Can financial counseling be used as a tool to help alleviate financial-related depression symptoms in adults?

Quick Summary

The literature examined by the authors considered the relationship between financial stressors and mood disorders–specifically, depression. They found that generally financial stress is positively related to depression symptoms.  In addition, three key factors affect the relationship: 

• Having a lower income leads to more economic uncertainty, unhealthy lifestyles, etc. (social causation)
• How the financial stress is viewed by the person-how manageable or unmanageable is the current financial situation (does it cause psychological stress)
• Already having a mental health disorder (social selection).

Key Insights

The authors noted the following key findings:

• Lower level of household income is related to a higher risk of depression symptoms
• A decrease in household income is related to an increased risk of depression symptoms 
• Small numbers of household assets (cars, furniture, etc.) are related to an increased risk of depression
• An increase in household wealth is related to a decrease in risk of depression symptoms
• Debt is positively related to depression symptoms but varies based on the type of debt
• Current financial hardships matter most in terms of depressive symptoms
• Financial strain (current or in childhood) may affect depression symptoms
• The correlation between financial stress and depression symptoms is more pronounced in lower-income groups

My A-HA Moment

My client’s mental health can be affected by their financial health and this is an important consideration, especially for those clients who may come from a lower socioeconomic status. In particular, recognizing that some of my clients dealing with unsecured debt could be affecting their mental health, I will focus on improving their situation through financial counseling, focusing especially on debt management–hoping to foster a positive effect on their mental health. 

Continuing the Discussion:

As mental health issues have increasingly been part of the national dialogue, I am interested in learning more about changes to your best practices. 

• How are you considering a client’s mental well-being in tangent with their financial well-being?
• Have you changed your client conversations around financial-wellbeing and mental health?
• Could financial counseling community outreach in lower socio-economic areas decrease depression symptoms?

Written by: Jennifer Witkowski, AFC® Candidate

Read the full research paper here. 

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The First-Generation College Student

First-generation students now comprise a third of all college enrollees. They  are undergraduates whose parents do not have a bachelor’s degree or higher. They tend to be from lower-income families and are often non-traditional students.  Almost half of first-generation college students are either Hispanic or Black.  For Hispanic students, the primary language spoken at home is often Spanish, adding to the challenges faced by the students and their families.

My Story–Yolanda

As a Hispanic and a first-generation college student once myself, I am keenly aware of some of the obstacles.  I remember being unaware of the availability of financial aid, and, as a result, I missed out on many opportunities.  Although I was a good student, I limited my choices for college based on proximity to home and cost.  Going to school and working at the same time made unpaid internships and other extracurricular activities challenging.  Additionally, once I graduated from college, I became the primary source of income for my single-parent family.  Financial literacy was not something I learned at school or home, and, as a result, I had to learn many difficult lessons along the way.

Why is this Important?

By recognizing the unique challenges of first-generation college students, financial counselors and educators can be a part of the solution. The first-generation college student dropout rate is four times higher than that of the students who have at least one parent with a degree.  Moreover, only about 25% of first-generation students graduate within four years; the majority graduate, on average, within six years. The COVID-19 pandemic has only exacerbated these issues, with many first-generation students experiencing more significant challenges adapting to online instruction or the reality of having to work to assist a struggling family.

First-generation college students often work during college yet tend to graduate with more student debt. Because of cultural barriers and a heavy burden of responsibilities, they are sometimes on the periphery of traditional college life, unable to partake in many extracurricular activities that are rites of passage for many college students. In particular, these first-gen students are often limited in the classes they can take because of work and family responsibilities. These disadvantages are compounded by limited access to unpaid internships and study abroad opportunities, experiences that make resumes more competitive. The impacts even linger into post-college life.  After college, they may lack professional networks and expertise, so they often make less than their second-generation peers.  First-generation students often end up with a heavy debt burden without the corresponding benefit of the higher wage potential afforded by a college degree.

