Coaching Can Help Families Strengthen Financial Security

Financial coaching is a way to help families take steps that are right for them to increase their financial well-being and security.

As a means to help people achieve these goals, financial coaching is different from education or counseling, although the distinctions between each can be unclear. Traditional financial education workshops provide information to people in the hope they can use what they learn in future decisions. Financial counseling is more focused on offering specific advice or providing expertise in a crisis.

Financial coaching helps people define and stick to their personal goals. It is more about planning and influencing long-term behavior than offering information or solving immediate problems. Coaches ask detailed questions to help people to set or refine financial goals and to help develop plans to take action toward those goals. The financial coach supports clients over time, holding them accountable to the plans they made together. Coaches do not follow a series of prescribed steps or set curriculum, but rather listen to their clients and build off the priorities and goals they emphasize. The ultimate objective of coaching is for people to improve their own abilities to manage their finances.

A recent evaluation conducted by the Urban Institute for the U.S. Consumer Financial Protection Bureau shows the positive impact of financial coaching. The study was conducted at two sites, one run by the Branches, a faith-based social service, organization serving Miami and Dade County, Florida, the other by The Financial Clinic, a New York City-based non-profit financial services organization. Both nonprofits recruited from people already seeking assistance from their programs. The study randomly assigned participants to coaching services and others to a control group — a very high-quality organizational method for determining the effects of a policy or program.

Study participants who were randomly assigned to a financial coach showed improvements in personal savings and debt levels, and in their credit scores. Those who received financial coaching showed an average increase in savings account balances of $1,187 relative to the control group at the New York City site, where people tended to be lower income and struggled to save. At the Florida site, people tended to be a little better off but struggled with high debt loads. The total debt of people who were coached decreased by $10,644 at this site.Financial coaching is an individualized approach, so each participant in the study experienced different outcomes based on their situation. But a number of common experiences highlighted the value of a coaching-based approach.

In addition to saving or paying down debt, financial coaching helps people pay bills on time and improve their credit scores. Overall, this study provides strong evidence that financial coaching supports families to achieve higher levels of financial security. More research is needed to explore how financial coaching works in different settings, but the flexibility of the model implies this approach should work in a wide range of situations.

New financial coaching programs are testing technology-enabled coaching using websites, text messaging and video chats. Other models use simplified strategies focused on developing a single financial goal and following up on it, rather than a more comprehensive approach.

In Wisconsin, the University of Wisconsin-Extension Family Living Programs and the Center for Financial Security at the UW-Madison have collaborated on multiple projects that have been valuable to the development of financial coaching field. Since 2008, UW-Extension has supported more than 20 workshops that have trained more than 300 financial coaches. Its Financial Coaching Strategies website provides information to develop financial coaching programs. In 2015, alone, UW-Extension-based coaches held 378 coaching sessions and trained or supported 45 volunteer coaches who each provided further services to the public.

Moreover, the Center for Financial Security has developed an easy-to-use financial capability scale for coaches to help people to measure their progress over time. This tool features six questions to inform an eight-point scale that measures an individual's financial capability. The center also maintains a financial coaching mailing list and regularly shares other outreach materials across the state, including financial coaching resource briefs, events and training invitations, a financial coaching newsletter and practitioner coaching demonstration videos.

At the federal level, the Consumer Financial Protection Bureau has invested in the growth of financial coaching through research and the direct funding of coaches for veterans and economically vulnerable consumers nationally, including one site based at a UW-Extension program. This commitment illustrates the interest federal policymakers have to use financial coaching to help people to achieve long-term financial security.

J. Michael Collins is a family and consumer economics specialist with the University of Wisconsin-Extension, director of UW-Madison's Center for Financial Security and an associate professor of consumer science and public affairs at UW-Madison.