Methodology: The CFSI Financial Health Score®

The CFSI Financial Health Score® is designed to help financial service providers, employers, and other organizations diagnose and track the financial health of their customers, clients, and employees. The framework provides a holistic, moment-in-time snapshot of an individual’s financial health. It is designed to be simple, straightforward, and easy-to-use; a resource for companies looking to understand, and ultimately improve, their customers’ financial lives.

But the CFSI Financial Health Score® is more than simply a tool; it represents a new way of thinking about the role financial services providers, employers, and other organizations can play in improving their customers’ financial lives. The score is meant to be a starting point; a proof point that financial health can be measured and ultimately improved. CFSI hopes that this methodology will inspire others to develop more complex and sophisticated ways of measuring and improving their customers’ financial lives. 

Why a Financial Health Score?      

Financial institutions have a business incentive to help their customers lead financially healthy lives. Financial health comes about when an individual’s daily financial systems help them be resilient and pursue opportunities over time. Financial service providers can help their customers lead financially healthy lives by helping them spend wisely, build savings, borrow responsibly, and plan for the future.

But in order to do this, these companies need a measurement framework to understand and track their customers’ financial health over time. The CFSI Financial Health Score® is such a framework. Companies can use this framework to diagnose their customers’ financial needs and use these insights to develop products, programs, and solutions to help them improve their financial health over time. Providers can also share financial health scores directly with their customers, clients, or employees to help them understand how to improve their own financial health. Ongoing tracking will show whether these companies are making a meaningful difference in their customers’ lives over time.    

Overview of the Framework

The CFSI Financial Health Score Toolkit® includes three key components:

  1. A Survey Guide that provides the foundation for the financial health score          
  2. Scoring Logic to calculate financial health scores and sub-scores for your customers  
  3. Benchmarks to help you understand how your customers are faring compared to their peers

For every customer who responds to the eight questions in the Survey Guide, one CFSI Financial Health Score® and four sub-scores (Spend, Save, Borrow, Plan) can be generated. Financial health scores and sub-scores below 40 are considered “Vulnerable.” Scores from 40 to 79 are considered “Coping.” And scores 80 and above are considered “Healthy.”

Interpreting Financial Health Scores                                                   

 

Companies can use the CFSI Financial Health Score® to assess individuals’ or groups of customers’ financial health. Data should be collected at the individual level, but results can be aggregated to provide a holistic snapshot of the financial health of a customer base, workforce, or group of individuals. Companies can share the results of this analysis with their customers, clients, or employees; or they can use the results solely for diagnostic purposes.

Developing the Framework

1. The Survey Guide

To develop the Survey Guide, the CFSI research team conducted extensive industry research to identify questions from existing surveys that corresponded with CFSI’s eight indicators of financial health. Survey instruments from the Survey of Consumer Finances, the Federal Reserve’s Report on the Economic Well-Being of U.S. Households, the FDIC’s National Survey of Unbanked and Underbanked Households, and FINRA’s National Capability Study were considered. Based on this research, as well as consultations with industry experts, CFSI drafted a Survey Guide that aligned with the eight indicators of financial health.

In the third quarter of 2016, the CFSI research team fielded a nationally representative benchmarking study (n = 400) to test the draft Survey Guide. Response patterns were analyzed to identify where questions yielded high-quality results and where questions could be clarified and improved.

In the first quarter of 2017, CFSI hired an external research firm to user-test the revised draft of the Survey Guide with a select group of low-income and financially struggling consumers. The firm conducted in-depth interviews with consumers in San Francisco and Detroit to ensure that respondents accurately interpreted each of the survey questions.

In October 2017, an initial version of the CFSI Financial Health Score® was released to members of CFSI’s Network. Based on additional consumer testing, the CFSI research team revised the Survey Guide in the first half of 2018. Another round of cognitive testing was conducted with members of the University of Southern California’s Understanding America Study panel. The Survey Guide was simplified and streamlined into the current version now available in the CFSI Financial Health Score® Toolkit.

2. The Scoring Logic

To develop the Scoring Logic, extensive industry research was conducted to assess available scoring tools. The CFSI research team considered the CFPB’s Financial Well-Being Scale, the University of Wisconsin’s Financial Capability Scale, Momentum’s U.K. Financial Wellness Index, and Bain & Company’s Net Promoter Score (NPS), as well as proprietary models, such as Melius, HelloWallet, NerdWallet, and USAA.

Designing the Scale

Based on this research, as well as consultations with industry experts, the research team decided to adopt an 100-point scale for the financial health score. This scale was chosen because of its straightforward and intuitive nature, both for providers, as well as for consumers. For providers, calculating a score would be a relatively straightforward endeavor. For consumers, scores would be intuitive, given other popular rankings based on 100-point scales, such as school grades. For both groups, an 100-point scale provided a simple, linear way of understanding progress along the financial health continuum.  