How we can Help

1. Help navigate the financial aid process

Educating first-generation students on financial assistance is imperative as they will likely not have money from their parents as a funding source. It is also essential to include the parents in discussions and identify ways to navigate any language barriers.  The students must rely on their parents to provide the necessary financial information to complete the financial aid forms, often requiring them to make sure their parents have filed their taxes on time and obtain W-2 or 1099 information.  In the case of undocumented parents, the challenges for the student may be more significant.  As AFCs, we are uniquely positioned to assist these students and parents through the financial aid process by explaining the different types of financial aid, scholarship opportunities, and helping with budgeting.

2. Address financial literacy

Many first-generation students do not have the same level of financial literacy as second-generation students. They also tend to suffer more from significant economic anxiety than their peers.  It is essential to educate first-generation college students on financial topics, including budgeting and credit, to help them avoid costly mistakes such as incurring too many student loans or taking on credit card debt to finance their education.  The reality for many of these students is that they have no safety net as they transition to independence. Instead, the new graduates often become the financial safety net for their families.

3. Help address imposter syndrome and “success guilt” that may hamper wealth creation

Although family tends to motivate first-generation students to obtain a college degree, the upward mobility a college degree provides can sometimes cause unintended consequences. Even the idea of leaving the family home for college can produce guilt for many first-generation students.  For others, being a college graduate can feel isolating among the extended family.  As a result, first-generation college students and graduates may find themselves dealing with issues of “imposter syndrome” and even “success guilt” due to their achievements.  Helping first-generation college graduates deal with some of these emotional roadblocks can be imperative to helping them create a stable financial future.

Contributors: Yolanda Gonzalez Lavery, ACC, AFC® Candidate, and Dorothy Nuckols, MPH, AFC®

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#ResearchWednesday

Family Communication, Resources, and Income in Adolescence and Financial Behaviors in Young Adulthood

Quick Summary: Researchers Szendrey and Fiala at Walsh University looked at the relationship between family communication and resources related to financial management behaviors of young adults ages 18 to 34. They found that parents act as the ideal first financial coach in their children’s lives as they grow, and that higher levels of communications about finances led to increased financial knowledge and better financial management behaviors overall.

Three Key Insights:

• The more you communicate to your children about proper consumer skills, the better their later life financial behaviors become, regardless of the socioeconomic level of the family.
• Parents should be aware that they are direct influences on the financial behaviors of their children, regardless of underlying circumstances.
• Financial counselors, coaches, and advisors need to learn more about a client’s financial background during the intervention stages of a session, to really understand the root of the issue.

My Aha Moment: As a mom of two young children, recognizing how important financial management conversations are at a young age is key for my children’s financial behaviors later in life. Reflecting on my own childhood, my father’s income was kept as a secret and I was handed a lot of luxury in my life. While I want to provide my children with all they need, having all they want is a point of contention, especially with my oldest. He doesn’t really understand why we can’t get the backpack with all the bells and whistles.

I realized with back to school season, this may be the perfect opportunity to once a week discuss money during homework or even dinnertime. Every childhood is different and being mindful of spending patterns and behaviors in front of your children is important. You should consider explaining the “why” of “we can’t buy that toy right now.” Children may model financial behaviors from their parents, so keeping in mind your own purchases, what our children infer from those purchases, and how can we use teachable moments to help them learn about financial concepts.

As parents, we are their first teachers. By communicating during these moments when our kids are getting back into the swing of school, we can help create a safe space to discuss personal finance education.

Questions:
How would you start the dialogue with a client about their past family communication with money?
How would you talk to a client about how they communicate with their children about money?
What tools or questions would you use?

One of my favorite places to start is the Consumer Financial Protection Bureau’s – Money as You Grow book series for children of all ages. The CFPB has excellent resources for all ages. If you’re struggling with conversations about money with your children, using their parent guides and book resources can help get that conversation started.

Guest Contributor: Sasha Grabenstetter, AFC®, Financial Planning Education Consultant, eMoney Advisors

The post Take the Time to Talk About Money appeared first on AFCPE.

