Financial Coaching Good For Homebuyers, Debt Reduction, Credit Scores

by Broderick Perkins

 

Consider a little financial coaching, along with homeownership counseling, perhaps before homeownership counseling.

 

Financial coaching is service geared to helping consumers focus on changing financial behaviors (to reduce debt and increase savings, etc.) to achieve self-defined goals, including home buying.

Financial coaching is differentiated from financial counseling, which provides specific guidance to resolve a defined event or problem.

Research by NeighborWorks America and the City Foundation, "Scaling Financial Coaching: Critical Lessons and Effective Practices," reveals findings that indicate financial coaching can ensure greater financial security for low- and moderate-income individuals and families.

In the study, 97 percent of those who didn't understand a credit report, learned to understand it, 50 percent increased their credit scores and 55 percent of clients who had unsecured debt when coaching started, decreased that debt by a median of more than $3,000.

"NeighborWorks America’s work with the Citi Foundation on financial capability, empowers individuals to achieve financial independence and save for long-term goals. Whether their goal is to save for homeownership, pay back student loans, or something equally as important, individuals excel with financial coaching and are able to bypass economic inequalities,"  said Eileen Fitzgerald, chief executive officer at NeighborWorks America.

 

The results also demonstrated that women and those who had a longer coaching relationship were more likely to increase their credit scores. At a time when more women are not only primary caregivers, but also breadwinners, this research suggests financial coaching can inform and support them in a powerful, long-term way that benefits not only them, but also their families, according to the study.

Anyone can benefit from financial coaching but, the study examined the results of coaching for 798 low- and moderate-income clients (two thirds of them women) in more that two dozen organizations participating in the "Financial Capability Demonstration Project."

The project was designed to expand programs that improve financial capability while increasing the understanding of effective financial educational strategies.

"We were interested in tracking the impact of financial coaching and gaining a deeper understanding of what works and why...many low- and moderate- income consumers who received financial coaching were able to save money, pay down debt and improve their credit scores," said Brandee McHale, chief operating officer at the Citi Foundation.

A comparison of clients' financial status at the start of coaching and after coaching began revealed substantial positive impacts.

54 percent of clients with no savings at the start of the project had some savings after participation in coaching, resulting in median savings of $668.

48 percent of clients who had savings at the start of the project increased that amount over time, with a median increase of $938.

Of the 47 percent of clients who raised their credit scores over the course of the project, the mean increase was 59 points. Jumping from 650 to more than 700 is a major improvement likely to substantially reduce the cost of a mortgage.

Among participants, two of three were women, and 51 percent of them increased credit scores, while only 39 percent of males did so. Also, 58 percent of clients who had 10 or more months in coaching increased their credit scores, while 29 percent with less than five months were able to do so.