Weighting the Components

To determine the relative weighting of the four components and eight indicators of financial health, the CFSI research team considered the pros and cons of equal weighting vs. variable weighting. Ultimately, the decision was made to weight the components and indicators equally because:

  • There is no evidence to suggest that one of the four components or eight indicators of financial health is more important than the others and should be weighted more heavily. This approach may be revisited as researchers and financial service providers learn more about what moves the needle on financial health.
  • Different financial institutions are uniquely positioned to improve their customers’ financial health. A lender may help borrowers manage their debt, while a prepaid card provider may help customers spend wisely. An equal weighting scheme conveys that all financial service providers have a role to play in improving their customers’ financial health, regardless of the specific products and services they offer.

Determining Response Values

Once the basic characteristics of the framework had been determined, the CFSI research team assigned values to the responses of each survey question, which were then adjusted based on expert judgements about the state of financial health in America. The team also coded responses by financial health segments; financially healthy responses were coded green, financially unhealthy, red, and responses in the middle, yellow. This color coding allowed the research team to ensure that the relative assigning of response values remained consistent across survey questions.

In the first quarter of 2017, CFSI tested this draft logic in a second nationally representative consumer study (n = 5,000). The research team continued to adjust response values, assessing how various approaches affected the mean, median, and overall distribution of financial health scores across the country.

Identifying Customer Segments                                                             

Once the Scoring Logic had been finalized, the research team employed a number of analytical techniques to identify consumer segments within the dataset:

  1. The research team conducted a cluster analysis to determine where segment cut-offs naturally occurred. Three clusters emerged. Developing cutoffs at the edges of these clusters suggested that the Healthy segment cut-off was located around a score of 80, while the Vulnerable segment cut-off was located around a score of 50.
  2. To ensure that this empirical analysis yielded intuitive results, the research team developed “archetypes” based on the U.S. Financial Diaries to evaluate whether various response patterns generated scores that were intuitively aligned with a subjective diagnosis of financial health. This exercise reinforced the team’s hypothesis that the Healthy segment cut-off was located around a score of 80, but it suggested that the Vulnerable segment cut-off was located around a score of 40, rather than 50.
  3. The team also assessed all possible financial health scores that might arise from different combinations of responses to ensure that the hypothesized segment cut-offs of 80 and 40 would not yield any counterintuitive scoring results. While the archetypes exercise described above assessed intuitive answer combinations, this analysis ruled out any counter-intuitive scoring combinations, reinforcing the 40/80 segment cut-offs.
  4. Finally, the team plotted the average number of Healthy, Coping, and Vulnerable responses from the 2017 dataset to assess existing scoring combinations from a nationally representative sample. This exercise revealed that at a score of 80, the average number of Healthy responses started to exceed the average number of Coping and Vulnerable responses. Likewise, the average number of Healthy and Coping responses started to exceed the average number of Vulnerable responses at a score of 40. This analysis further reinforced the hypothesis that segments cut-offs were located at scores of 40 and 80.

However, it should be noted that these cut-offs are largely symbolic. There are likely few material differences between an individual with a score of 80 and a score of 79. Both individuals are likely to be on the cusp of financial health and could benefit from additional guidance and access to high-quality financial products and services.

Identifying Sub-Score Segments

Next, the research team identified segment cut-offs for each of the sub-scores: Spend, Save, Borrow, and Plan. The team looked for inconsistencies in the Scoring Logic and performed a similar set of analytical exercises as the ones described above. Based on this analysis, the team determined that the same cut-offs of 40/80 applied to the sub-scores as well.

Updating the Scoring Logic in 2018

After the Survey Guide was revised in the first half of 2018, the Scoring Logic was updated accordingly. A sample of respondents from the 2018 benchmarking survey (see below) were invited to participate in a follow-up survey comparing the original and revised survey questions and responses. The CFSI research team is using the data from this analysis to compare scoring differences between the two sets of survey questions so companies can track changes in their customers’ financial health over time.

3. The Benchmarks

The Benchmarks that accompany the CFSI Financial Health Score® are designed to help companies interpret their customers’ financial health scores. The 2018 CFSI Financial Health Score® Benchmarks are derived from the first annual benchmarking study fielded as part of the ongoing U.S. Financial Health Pulse. The University of Southern California Dornsife College’s Center for Economic and Social Research fielded this nationally representative study to their online panel, the Understanding America Study in May 2018.

Next Steps

Just as financial service providers are never done striving to improve their customers’ financial health, CFSI will continue to update the CFSI Financial Health Score® framework to make it as accurate, precise, and actionable as it can be. Over the next few months and years, we will be working with companies to test the framework with their customers and provide us with actionable feedback.

But we can only do this with your help! Explore the CFSI Financial Health Score® Toolkit today to begin diagnosing and improving your customers’ financial health.