Could Coaching Improve Consumer Credit Use Behavior? Evidence From a State Program

Abstract

Financial coaching, a hands-on financial wellness approach, has emerged as a go-to strategy to help clients establish and reach their personal financial goals. We analyzed the borrowing and repayment behavior of 1,790 clients who received financial coaching through a program sponsored by the state of Delaware. Relative to a matched comparison group, financial coaching clients cure 0.24 more delinquent accounts, reduce credit card utilization by 5 percentage points, reduce the number of debts in collections by an additional 0.37 accounts, and have $422 less in credit card debt. Findings also show a 7 percentage point increase in the share of clients with a credit card and a 6 percentage point increase in the share of clients with a student loan. We do not see consistent differences in personal installment loans or mortgage holding. These estimates provide evidence that financial coaching can provide benefits for clients while being provided on a state-wide scale, illustrating the potential of public–private programs to provide services.

The Paradox of the Payday Borrower: A Case Study of the Role of Planned Behavior in Borrowers’ Motivations and Experiences

“…Previous studies (e.g., Ranney and Cook 2011;Kobzar 2012a;Caplan et al 2017;Caplan et al 2017;and Bolen et al 2020) have recognized that payday borrowers are not a homogeneous group, suggesting the importance of profiling them to understand the characteristics of each group when developing appropriate policy. Building on previous studies (Chudry et al 2011;Xiao et al 2011;Rutherford and DeVaney 2009), we found support for two of our three hypotheses: payday loan borrowers who have difficulty repaying their loans have lower levels of perceived behavioral control and negative attitudes toward payday lenders, which relates to their perception of whether the loan improved their quality of life. Their borrowing history also plays a role in their ability to repay the loan.…”

“…Based on the work by Ranney and Cook (2011), who found that defaulting borrowers on payday loans exhibited distinctly different behaviors and attitudes from those not defaulting, we surmise that the theory of planned behavior (TPB) may be appropriate to delve further into why tension occurs in the literature as to whether payday loans provide a valuable service or lead to a cycle of debt. As mentioned earlier, the TPB has been applied to consumer financial behaviors such as student debt (Chudry et al 2011;Xiao et al 2011) and credit card use (Rutherford and DeVaney 2009). Rutherford and DeVaney (2009) found that credit card holders who believe that credit is bad paid their credit card balances in full on a regular basis.…”

“…As mentioned earlier, the TPB has been applied to consumer financial behaviors such as student debt (Chudry et al 2011;Xiao et al 2011) and credit card use (Rutherford and DeVaney 2009). Rutherford and DeVaney (2009) found that credit card holders who believe that credit is bad paid their credit card balances in full on a regular basis. Conversely, those with a positive attitude towards credit routinely paid only a portion of the balance and therefore accrued interest.…”

Investigating young adults' use of Internet credit services: A reflective‐impulsive dual‐process model

“…Generally, the more favourable one's attitude and subjective norm are, and the more perceived behavioural control one has over a given behaviour, the more likely he or she intends to perform the behaviour (Ajzen, 1991). TPB is considered as a valid framework to explain individuals' rational and deliberate behaviours related to the usage of financial services (Leong et al, 2013; Rutherford & Devaney, 2009). Thus, the present study also applies TPB as the theoretical foundation to explain young adults' rational side of using Internet credit services.…”

The impact of using financial technology on positive financial behaviors

“…Moreover, making late payments on credit cards will lead to late fees and a negative remark on the credit report. It is worth mentioning that consumers with a history of late payments are less likely to be convenience users (Rutherford & DeVaney, 2009), as they tend to pay off small debts first even when the larger debt have higher interest rates (Amar et al, 2011).…”