Why coaching? Why not counseling or advising or educating? While all of those topics are necessary to constructing a healthy financial life, coaching is very different. Let’s take a look…
So what exactly is Financial Counseling? Usually, it means that you must stop paying your creditors; instead, you make one monthly payment to a debt management company or credit counseling agency, and they disburse your payment to your creditors. The debt management company can also contact your creditors to negotiate lower interest rates. Essentially, they take all of the control of your finances away from you.
What is a ‘Financial Advisor’? A financial advisor provides financial advice or guidance to customers for compensation. Financial advisors, or advisers, can provide many different services, such as investment management, income tax preparation and estate planning. They must carry the Series 65 license to conduct business with the public; a wide variety of licenses are available for the services provided by a financial advisor.
However, “Financial Advisor” is a generic term with no precise industry definition, and many different types of financial professionals fall into this general category. Stockbrokers, insurance agents, tax preparers, investment managers and financial planners are all members of this group. Estate planners and bankers may also fall under this umbrella.
What may pass as a financial advisor in some instances may be a product salesperson, such as a stockbroker or a life insurance agent.
Financial education is very important so that you will understand what is being discussed. Do you know what your interest rate is and how much in dollars that will add to the amount you owe? do you know the difference between the interest rate and the Annual percentage yield (APY) on your savings account? These are good things to know in order to manage your finances well.
But… what about Financial Coaching – how is it different from the above?
Financial coaching uses a “strengths-based” approach. This means that coaches focus on improvements, rather than deficiencies or problems. Clients are encouraged to define what they do well and build on those strengths. Ideally, the coaching approach empowers clients to take more control over their personal finances and financial management behaviors. Coaching also can help people feel more confident about their financial lives.
This strategy encourages clients to think critically when considering what is most important to them in their financial lives, and how best to achieve their personal financial goals. Financial coaches generally do not directly intervene or act on a client’s behalf. Instead, coaches hold clients accountable to take on financial planning and other tasks on their own, providing guidance, subject matter expertise and encouragement during the process. Financial coaches encourage clients make their own financial goals, help clients refine strategies to achieve those goals, and follow up to help clients focus on their intended actions.