Many people across the income spectrum—but especially those living paycheck to paycheck—are searching for ways to achieve greater financial stability, and there are some programs and policies to help. These supports have expanded beyond traditional approaches like homebuying seminars or bankruptcy counseling to include things like child savings accounts, text-message reminders and financial management apps, and in-depth one-on-one financial coaching.

The use of financial coaching in particular has grown rapidly across the United States in recent years, but not everyone is familiar with this approach. Here, we explain what financial coaching is and how it works, and touch on a few lessons from our new study of two coaching programs that we conducted with support from the Consumer Financial Protection Bureau (CFPB) and the Annie E. Casey Foundation.

What is financial coaching?

Coaching uses a coach-client relationship and regular one-on-one sessions to set goals and plan concrete steps to meet and manage intermediate- and long-term financial goals. While financial literacy programs focus on transferring knowledge, coaching focuses primarily on changing behavior. Unlike financial counseling, coaching takes a client-driven approach; instead of focusing on solving a single problem with a set structure, the coach provides a framework for the client to meet his or her goals.

Since the early 2000s, the growing number of coaching programs nationwide has been assisted by foundations, corporations, and government. More recently, in May 2015, the CFPB launched its Financial Coaching Initiative, which will place 60 certified financial coaches at organizations around the country. At present, there isn’t a single “model” for coaching programs: for some organizations, coaching is one element among many services offered; for others, coaching is the main service offered. Similarly, while some organizations focus on actual coaching, others focus more on providing resources, assistance, and training.

How does coaching work?

Given coaching’s individualized nature, its intended effects may differ quite a bit depending on the client or the program, but there is nonetheless a defined pathway to success, illustrated by the programs in our study.
First, coaching is designed to be a long-term relationship, and clients are expected to attend multiple sessions over time. As one coach in our study noted:

“[W]e know that in order to really have an impact on anyone’s life…we need to see them [several times]. One meeting is not enough, two meetings could be in very few instances, but three or four meetings, three or four meetings we see where people start achieving our outcomes.”

During the first session, clients provide personal and financial information and work with coaches to pull and review credit reports, discuss and set financial goals, and plan steps whereby clients can meet those goals. Goal-setting is a central element of coaching. One coach in our study explained the importance of “SMART’”goals (SMART stands for Specific, Measurable, Attainable, Realistic, Time-bound):

“A SMART goal is one that can be broken into steps, where you can to say to the client, ‘we’ll get you here by month three, we’ll get you here by month nine, we’ll get you here by month twelve. It’s going to be a lengthy process, but we’re going to get you down to the finish line.’”  

What are the short- and long-term effects of coaching?

During subsequent sessions, coaches work with clients on a range of efforts designed to lead to intermediate outcomes. For example, if a client’s objective is to improve her credit score, then intermediate steps would be to review a credit report and look for opportunities to repair it, such as disputing errors or setting up a plan to manage credit card payments. Successfully completing these steps will lead to intermediate outcomes (like an improved credit score) that in turn should lead to greater economic well-being and financial stability.

Tomorrow, we will dig deeper into some of the results from our study, focusing on financial coaching’s effects on savings, debt, and credit scores.