• Credit Union membership for you, Foundation Communities' volunteers:  Free cash back checking, RBFCU credit card, online and mobile device services, auto and mortgage loans, and much more.  If you do not live or work in the RBFCU membership areas, you can still become a member because you are a volunteer with Foundation Communities.

Money Habitudes

In October, our Continuing Education gathering (which will be referred to as Featured Resource gathering from now on) focused on practicing coaching.  In conjunction, we debuted our newest resource:  Money Habitudes, a fun, non-threatening activity that helps us explore our habits and attitudes around money.  Money Habitudes cards are availble by request only, as we have a limited supply.  But if you wold like to try the activity yourself, or with clients, we will be happy to let you use them.  Please see the Money Habitudes story below.

How It Started

People unexpectedly began sharing their stories and secrets about money with Syble Solomon, creator of Money Habitudes, during coaching sessions and workshops on life transitions. They ranged from wealthy executives to single parents living on a shoestring. Many were very financially savvy and were saving and investing for the future, including some people living on minimal incomes. Unfortunately, more often seemingly rational, intelligent men and women would confide their irrational behavior related to money. Even though they knew better, they would continue to make poor money choices or never followed through when they had a plan.

Questions Raised

Why would people do this? And why would they suffer shame or guilt, get angry with themselves or accumulate unmanageable debt when they knew they had other options and could have made better choices? Intrigued, Syble decided to research the financial, psychological and behavioral economics literature to see if there were answers. In fact, the relatively new science of behavioral economics studies the patterns of thinking and decision making as it relates to irrational financial behavior. In their book, Why Smart People Make Big Money Mistakes and How to Correct Them, Dr. Thomas Gilovich of Cornell University and Gary Belsky state, “…in the main, we are blissfully ignorant of the causes of most of our monetary missteps and clueless as to how we might correct them.”

Themes

Examples of recurring themes related to problematic money behavior that surfaced in workshops and were repeated in the literature are:

• Having little or no communication about how money decisions are made. 
• Keeping debt, gifts, spending, earnings and investments a secret from a spouse. 
• Knowing there is a need to save and invest for the future but not doing it. 
• Ignoring their financial reality to live a more expensive lifestyle. 
• Living frugally but going into debt for a wedding. 
• Giving generously with no thought about the personal consequences. 
• Having no interest in managing their money and being totally clueless about their finances. 
• Making risky investments or totally avoiding all financial risk. 
• Taking the Challenge

Given the above, Syble became determined to find a way to help people break the taboo of not talking about money and to get them thinking openly and honestly about their relationship with money. Based on her background in education, she knew her solution needed to be interactive, quick and fun. It also had to be non-threatening, non-judgmental and, of course, effective.

Development

After extensive research, Money Habitudes cards were developed as a familiar game-like activity associated with a positive social experience: playing cards. The categories, statements and interpretations were based on the most common themes found in financial, psychological and behavioral economics research as well as popular publications. After being tested on multiple diverse focus groups, the revised cards were reviewed by professionals around the country including consumer educators, financial planners, accountants, psychologists, counselors, personal and professional coaches, military personnel, career counselors, human resource professionals and leaders of financial associations and community programs. They were introduced in 2003.

Matched Savings Program

September’s Continuing Education gathering brought in Alice Gray, our IDA program coordinator, to explain the requirements and opportunities with regard to opening a Matched Savings account with Foundation Communities. As you may (hopefully) know, the Matched Savings (or IDA) program offers select clients the chance to open a savings account in which every $1 that they deposit will be matched by Foundation Communities with $2. The clients have a chance to put this money toward: 1) starting or expanding a business; 2) buying a home; or 3) paying college expenses. For more details on the process of opening an account and the requirements that the clients need to meet, visit the volunteer resource page, and take a look at our featured resource.

During the gathering, Alice also shared with us the story of one of her clients, Veronica, who used her account to open her very own salon. Before entering the program, Veronica rented a chair in an existing salon, but she was unhappy with the owner, whose behavior was inappropriate enough to scare away customers. She had little say in the reputation of the business, and her clients were disappearing due to problems that were out of her control.

Hoping to leave the unprofessional work environment behind, Veronica secured a lease in a different building and put her matched savings toward some of the overhead costs associated with having her own space. After Veronica attended Foundation Communities’ Money Management classes and took the required business classes, she created a business plan, then used her matched savings to bring it to fruition. Veronica effectively paid for only 33% of the costs involved with:

1)      Having the interior freshly painted

2)      Hiring an electrician to install outlets at each ‘station’

3)      Having a new floor installed

4)      Purchasing 2 brand new barber chairs (her husband works as a barber at the salon!)

5)      Purchasing an “Open Sign”

6)      Paying for a year’s worth of insurance on the building (required by the landlord)

7)      Paying her first month’s Gas bill for the building

Even after these expenses, Veronica still had about $260 of her own savings and $520 in matched funds, leaving a total of $780 left to use for the business. She was able to retain some loyal customers and is now developing marketing materials to draw the crowd to her clean, comfortable salon. With time, we hope to see that removing these start-up costs will help her business become self-sustainable.

