When we have financial well-being, 1) we can manage our day-to-day finances; 2) we have the savings, credit, and other tools to absorb a financial shock without resorting to costly fixes; 3) we have identified financial goals and are on track to meet them; and 4) we have the financial freedom to make the choices that allow us to enjoy life. Like the four corners that make a box, we need each of these elements to create the whole.
To get there we need the same interconnected ingredients, regardless of our income: access to affordable financial products and tools, and education on how to use them. AFN has resources and insights to help grantmakers investing in—or just wanting to learn more about—the best approaches for supporting financial well-being. Concrete financial products and tools are pivotal, as are the interpersonal aspects, particularly financial coaching to provide support and accountability.
AFN’s Financial Coaching as an Asset Building Strategy is a concise guide to the benefits of coaching for financial well-being.
Why It’s Important
AFN members see particular promise in the evidence of person-to-person strategies of financial coaching.
Increased on-time bill payments
Increased and more regular savings
Clarity on asset-building goals
More manageable and purposeful debt
Newly established credit or improved credit scores
More confidence in managing finances
Low and middle income families face layers of challenge. They may have debt, little to no credit, unpredictable income, and irregular savings habits. Grantmakers are investing in ways to overcome those challenges so families can move towards financial well-being. Access to safe and affordable products and tools are certainly a must. Institutions can provide the access to these financial products, as can employers or various providers on the internet. But here’s the glue needed: self-defined goals and the guidance that moves individuals to apply what they know to their own lives.
That’s where financial coaching comes in. AFN members see particular promise in the evidence of person-to-person strategies of financial coaching. Financial coaching applies techniques long at work to change health-related behaviors. A coach provides a structure for clients to tap into their own resourcefulness and develop their own solutions. Based on a client’s goals, they zero in on behaviors to improve, identify next steps and a timetable, and have a loop to be accountable and plan next steps to achieve success.
Given how much money we spend on financial education nationally—$670 million a year—you’d think we’d be a nation of the smartest spenders and savers. But studies show less than one percent of financial behavior changes from education. While this fact only increases the importance of financial coaching, it also spurs a careful look at how to improve the impact of those dollars. Thankfully, research tell us how to change financial behavior and this research can also help improve coaching activities. Information provided in education or coaching must be specific, covering just one topic at a time; relevant and related to an issue participants can actively change now; and “just In time”—delivered right before participants have to take action.
AFN members are investing in this growing arena that includes financial coaching and are dedicated to growing the knowledge base on its effectiveness for long-term behavior change.
“Financial well-being is crucial at both the micro and macro levels. We need to ensure we’re empowering people to make meaningful changes in how they approach their personal finances, while also advocating for community development efforts that will put households on solid financial footing.
Michelle Beer | United Way of Central Indiana