Assignment 2

This is a group assignment. One copy can be turned in for a team of up to four students.

Assignment 2: Financial Health Check Case

Below, we describe a product idea that we have been testing in the field for the last 18 months. While there have been various implementation challenges, the test appears to be working as hoped. Please develop potential strategies and recommendations as well as a plan for scaling up this product as a private or public sector financially sustainable solution. Assume that the test has produced sufficient evidence to show that the product works as designed.

Please feel free to use whatever format you prefer—prose, bullet points, or PowerPoint slides. We are not going to focus on formatting and presentation, just the content. You may even express your thoughts as informal notes as long as your argument is conveyed clearly. We are seeking a brief, but comprehensive, outline rather than a fully developed business plan and pitch book.

Context and Motivation

Despite the fact that households must make a range of complex financial choices at all stages of their life, in most cases, little or no advice is available to help optimize these decisions. Where advice is available, it is often from a biased source such as a mutual fund salesperson or mortgage broker, or the advice is remedial and offered by hundreds of non-profit credit counseling agencies to consumers who are already in financial trouble. Their advice is also more centered on credit management than savings. Credit unions do offer ad hoc advice and financial education to clients, but usually specific to particular decisions or life events such as purchasing your first home.

Scalability is a serious challenge in creating more comprehensive financial education and improvement programs as they are usually provided by non-profits or governments. Psychological research suggests that for financial improvement programs to be most effective, they must provide intensive interactions that produce real change to the recipients financial context. For example, automatic payment of recurring bills can reduce late fees thereby preserving resources. Also, many borrowers forego discounts for automatic payment of loan installments.


The Financial Health Check (FHC) is a voluntary, one-hour in-person session with a financial coach to help people take real-time actions to improve their financial health over time. In our test with a Credit Union, customers are solicited to sign up for a free FHC by letters and outbound phone calls. Only a subset of clients receive outbound calls from the coach as resources are limited. Sessions are conducted in the Credit Unions branches during normal business hours, with a few slots available on evenings and weekends.

The coach begins with a simple budget and balance sheet for the client and then asks the client what his or her key goals are (e.g., greater saving, debt reduction and/or lowering penalty fees). Then the coach attempts to set up automated transactions to help the client reach these goals faster. In the current test, the three possible automated transactions are automatic bill payment, a monthly transfer to a savings account or a monthly, supplemental credit card payment. Ancillary actions may include setting up direct deposit of a paycheck or signing up the client for an overdraft protection line. If the client is unwilling to set up a transaction during the session, the coach offers to send SMS reminders later.

We believe that the FHC could be a financial sustainable and scalable service because of its value as a screening tool and the impact of the treatments during the session. Those who opt for a financial health check will have revealed themselves to be lower risk. The intervention itself will change behavior sufficiently to improve financial management, and therefore reduce credit risk. Lenders will have an incentive to discount credit to these individuals or simply pay for the financial health check. This would be similar to discounts on auto insurance for taking a defensive driving course. In the long run, the service could be funded by credit providers either directly or indirectly via lower credit cost, given the better credit quality of those who opt for a financial health check. Todays credit scores like FICO are backward looking in that they rely on past behavior predicting future behavior. The FHC could provide a forward-looking view of credit performance adding a unique and powerful element to the market for credit.

Results and Challenges

About 500 clients responded out of about 25,000 unique clients solicited one or more times. Of those 500 respondents, a random 200 received a financial health check. Clients who opted for an FHC tended to be lower credit quality than those who didn’t. Those who opted to receive an FHC show a 5% higher credit score in the 6 months subsequent to response. The randomly selected subset of respondents who receive an FHC show a more rapid improvement in financial health measured in terms of higher savings and lower debt. As credit scores do not account for savings, the incremental improvement in credit score derives only from debt reduction and is small. All of these effects are statistically significant.

A number of challenges surfaced during the testing:

  • The net response rate was only about 2% including the outbound calling effort; though 15% of those reached by phone signed up for a FHC
  • There was a high no-show rate of about 35%, and is the same regardless of whether the client was contacted by phone and letter or responded just to a letter
  • Financial coach hiring and retention proved to be a challenge
  • The coach had considerable difficulty persuading clients to sign up for automated transactions (a key design element of the FHC) during the session even when there was excess cash flow in the budget. For example, only 15% of clients signed up for a monthly savings transfer during the session, though 40% committed to doing so at some point in the future.
  • The coach was only able to complete 8 to 10 sessions per week

Final Remarks

As you approach this assignment, pay special consideration to the following questions:

  • How does the FHC fit into the current financial services market?
  • How can we get providers to adopt this solution?
  • How can we scale up the product?
  • Which specific challenges can we face when scaling?
  • How do we solve the challenges which were previously highlighted?

Course Info

As Taught In
Spring 2018
Learning Resource Types
assignment Problem Sets
assignment Written Assignments
notes Lecture Notes