1) Servicemembers Civil Relief Act (SCRA)

Included in Article II of the act is a provision that “the rate of interest on debts incurred prior to entry into military service shall not exceed six per cent per annum unless a court finds that the ability of the serviceman to pay more is not materially affected by reason of his service. Interest includes service charges, renewal charges, fees or any other charges” (Harman, 1966, p. 331). Loan providers should do this automatically, however it does not reliably occur, so the best action for military members is to submit a Department of Education SCRA Interest Rate Limitation Request to the lender along with a copy of military orders showing the borrower is now in a protected status (Congressional Research Service, 2021).

Note that the interest rate cap applies to loans made after August of 2008 and prior to military service. As noted by Dadd (2014), servicemembers must be aware that loan consolidations made while in military service may render portions of the new loan ineligible for the interest rate cap provision, so particular care must be taken when advising on student loan consolidations.

2)    Public Service Loan Forgiveness (PLSF)

Under PSLF, borrowers may have their federal Direct Loan balances forgiven following 120 qualifying monthly repayments and the balance forgiven is not considered taxable income. Annual documentation requirements of income-based repayment plans are waived for active duty military.

Since a standard repayment plan would normally pay off the loan with 120 full monthly payments, there is little benefit to PSLF for such borrowers. Under an income-driven repayment plan, however, there may be significant savings as those repayment plans could have maximum repayment periods of up to 25 years.

Keep in mind that:

• Any payments made while the loan is in forbearance or grace periods (such as while attending college under a military commissioning program) do not count against the 120 full monthly payments required.
• Excess payments made on student loans above the full required payment do not reduce the number of payments needed.
• Consolidation of Direct Loans will cause a restart of the 120-payment counter.

3)    No Interest Accrual in Combat Deployments

The third major provision made by Congress for military student loan holders is the waiver of interest payments on federal Direct Loans while deployed into designated hostile fire areas. This applies to Direct Loans made after October, 2008, including those portions of Direct Consolidation Loans which were used to pay off other federal student loans incurred after October 2008. The guidance allows for up to 60 months of zero interest while in a hostile deployment area.

As reported by State News Service (2020), the interest rate waiver has not been reliably applied and that the unnecessary costs to eligible military borrowers are estimated to exceed $100 million. As this benefit is not yet automatic, the Department of Education (2018) highlights that the military member needs to submit to the loan servicer either (a) a certifying official’s signed statement, or (b) military orders to a hostile fire area, or (c) a military Leave and Earnings Statement indicating payment of hostile or imminent danger pay.

Many of the benefits mentioned here require actions on the part of the servicemember and deserve their attention. Most military facilities have educational support and legal offices which can assist the military member in applying for and obtaining these benefits. Taking full advantage of the tools available can result in substantial savings.

Guest Contributor: Bob Armstrong, University of Alabama

References

• Congressional Research Service. (2021). The Servicemembers Civil Relief Act (SCRA): Section-by-Section Summary. https://crsreports.congress.gov/product/pdf/R/R45283/6.
• Congressional Research Service. (2019). Federal Student Loans made Through the William D. Ford Federal Direct Loan Program: Terms and Conditions for Borrowers. https://crsreports.congress.gov/product/pdf/R/R45931.
• Dadd, L. (2014). Military Matters: Compliant collections. Collector (0010082X), 79(9), 30–32.
• Donnelly, K. (2020). Navigating the Public Service Loan Forgiveness Program. CPA Journal, 90(5), 42–47.
• Feddis, N., & Savoie, R. (2016). Consumer lending to military members: The Military Lending Act final rule and Servicemembers Civil Relief Act enforcement. Business Lawyer, 71(2), 759–769.
• Harman, J. (1966). Bird’s-eye view of the soldiers’ and sailors’ relief act, a. Journal of the Bar Association of the State of Kansas, 35(4), 291-333.
• Hoyt, A. A. (2020). The top five mistakes of federal student loan borrowers. Journal of Financial Service Professionals, 74(6), 73–80.
• States News Service. (2020, November 11). Attorney General Becarra urges Secretary DeVos and Acting Secretary Miller to ensure critical student loan interest relief for America’s combat veterans. https://link.gale.com/apps/doc/A641235072/AONE?u=tusc49521&sid=AONE&xid=84cf0253
• United States Department of Education. (2020). November 2020 PSLF Report. https://studentaid.gov/sites/default/files/fsawg/datacenter/library/pslf-nov-2020.xls
• United States Department of Education. (2018). For Members of the Armed Forces: What you need to know about your federal student loan benefits. https://studentaid.gov/sites/default/files/military-student-loan-benefits.pdf

The post Thanks For Your Service: 3 Ways Military Members Can Receive Special Treatment for Their Student Loans appeared first on AFCPE.