Clients such as Veronica are being given the chance to make positive change for their financial future, and need to know the support that is available to get them off the ground. If your client matches the basic requirements and is looking to make progress on one of the three qualified goals, you can inform them of this no-risk option. Help spread the knowledge, and help spread the wealth.

Payday Lending

During August’s Continuing Education gathering, we discussed recent findings the Pew Charitable Trusts’ “Payday Lending in America.” Analysis of payday lending statistics has given us a broader understanding of the environments that lead to borrowing, the true costs of these “short-term loans,” and how state legislation affects borrowing patterns. Of the 5.5% of adults who have taken out a payday loan, those with household incomes under $40,000 made up 72% of borrowers. With the income limit for the Financial Coaching Program capped at $50,000, it is safe to say that our clientele is hit the hardest, and most often, by these loans.

The data both returned and implied some interesting inconsistencies about the marketing of payday loans, and the truth about its consumers. While industry advocates claim that these “short-term” loans are meant to be used in cases of emergency only, the research has shown that an average borrower takes out eight loans, and is in debt for an average of five months. In fact, a customer only becomes profitable to the lender if it takes out multiple loans. So while these loans are purportedly meant to be used for emergencies, it comes as less of a surprise to find out that 69% of borrowers use their first payday loan for a recurring expense (rent, utilities, etc.), with subsequent loans often taken out to cover the first. Instead of seeking other means to cover these regular expenses--81% of respondents claiming that they would cut back on expenses if payday loans were unavailable--these borrowers get trapped in a cycle of debt.

Usage of payday loans is shown to have a correlation with some predictive factors, the strongest of which being: renting (as opposed to owning) housing; earning less than $40,000 a year; lacking a 4-year degree; being separated or divorced; and having a minority racial/ethnic background. Most of our clients fit at least one of these criteria, and are thus more vulnerable to payday loan usage.

Another factor that leads to borrowing is a lack of understanding around opaque interest rates. Some of Pew’s respondents verified a confusion between the fees accompanying payday loans with the APR that would normally accumulate on credit-card debt. If a particular lender is charging $15 for every $100 borrowed, many customers will see this as a 15% interest rate, and choose this option over a credit card that charges an interest rate of 23.99 APR. However, the study showed that the typical payday loan has an APR of 391%. Texas, being one of the most permissive states in payday loan regulation, allows for incredibly high fees on each loan. For the same loan that would cost $55 in fees in Florida, a Texan would spend $100.

Our Small Business Coaching Coordinator Lance McNeill has written a brief narrative of the most susceptible borrower, to show how these numbers play out in reality:

Let’s take a look at the scenario of one lady; let’s call her Betty Borrower. She is part of the demographic most likely to be a payday borrower: she’s African American (African Americans are 105 times more likely to use payday lending than other races/ethnicities), she’s 28 years old, divorced, making under $25,000 a year, she never graduated college, and she rents an apartment. Betty didn’t budget very well this month and she has come up short on funds just before her car payment is due. She remembered seeing that fast-quick-easy loan place on the corner, just down the street, so she headed there, passing a few other payday lending retailers along the way. In no time, she walks out of the fast-quick-easy with $375 for her car payment – whew, just in time!

Two weeks rolls by before she knows it and it’s time to repay her loan. Betty owes the $375 plus $56.25 in interest (In 28 states, including Texas, this is perfectly legal). The bind Betty has put herself into isn’t difficult to deduce. Because of the payday loan, her car payment basically went from $375 to $431.25 in the course of a month. Now, she’s coming up short for her rent, which is due in a couple of days, so she has to renew that loan – and the vicious cycle begins. As I mentioned previously, the average borrower rides this cycle 8 times each year! If and when Betty Borrower is finally able to pay off the loan and interest without having to seek out an additional loan just to make ends meet, she will have paid $520 in interest on a $375 loan in the course of a year! For anyone curious, that’s 391% APR and yes, this is entirely legal in 28 states, including Texas.

Many of our clients fit the profile of this repeat borrower, or fall into place with other target demographics of the most susceptible consumers. It is important for our coaches to know the facts about payday loans in order to stem their use among clients, and help them to see the alternative ways to meeting bills. However, it’s often too late in terms of preventative measures. In an attempt to alleviate the burden of overwhelming interest rates, we offer our Financial Coaching clients a chance to reduce that 391% rate to a flat 8% by taking out our Fresh Start Loan. This loan will pay off the clients’ current lender in a lump-sum, transferring the debt, with all payments due to Foundation Communities. We ask that our coaches familiarize themselves with the criteria that the client must meet in order to be considered for the Fresh Start Loan, and to be aware of this as a possible solution to some clients’ situations.

We encourage you to read the entire Pew study for an in-depth view of the study’s results. This month, our Featured Resource on the volunteer resource page is a quiz meant to test your knowledge of Payday Lending.