Quantifying Financial Well-Being With Credit Karma

On September 17, 2019 the Consumer Financial Protection Bureau (CFPB) published a new report titled “Credit Characteristics, Credit Engagement Tools, and Financial Well-Being.”  The report detailed the CFPB’s findings from a joint research study with Credit Karma. For the non-millennials out there, Credit Karma is a personal finance technology company that offers a collection of products for its users to monitor and improve their credit health. Using the online and app-based service, users can access their credit scores and reports from TransUnion and Equifax, with weekly updates.

The purpose of the study was to examine how consumers’ subjective financial well-being generally relates to objective measures of consumers’ financial health, specifically, consumers’ credit report characteristics. Additionally, the study aimed to find how consumers’ subjective financial well-being related to consumers’ engagement with financial information through educational tools, like those provided on Credit Karma. Ultimately, the goal of the study was to better understand these relationships to uncover the factors that work together to determine consumers’ financial well-being and provide the CFPB with a long-term strategy for improving consumers’ overall financial capability.

For this study, Credit Karma administered a voluntary survey to 4,599 consumers, 4067 of which provided complete answers (shame on you, remaining 492), of which 2,966 had matching data (shame on you too, remaining 1,101). The survey consisted of the full 10-question version of the CFPB’s Financial Well-Being Scale, and the results were then merged by Credit Karma with the respondent’s background, credit report, and website usage data. Using the Financial Well-Being Scale (FWB Score), a standardized number between 0 and 100 which represents an individual’s level of overall financial well-being, the CFPB was able to compare the subjective financial well-being of consumers with their overall financial well-being. 

The general conclusions of the study were described by the CFPB as intriguing and novel, and warranted a more in-depth examination to assist the CFPB develop its strategy for improving the financial capability of consumers using valuable resources such as Credit Karma. Among the report’s most significant findings were: 

  • A consumer’s credit score is very strongly positively connected to the FWB score, as indicated by a correlation coefficient of 0.44, meaning that people with higher credit scores also tend to have higher FWB scores. 
  • The study showed that users of Credit Karma were significantly less likely to have low FWB scores, (scores of 40 or below). However, users of Credit Karma were also slightly less likely to have very high scores (70 or higher). Rather, most Credit Karma users had scores somewhere in-between. 
  • Individuals regularly using the credit score simulator tool through Credit Karma had an improved FWB score equivalent to a credit limit increase of $7,000.  
  • Users who regularly utilized the credit factors tool on Credit Karma, which helps individuals understand the factors affecting their credit score, had an improved FWB score equivalent to a credit limit increase of $8,300.  

So, what does this mean for you? Nothing yet. But, it’s something to keep an eye on as a potential resource for your customers to help improve their overall financial well-being.