By Janice Neumann
WWR Article Summary (tl;dr) For some people struggling with managing their finances, a “financial coach” may be the answer. Coaches can help people take a closer look at their saving and spending habits. The ultimate goal is to come up with a plan to help individuals get organized.
Say you’re a shopaholic who has racked up credit card debt, which is forcing you to skimp on essentials.
Or maybe you took a pay cut in a new job but are accustomed to certain luxuries you can no longer afford but keep buying anyway.
While financial planning may have been the traditional way to deal with these budget troubles, today many people are seeking help from financial coaches, who help clients budget their finances but also delve into the messy emotions behind money.
Victor Ricciardi, a finance professor at Goucher College in Baltimore, said traditional finance was based on rationality, not emotions. Behavioral finance emerged as a discipline in the early 1990s, becoming more prevalent with the financial crisis of 2008, said Ricciardi, co-editor of the book “Investor Behavior: The Psychology of Financial Planning and Investing.”
“Financial professionals are trained about the idea of rationality, but when trying to provide advice to clients, the clients many times reveal behavioral biases,” Ricciardi said. “A lot of the financial planning process is emotional and subjective in nature, in which most people do not process information solely based on objective or statistical numbers.”
Cicily Maton, a certified financial planner, recognized the importance of emotions in money decisions when she first counseled a client who had recently divorced and was grappling with anxieties about her life and finances. Maton, a partner at the Chicago office of The Planning Center who is a divorcee herself, recognized that talking to the client about what was going on in her life and then charting out a course of action helped her focus on what spending changes were needed.