Exploring associations between objective and subjective measures of financial well-being among older Americans.

Financial planners and counselors use various methods to measure individuals’ financial situations. One method is to calculate financial ratios and compare them to benchmarks recommended by financial professionals.This study examines three financial ratios including the liquidity ratio, the debt-to-asset ratio, and the investment ratio. These financial ratios are considered objective measures of individuals’ financial condition.  These objective measures are compared to individuals’ perceptions of financial well-being.

Goal:
The goal of this study is to explore the relationship between the financial ratios and perceptions of financial well-being, specifically for older Americans.

Results:
The results of this study suggest financial planners should use financial ratios but not overly rely on the on them as the financial ratios only tell part of the story. Educators of financial planning and financial literacy can use this study to help emphasize to students the importance of understanding financial ratios and that some ratios likely are related to perceptions of financial well-being. For example, for older Americans, this study suggests that increases in the investment ratio are related to higher increases in perceptions of financial satisfaction compared to increases in the liquidity ratio.

Guest Contributor:  Jacob A. Tenney, University of Charleston &
Charlene M. Kalenkoski, Texas Tech University

This study has been accepted for publication in the Journal of Financial Counseling & Planning. Read the full research HERE.

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In our article, “Financial Knowledge, Confidence, Credit Use, and Financial Satisfaction” we investigate the associations between consumers’ confidence in their financial knowledge and their financial behaviors and financial satisfaction. We observe that in order for customers to use their financial knowledge when making credit card use decisions, they must be sufficiently confident in that knowledge.

Interestingly, confidence in financial knowledge helps customers make better credit card use decisions and exhibit a higher financial satisfaction even when their actual level of financial knowledge is low.  Additionally, financial knowledge has a positive effect on credit card use decision and financial satisfaction even when financial confidence is low, suggesting that knowledge and confidence are complements to increased healthy credit card use and financial satisfaction. For example, we see that 1-point increase in customers’ financial confidence and knowledge is associated with a decrease of 16% and 18%, respectively, in the probability of making only the minimum payments toward their credit card balance.

Our findings suggest that boosting people’s confidence in their financial knowledge may support their ability to engage in healthy financial behaviors by helping them gain and preserve the capability to be in charge of their personal finances.

 

Guest Contributor: Dorin Micu, University of Rhode Island

Read the full article in the Journal of Financial Counseling and Planning, Volume 30, Number 2, 2019. Read a research brief on this and other financial satisfaction research HERE

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What makes people unhappy with their credit cards?  Surprisingly, it’s not the interest charges.  This paper finds that what causes people stress and dissatisfaction with their credit cards has to do with how they use the cards more than how much the cards actually wind up costing.  Being late on payments, carrying a balance (regardless of the size of that balance), going over their borrowing limit, getting cash advances, and using the card even when there is no need to do so are the factors that cause some people to be unhappy with their cards.  Another key finding of this paper is that these factors bring dissatisfaction only to those who are risk averse.

This is useful to financial counselors and planners because it suggests that showing a client the financial costs of credit card overuse and mismanagement is unlikely to be effective at motivating change in behaviors for clients.  Rather, this study suggests that planners and counselors should point out to their clients how improving their credit card usage can relieve the stress of late notices and other unpleasant notifications from the credit card company.

Continue the Conversation:

Tell us what you think in the comments below or on Twitter.

Download the research (available to AFCPE members or by request from the authors): Patrick Payne, Charlene M. Kalenkoski, and Christopher Browning, “Risk Tolerance and the Financial Satisfaction of Credit Card Users,” JFCP, Vol 30(1)

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This study develops a general method for evaluating changes in response relating to students’ perceptions of personal finance and financial products using data from a sample of 1,250 students aged 16-18 who participated in a financial capability education study in the UK. We find significant changes in the responses of students towards reported career choice following the Financial Literacy Education course at national colleges in the UK.

