Children at Gatehouse School in Bethnal Green in London’s East End are seen in class… About Money (+), 23 January. (Photo by Albert Foster/MirrorPix/Getty Images)
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If you know someone who is overwhelmed by credit card debt and you want to help them improve their financial health, the best approach is to provide financial support, including debt repayment strategies and recommendations for debt consolidation services. You might think of it as giving advice. As helpful as it may seem, it’s important to do more than just provide financial advice. As a finance professor, I love teaching others how to use money. But what I’ve learned is that the moment I tell someone how to spend money, I’ve already failed to truly help them. Simply telling people what to do or giving them financial advice is a strategy doomed to failure.
Study after study provides evidence to support this conclusion. For example, a 2017 study published in the German Journal of Business Economics found that two-thirds of the 6,000 households surveyed said they would benefit from financially sound and personalized financial advice. Turns out it was completely ignored. The 2010 RAND document took a more in-depth approach to providing personalized advice services focused on retirement planning. Results showed that much of the advice provided to participants was largely ignored.
Not ready for financial health
The book Facilitation Financial Health claims that only 20% of the people who need to make the necessary changes are actually ready to make them. This means that when a friend comes to you in financial need, 80% of the time they are not ready to make the necessary changes. This is the biggest reason why simply offering financial advice to help people is a strategy doomed to fail.
Why is this happening? Psychological theory offers one explanation. The transtheoretical change model, 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 different stages of change and progress through a six-part process:
Pre-contemplation: I have no intention of changing my behavior. Contemplation: You recognize that a problem exists, but you have no intention of taking action. Preparation: Intention when taking action. Action: Actively change behavior. Maintenance: Continuously changing by replacing old behavior with new behavior. Relapse: Returning to old patterns of behavior. Pre-contemplation: As people learn from each relapse, it loops back into an upward spiral.
Unearthing the wealth of financial facilitation
Using the transtheoretical model as a guide, providing financial advice alone effectively reaches about 20% of the population who are in the preparation or contemplation stages of change. However, this approach misses the vast majority (approximately 80%) at other stages. If you want to help others more effectively, you need to become a financial facilitator. Financial facilitators walk alongside people, meeting them where they are, and helping guide them toward meaningful change.
In their book Facilitation Financial Health, Klontz, Kahler, and Klontz offer 10 principles for facilitation.
Co-create with others. Let the person you are trying to help become the expert on their own life. Be non-judgmental about how you help others. Your job is to help them clarify what they want to know, not to assume you know what they want to know. Be competent on the subject being discussed. Have integrity and always do what you say you will do. Be a teacher and mentor, not a guru or drill sergeant. Start every conversation as if you don’t know anything. That way, you can actually hear what the other person is saying. Be fully present with the other person. Be flexible in your approach when helping others. Please keep encouraging me. Help me to have confidence that I can change. Empathize with their situation. Try to listen in a way that clarifies and amplifies the client’s own experiences and meanings.
You know I’m a financial facilitator when I listen more than I speak and ask mostly open-ended questions.
Find financial health together
For example, by asking closed-ended questions like, “Do you want to be free of credit card debt?” You could end up just offering financial advice to people who are likely not ready for change. Alternatively, you can ask, “How does credit card debt affect your life?” This approach starts a healthy conversation and fosters a deeper understanding of the other person’s situation. This approach also allows for empathy and collaboration as we work together to find solutions.
In summary, instead of giving financial advice out of the blue, try a different approach. By walking alongside others, understanding where they are, and creating a path forward together, we radically improve the financial health and well-being of others. This is how financial facilitators work. It’s also fun. Not only can you bring about meaningful change in others, but you can also strengthen your relationships in the process.
