Research
Financial Literacy Education
Financial Education: Best Practices, Filene Research Institute, 2002, Williams
Click here to download this article (PDF).
Flora Williams
Professor Flora Williams received her B.S. from Manchester
College, and her M.S. and Ph.D. from Purdue University. She
represents the School of Consumer and Family Sciences on the
Purdue University Senate, teaches undergraduate and graduate
classes, conducts research, and advises students. She is
internationally recognized in the field of family economics and
financial counseling planning. Williams was named distinguished
fellow of the Association for Financial Counseling and Planning
in 1999. In this session Williams explores the components
necessary to create and maintain an effective consumer financial
counseling program, and presents a model construct for
counseling programs. She also details both the benefits and costs
of counseling programs to the employee, the employer and the
credit union, and presents criteria for successful financial
counseling offered by a credit union.
A working definition for the process of financial counseling is this:
"A financial counseling service assists clients in the creative use of
all their resources to improve their economic well being and
quality of life. Financial counseling assumes that changes in
financial affairs and behavior are needed rather than
enhancement or merely repositioning assets. Financial counseling
is a 'change management system' utilizing knowledge and
processes. Various models of financial counseling identify areas of
change and assumptions in the delivery of knowledge and
generating alternatives for facilitation change. Therefore, financial
counseling has evolved into a multidisciplinary and
interdisciplinary profession which theoretical, comprehensive
models can encompass."
A model of the financial counseling process is shown in figure 2-1.
A model of the financial counseling process is shown in figure 2-1.
The model starts with resources, the tools we bring to the
counseling process: human assets such as physical, social and
spiritual energy; material assets including money, time and goods;
resources within the person, family, community and government;
and present and potential human capital.
Financial counseling is a discipline that has achieved professional
status. It is an approach to assist families to improve their quality
of life. After analyzing all the resources available to assist families,
the counselor next assesses the situation to determine how to
deploy available resources. We identify internal and external
resources, present and future resources, realized and hidden
resources, and evaluate which of those resources we will use to
address the problem.
Assessment also involves classifying the demands that will be
made upon our resources, including present and future demands;
priorities based on urgency and sequential implications;
opportunity costs; and creditor policy and legal implications. In
making our assessment we focus on the changes we hope to
achieve. We note barriers to change, both real and unreal, stated
and unstated, hidden and potential. Finally, the assessment
process clarifies and prioritizes the client's wants, goals, and
resources; and identifies the actions required to achieve success.
Financial counseling differs from financial planning in
fundamental ways. The focus of the financial planner is on asset
distribution and wealth accumulation. The financial planner is
likely to be working with clients who are relatively secure, and
wish to provide for their own future and the future of their heirs.
The financial counselor, by contrast, typically works with
individuals and households in need of crisis intervention. As a
result, the financial counselor needs different skills than the
financial planner. The counselor may be faced with emergency
conditions in the lives of clients, conditions that require a team of
professionals to address. The counselor is also concerned with
effective behavior modification, a focus much less likely to occupy
the financial planner.
The next step in the financial counseling model is Education. The
education step provides information to the client, explains the
methods to be implemented, and presents alternatives for the
outcomes listed in figure 2-2.
The Intervention step is what makes financial counseling different
than financial planning. During the intervention phase, the
counselor motivates the client to act, based on factors revealed
during the assessment. The counselor facilitates and refers clients,
and negotiates with creditors, landlords, attorneys and judges,
employers and hospitals. The counselor also empowers the client
by removing barriers to knowledge, willingness and ability.
During the intervention phase, clients are enabled to adjust their
lifestyle, consumption, management, and sources of satisfaction.
They learn how to handle change and crisis in times of transition
and stage of life. They are given management skills so that they
can plan, and then control, implement and evaluate the plan
they've developed with the help of the counselor. They learn how
to use available resources, and act with immediacy, courage and
communication to overcome barriers to their financial health.
Finally, the counselor coordinates and implements plans with
brokers, insurance agents, trust officers, accountants, employee
benefits administrators and attorneys. A successfully implemented
financial counseling plan takes the client from examining
resources, through assessment and education, to intervention, and
ultimately to economic well being and a better quality of life.
The counseling process is not limited to low or even middleincome
households. Individuals and families in every income
stratum are likely to need the services of a financial counselor. The
team we assemble to serve a particular client may vary based on
income and wealth, but the process is the same for princes and
paupers alike.
