When you don’t have a lot of money to work with, trying to manage it can seem all but futile. It can feel like “money management” is best left to people who have a lot more resources. (And when you don’t have much to manage, who can afford to hire someone to help figure out how best to deploy the dollars you do have?)
And yet there’s evidence to show that a financial coach can make a measurable difference in financial well-being. In a recent study from the Urban Institute, researchers showed that one-on-one help correlated with more savings and less debt among clients in New York and Miami.
What is financial coaching? Senior research associate Brett Theodos said it may be easier to explain what it’s not. It’s not a one-off workshop (as something on a specific topic like qualifying for a home loan might be). And it goes beyond just pointing people to the tools they need to be successful — it’s actually showing people how to change their behaviors around money.
Show, Don’t Tell
Theodos gives as an example learning to negotiate with a creditor. While it’s certainly possible for a client to read about the process, coaching would look different, he said. “A coach might take a list of creditors and call the first one while the client listened,” Theodos said, “and then say ‘OK, you do the next one,’ and have the client do the next one.” Among other skills coaches teach: checking your free annual credit reports (you can check your credit scores for free on Credit.com as well), setting up automatic deposits to savings, disputing inaccurate information on credit reports and applying for income-based repayment. In many cases, a client may not have known the options existed.
And while a money coach may text or email to offer help or answer questions, they aren’t about to make a client dependent on that. They may show clients how to set up online financial tracking — or credit card alerts and reminders. But they’re there to introduce clients to tools and show them how to use them — not to become a crutch.
The clients who were studied came by several pathways and roughly two dozen referring agencies. In Miami, coaching was an employee benefit for county workers. There was no requirement that you be in financial trouble — just that you believe you might benefit. In New York, many clients came from the Volunteer Tax Assistance Program and community partners.
What You Need to Know
Theodos said clients came in with a “presenting issue,” but on questioning by a coach, that may or may not have turned out to be their biggest challenge. And while coaching is, ideally, a venture that allows coach and client to get to know one another, the average number of coaching sessions was only two. “But for some, it was two buses across town and the need for child care,” Theodos said. “People won’t do it unless they perceive a need and believe it’s valuable.”
But the fact that just two sessions produced measurable gains was all the more striking to Theodos. And, he said, it suggests that one-on-one coaching, which is more costly than holding workshops or printing information booklets, has one big advantage: It works.
If you’re looking for financial coaching, there is no central place nationally to get referrals, Theodos said. Your best bet may be to call your county or agencies that help people of modest or moderate means.
More on Managing Debt:
- The Credit.com Debt Management Learning Center
- How to Pay Off Credit Card Debt
- 5 Tips for Consolidating Credit Card Debt