The Path To Financial Health Goes Deeper Than Advice

If you know someone who is overwhelmed with credit card debt and you’re eager to help improve their financial health, you might think the best approach is to give them financial advice, like suggesting debt repayment strategies or consolidation services. While it may seem helpful, it’s crucial that you do not simply offer financial advice. As a professor of finance, I like to tell other people what to do with their money. What I’ve learned, however, is that the moment I tell others what to do with their money, I’ve already failed in truly helping them. Simply telling people what to do, or giving financial advice, is a strategy that is doomed for failure.

Study after study provides evidence in support of this conclusion. For example, a 2017 study in the German Journal of Business Economics found that two-thirds of the 6,000 households they studied completely ignored financial advice that was both economically sound and customized to the individual. A 2010 Rand working paper took a more in-depth approach by offering personalized advisory services focused on retirement planning. The results showed that much of the advice provided to participants was largely disregarded.

Not Ready For Financial Health

The book, Facilitating Financial Health, makes the argument that only 20% of people who need to make a necessary change are actually ready to make it. That means that, if your friend comes to you in financial trouble, there is an 80% chance that they are not ready to make the necessary change. This is the biggest reason why simply providing financial advice to help people is a strategy doomed for failure.

Why is this happening? Psychology theory can provide one explanation. The transtheoretical model of change, developed by James Prochaska and Carlo DiClemente in the late 1970s, is a framework for understanding how people change their behavior. In this model, people are always in a different stage of change, moving along in the following six-part process:

• Pre-contemplation: No intention of changing behavior.
• Contemplation: Aware a problem exists but no commitment to action.
• Preparation: Intent upon taking action.
• Action: Active modification of behavior.
• Maintenance: Sustained change with new behavior replacing the old.
• Relapse: Fall back into old patterns of behavior.
• Pre-contemplation: It loops again in an upward spiral as people learn from each relapse.

Unearthing The Wealth Of Financial Facilitating

Using the transtheoretical model as a guide, if I only offer financial advice, I’m effectively reaching those in the preparation or contemplation stages of change—about 20% of the population. This approach, however, misses the majority (roughly 80%) who are in other stages. If I want to help someone more effectively, I need to become a financial facilitator. A financial facilitator walks alongside people, meets them where they are, and helps guide them toward meaningful change.

In their book, Facilitating Financial Health, Klontz, Kalhler, and Klontz provided 10 principles for facilitating:

1. Co-create with the other person. Let the person you are trying to help be the expert in their own lives.
2. Be non-judgemental about how to help the other person. Your job is to help clarify what they want to know, not assume you know what they want to know.
3. Be competent in the subject you are discussing.
4. Have integrity – make sure you do as you say.
5. Be more of a teacher and mentor instead of a guru or drill sergeant.
6. Begin every conversation as if you know nothing, which helps you be available to actually hear what they are saying.
7. Be fully present with the other person.
8. Be flexible to change your approach in helping the other person.
9. Be a constant encouragement. Help them gain confidence that they can change.
10. Empathize with their circumstance. Make sure and listen in a way that clarifies and amplifies the client’s own experience and meaning.

I know I am being a financial facilitator if I am listening more than speaking and asking mostly open-ended questions.

Finding Financial Health Together

For example, asking a closed-ended question like, ‘Don’t you want to be free from credit card debt?’ may just lead you to unload financial advice on someone who likely isn’t ready for change. Instead, you could ask: “How does your credit card debt affect your life?” This approach opens up a healthy conversation, fostering a deeper understanding of the other person’s situation. This approach also allows for empathy and collaboration as you work together to find solutions.

In summary, instead of jumping straight into giving financial advice, try taking a different approach. Radically improve the financial health and well-being of others by walking alongside them, understanding where they are, and creating a path forward together. This is the way of the financial facilitator. It’s more fun, too. Not only will you help make meaningful changes in others, but you’ll also strengthen your relationships in the process.