The students’ personal learning trajectories shows that studying the relevant topic for career reasons is more likely to progress in their learning about the topic. Our interview data suggests that what may be happening is that students had often already decided on a broad career prior to their involvement in the course. Qualitatively, we also noted course impact was related to a prior expressed interest in business, more specifically an interest in business finance or financial studies.

Furthermore, our narrative analysis of the students’ educational biography data confirmed that existing patterns of behavior concerning career choice are not easy to change through educational provisions. We suggest that it is therefore of interest to policy makers to understand better the interplay between career choices and engagement in learning that is provided by the 14-19 years old curriculum.

Continue the Conversation:

Tell us what you think in the comments below or on Twitter.

Download the research (available to AFCPE members or by request from the authors): Xin Shi, Pauline Prevett, Valerie Farnsworth, Koo Chun Kwong, Wanggen Wan, Feng He, Qingqing Zhai, and Lu Zhen, “Modeling Changes to Survey Response Items Over Time in a Britain Financial Literacy Education Study,” JFCP, Vol 30(1)

The post #ResearchWednesday: Does Financial Literacy Education Influence Career Attitude? appeared first on AFCPE.

 

In Volume 30 (1) of the Journal of Financial Counseling and Planning (JFCP), Hoa Thi Nguyen’s paper presents the development and validation of a Financial Self-Efficacy Scale that was tested with women in the United States. The Women’s Financial Self-Efficacy Scale (WFSES) showed good evidence of reliability and validity. Its reliability coefficient alpha was .93. It was also positively correlated with the New General Self-Efficacy Scale, which showed good evidence for its criterion-related validity. Factor analysis showed four factors to be consistent with the common categories in financial management curricula.

1. Saving & investing
2. Knowledge about financial services
3. Financial goals achievement
4. Cash flow management and credit basics

Practical Implications:
The WFSES could be used as standardized measurement in longitudinal study and program evaluation. Practitioners could also use it in their daily practice to see how their clients perceive their confidence in managing finance. The four factors could be used as four sub-scales to measure financial self-efficacy in different aspects of financial management.

Continue the Conversation:

Tell us what you think in the comments below or on Twitter.

Download the research (available to AFCPE members or by request from the author): Hoa Thi Nguyen, “Development and Validation of a Women’s Financial Self-Efficacy Scale,” JFCP, Vol 30(1)

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Being unbanked makes it difficult for low and moderate-income (LMI) households to manage finances, save, and access credit. In this study, we assessed effects of an online tax-time savings intervention on savings account openings in the 6 months following tax filing among a sample of 4,692 LMI tax filers. New research findings lend additional empirical support for financial inclusion efforts.

What we found: That lower-income tax filers who received messages encouraging them to save their refunds were more likely to open a savings account in the 6 months after they filed their taxes online, compared to a control group.

The power of suggestion: This was a surprising finding because these were tax filers who did not have a savings account when they filed their taxes. It seems we discovered an example of the power of suggestion regarding savings. Encouraging these filers to save their refunds appeared to have planted a seed about opening a savings account.

Important practical considerations:

• For financial professionals: With savings account ownership being less common among lower-income households, financial counselors might want to consider tax season – when many of these households are receiving tax refunds — as an opportunity to encourage taking action.
• For policy makers: Policy makers concerned about financial inclusion could consider how to use tax season as an opportunity to promote savings account opening among the underbanked. Ideally this would happen by giving low-income tax filers the chance to open free savings accounts when they file their taxes.

Guest Contributor: Mathieu Despard

Continue the Conversation:

Tell us what you think in the comments below or on Twitter.

Download the research (available to AFCPE members or by request from the authors): Mathieu Despard, Michal Grinstein-Weiss, Anna deRuyter, Shenyang Guo, Jane E. Oliphant, and Terri Friedline, “Effects of a Randomized Tax-Time Savings Intervention on Savings Account Ownership Among Low- and Moderate-Income Households,” JFCP, Vol 29(2)

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