By Janice Neumann Chicago Tribune
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.
Maton and her colleagues teamed up with psychologist and financial coach Marty Martin, who has a master's in financial planning, about a decade ago.
"I think the difference is the level to which he has insights that I might miss because of his training and focus on the psychological issues," Maton said.
Martin, author of the books "The Inner World of Money: Taking Control of Your Financial Decisions and Behaviors" and "Taming Disruptive Behavior," recalled a couple who sought counseling because they were having trouble paying their monthly bills. After the wife became disabled and could no longer work, their financial troubles increased. The husband's entrepreneurial job was high-paying, but the income was unstable.
"In the session, she kept pushing him to stop contributing so much to religious organizations. ... If he stopped spending on that, it would save them," said Martin, who is also an associate professor at DePaul University.
"Financially it wouldn't, but it was an emotional issue," Martin said.
So Martin helped the couple look at their spending, and the wife came to realize they both needed to cut back. They realized they would need to sell their house to salvage vacations, good schools for their children and trips to the theater.
"What we do is provide a safe place to feel vulnerable, rather than try to shut it down or pretend it doesn't happen," Martin said.
But that safe place also gets down to the nitty-gritty of spending.
"Sometimes it's very simple things that make a difference ... just cutting up credit cards," Maton said. "Or saying it's Susie's account for college, (that) makes it personal."
When Gena Gilbertson, 34, racked up too much credit card debt on nonessentials, she sought out a financial coach from Thrivent Financial. The volunteer coach, who is experienced, but not certified, in financial planning, helped Gilbertson take a closer look at her personal and financial priorities. The sessions also helped Gilbertson feel calmer and pay off thousands of dollars in debt.
"I think the biggest thing is she didn't really tell me what to do, she helped me figure out what I needed to do," said Gilbertson, who works for Minneapolis-based Thrivent as a community engagement leader but is based at her Long Island, N.Y., home. "She just really asked me questions and helped me problem-solve my own situation."
That meant creating an emergency fund for the future and saving money for several charities. "I would say my spending became less emotional," said Gilbertson, who has now paid back all her debt.
For Valerie Silverthorne, 54, financial coaching has helped her and her husband plan for the future in the face of his kidney cancer. Her husband is the "primary breadwinner," but because of his illness, the couple needs to prepare financially for the future, she said.
Rick Fingerman, managing partner at Financial Planning Solutions in Newton, Mass., helped the couple map out their budget, looking at how long there would be two breadwinners, what was needed for their daughter's education and what they could live without. Fingerman suggested they sell their home in North Shore, Mass., invest the money and find a less expensive house. (They have been living in a rented home in Cambridge, Mass.). On his advice, they also asked colleges where their daughter had been accepted if scholarship money could be increased, which it then was.
"He's been amazing at really sitting down and listening to all the pieces involved," said Silverthorne, a journalist like her husband. "He gave us some common-sense advice about budgeting we all know, but when you see it in black and white, you say, 'Oh, yeah,' I really do need to pay attention to the grocery bill, rent."
Ricciardi said "framing" important choices about money and future finances can make all the difference.
"If you explain to a person, if you don't spend as much money today and save for that money in retirement, you'll be able to buy a second house, purchase a luxury car, travel the world. ... It helps paint a picture in their mind of what retirement will be like, and then a person is more likely to reach their retirement goal," Ricciardi said.