AN EXAMINATION OF THE EFFECTIVENESS OF COMMUNITY- BASED ORGANIZATIONS IN HELPING LOW-INCOME INDIVIDUALS IMPROVE THEIR USE OF CREDIT AND CREDIT SCORES AS PART OF A WEALTH-BUILDING STRATEGY A Dissertation Submitted to the Temple University Graduate Board In Partial Fulfillment of the Requirements for the Degree DOCTOR OF PHILOSOPHY by Anne Roder July 2016 Examining Committee Members: David Elesh, Advisory Chair, Department of Sociology Robert Kaufman, Department of Sociology Judith Levine, Department of Sociology Gerald Stahler, Department of Geography and Urban Studies ABSTRACT In the U.S., wealth is unequally distributed across racial and income groups. Scholars have promoted numerous strategies to address inequalities in wealth, but evidence about their effectiveness is limited. This dissertation examines whether community-based organizations can help low-income individuals improve their credit usage and credit scores as part of a strategy to help them build their wealth. Credit histories and scores influence access to affordable loans and other forms of credit as well as employment and housing opportunities, insurance rates, and utility and rental deposits. As a result, credit plays an important role in individuals’ ability to weather financial crises, increase savings, and build wealth. Specifically, I assess the impacts and implementation of a program model that integrates financial education and counseling into employment services for low-income job seekers. The study uses a comparison group design to assess program impacts, comparing the outcomes of program participants to those of a matched group of low- income individuals who were seeking assistance from public employment agencies that did not offer financial or credit counseling. I use multivariate regression analysis to assess differences in the outcomes of program participants and comparison group members and to examine whether some organizations were more effective than others in helping participants achieve the outcomes. I also conduct a qualitative assessment of the organizational, programmatic, and contextual factors that influenced program implementation and outcomes across the five organizations in the study. I found that community-based organizations can help low-income individuals make progress in building positive credit histories. By combining financial education and ii counseling with employment services, the programs increased job seekers’ receipt of financial counseling relative to the comparison group, and program participants were more likely than comparison group members to have an increase in positive activity on their credit reports two years after entering the program. However, overall the program did not increase the likelihood that participants had a credit score or that they had a prime score after two years. Only program participants who had substantial recent credit activity when they entered the program were more likely than their counterparts in the comparison group to have a prime credit score after two years. Some organizations were more effective than others in helping low-income individuals achieve the targeted credit outcomes. Four of the five had impacts on whether participants had positive activity on their credit reports. One organization also had positive impacts on the likelihood of having a credit score and of having a prime score among all individuals who received financial counseling while two others had positive impacts on scores for subgroups of participants. One organization had no positive effects. The implementation analysis revealed that environmental, organizational, and programmatic factors interacted to produce differences in outcomes across organizations. Organizational and managerial experience with and commitment to the model and goals and integration of the model into the organizations’ core services were critical to effective implementation. The three organizations whose financial coaches embraced the model’s credit-building approach, which counsels individuals to use credit responsibly, had more positive impacts on credit outcomes than those that did not. The results also provide evidence that the characteristics of the communities the organizations served influenced outcomes. Communities’ racial composition was correlated with indicators of iii economic health, the presence of financial institutions, and credit availability, and the findings indicate that individuals in mixed race and majority-Hispanic communities were better able to access credit than those in majority-Black communities. This dissertation contributes to the policy and research literature in a number of ways. It uses a rigorous methodology to assess program effects, examines change in credit behavior and outcomes, assesses how implementation processes influence outcomes, and includes a broader segment of the low-income population than past studies, including those who lack credit histories. The findings provide evidence that low- income people of color face significant barriers to accessing mainstream forms of credit and suggest that policies are needed to increase consumers’ understanding of credit and access to credit at affordable rates and terms. The findings contribute to research and theory on the wealth accumulation process and can inform the work of policymakers and practitioners seeking to increase the financial well-being of low-income people of color. iv To Jocelyn. Do everything you want to do, your own way. v ACKNOWLEDGEMENTS I want to thank the members of my dissertation committee for their support and guidance. In particular, I want to thank Dr. David Elesh for his unwavering support over the past 10 years. No matter how long I had been out of touch, his response was always the same – “Good to hear from you. Onward.” His perspective on this work helped me to both think and write about things in a different way. I wasn’t around much but it’s clear that the department will not be the same without him. I wish him the best in his retirement. I also want to thank Dr. Bob Kaufman for helping me pull out the big picture while at the same time making sure my analysis and regression tables were in order. Thanks to Dr. Judith Levine for helping me think about how to frame the project, both early on and at the end. And thanks to Dr. Jerry Stahler for agreeing to join the committee for a defense in the summer and providing useful feedback to help me finish this out. I am grateful to the individuals who agreed to participate in the original study on which this work is based, including the job seekers who provided the details of their finances and access to their credit reports and to the program staff who took the time to explain what they do. I hope these efforts result in improving policy and programming. Thanks to my colleague, Mark Elliott, for continuing to put us in a position to get interesting work and keeping me gainfully employed throughout this process. Finally, I want to thank my family for their unending support over the past 10 years. It’s an understatement to say a lot has happened along the way. We lost my mom to cancer. We had a baby girl who is now almost 3. Thanks to my dad, brother, Betty, and other family members who occasionally asked how things were going and provided moral support over the years. I am most grateful to my husband, Peter, who has been vi there every minute of every day, telling me I could do this and doing everything possible to help make that happen. I could not have done this without his encouragement and understanding. I am greatly looking forward to having our weekends back and to all the adventures we will have as our family of three. vii TABLE OF CONTENTS Page ABSTRACT ....................................................................................................................... ii DEDICATION ................................................................................................................... v ACKNOWLEDGEMENTS ............................................................................................. vi LIST OF TABLES ............................................................................................................. x LIST OF FIGURES ........................................................................................................... xv CHAPTER 1. INTRODUCTION ......................................................................................................... 1 Literature Review ................................................................................................... 7 Financial Services Usage, Credit, and the Wealth Accumulation Process ........................................................................................................ 7 Financial Services Usage and Wealth Differences Across Demographic Groups ................................................................................ 11 Explanations for Differences in Financial Services Usage and Wealth ....................................................................................................... 14 Neoclassical Economic Theory and Individual Preferences ........ 15 Behavioral Economics and Bounded Rationality ......................... 16 Psychological Explanations .......................................................... 19 Structural Barriers: Discrimination .............................................. 19 Structural Barriers: The Institutional Perspective ........................ 22 Status Attainment Theory ............................................................