CFEE Guidebook

11 BUILDING FINANCIAL CAPABILITY THROUGH FINANCIAL COACHING success stories, Chiara, is an example of an ESL student who was able to follow a strategy to save money to pay for two years of a nursing degree, with the guidance of her financial coach. She credits the coach for helping her to change her habits of saving and to realize her dream of becoming a registered nurse. Financial Literacy Education Is Important – But It’s Not Enough The lack of financial capability among adults in the US is a serious problem. Findings from the 2018 FINRA Foundation Financial Capability Study show that levels of financial literacy are actually declining. 4 In addition, the gap is widening between those who are financially secure and those who are falling behind due to economic distress. Among other alarming findings, the study shows that nearly half of all Americans do not have sufficient savings to cover expenses for three months, and close to 40% of adults believe they have too much debt. This implies that more adults are financially insecure, and fewer parents are able to save and pay for their children’s college expenses. The study also finds that almost half of adults with student loans regret taking out too many loans, and they admit not fully understanding how their debt obligations would affect their finances. In light of this data, it is critical for institu- tions of higher education to do a better job at helping young adults gain skills to manage their financial lives. The FINRA study indicated that individuals who participated in ten or more hours of personal finance training reflected better financial health than those people who had no access to financial education. While traditional financial education is a factor in building financial knowledge, some practitioners will argue that it is not enough to assure financial health in the long run. Personal finance information that individuals get from a single event or series of workshops or classes does not necessarily lead to behavior change. Research studies have shown that workshops and classes can help raise awareness about important financial topics, but they may not influence participants to change or build new habits. 5 One of the reasons cited for this is that individuals do not tend to retain or respond to information if it is not relevant to their lives at the time. Financial behavior is also affected by a number of other factors, such as parental guidance, cultural practices, and personal motivation. One-on-one financial coaching is a more sustainable technique for behavior change, because the coaching sessions are designed to address an individual’s unique financial situation and then work to achieve the goals that they identify themselves. Changing habits takes time. The role of the financial coach is to help students develop new financial behaviors and reinforce those skills over the course of a semester or academic year. Coaching Model and Outcomes Motivated by evidence from behavioral economics, we launched our financial coach- ing program as a pilot project in 2015. The challenge presented to us was to design a set of interventions to help students set measur- able financial goals and guide them toward achieving those goals, while also changing their financial habits and adopting new behaviors. This involved a paradigm shift in our think- ing. Prior to this time, our financial education approach consisted of offering workshops and classes to a variety of student groups and clubs. We had been collecting feedback from the workshop sessions, but we had very little