FORMULA FOR ECONOMIC SECURITY
The formula for economic security involves more than the client's
income, as shown in figure 2-3. It includes attitudes toward that
income, financial assets, personal assets, personal management,
community resources, durable goods and equipment for
producing non-money income, the value of simplicity, and
insurance. Individuals use all these resources to achieve economic
security. The financial counselor assists clients to control their
finances. That sense of control acts as an intervening variable
between quality of life and income, and environmental conditions.
Personal dispositions influence evaluations of life, and inner
attitudes modify the impact of environmental conditions.
In assessing the client's financial position, the counselor typically
must complete a recommendations checklist consisting of 179
separate items related to increasing income, reducing or changing
expenses, controlling credit, adjusting debt and obligations,
clarifying priorities, making decisions, managing household
affairs, evaluating financial programs, and maintaining economic
security. This checklist lets the counselor remember and make
individual recommendations, and provides a quality control tool in
training others. The recommendations are computerized so that
they can be retrieved immediately for client action.
Counselors encourage their clients to "be a champion of change."
We help clients handle crises and change, and employ several
techniques to help people deal with crisis and change. These are
usually very simple things, such as examining their costs in areas
such as transportation, housing, insurance, children's education
and funding and tax management. On the asset side we make
recommendations relative to investments, estate distribution,
home based businesses and other categories. The
recommendations the financial counselor makes are driven by the overall model we discussed earlier. It's not enough to devise a plan
and create alternatives. It's also a matter of how the client
implements our recommendations and deals with change.
BENEFITS AND COSTS
Now let's do a brief cost/benefit analysis of financial counseling
programs. Here we're talking about benefits and costs to the
employee, the employer, and the credit union.
Employer Benefits
For the employer, we know that better financial health results in
higher morale, loyalty and physical health on the part of
employees, which in turn implies greater focus on the job. We also
know that financial health produces greater concentration,
creativity and productivity. By improving financial health, we can
reduce the number of employees experiencing money problems
that affect their job performance.
Financial counseling programs are a powerful tool to reduce the
number of wage garnishments and wage assignments, and their
associated costs. They reduce the approximately 15% of all
employees that suffer wage garnishment at some time in their
working lives. As employees gain control of their financial lives,
they become more competent on the job. Both employers and
employees benefit as the interrelatedness of financial affairs,
substance abuse, and gambling problems is recognized, and
problems are confronted.
When financial counseling is used as a management tool, the
problems of addiction can be faced, and then addressed at an
earlier stage, triggering employee assistance programs and
referrals that improve concentration, and reduce workplace
accidents and tardiness. Employees make fewer mistakes on the
job because they have less financial stress in their lives. Employees
face bars to promotion when they have financial difficulties. That's
why we say that financial trouble affects not only the employee's
present, but his or her future as well.
With financial counseling, employees are likely to need less time
off from work to handle their personal affairs. If these employees
have a credit union with a financial counselor close by, they are likely to be on the job and working productively. Counseling
provides incentives to employees to continue high levels of
productivity and service in order to meet their financial goals and
get their affairs in order before retirement. A formerly productive
worker may realize that he can't retire on time, and lose his
interest in on-the-job performance. Counseling can restore the
employee's focus and his productivity as well.
Employees with access to counseling have more consistent
productivity because they're able to handle life's transitions and
unexpected events. They get the information they need to make
informed decisions.
Employer Cost
Along with the benefits, it's fair to examine the employer's costs
of a financial counseling program. First, the employer has the
cost of maintaining the service, and must assume that the cost
of counseling will be less than the cost of wage garnishments
and assignments.
There's also the cost of overhead, equipment and utilities for
housing the financial counseling service as an independent
department or entity. There are costs associated with marketing
and other support services as well. In a typical example, the
financial counseling program for an organization with 9,000
employees must support the following activities:
- Three counselors and one office manager
- These counselors provide 621 hours of counseling and
assessment
- They offer 17 hours of presentations and workshops
- They perform 12 hours in new staff orientation
- Counselors spend 13 hours consulting with other
departments
- They attend administrative meetings for 11 hours
- They spend 20 hours in continuing education
Cost of Doing Nothing
The cost of financial problems to a company can be estimated by
the procedure shown in figure 2-4. Employees burdened with
financial problems are not likely to perform at their full potential.
Therefore, employee financial welfare is a legitimate area for
management to study and address.
Likewise, a formula has been established to determine the effect
of Employee Assistance Programs, as shown in figure 2-5. If we
apply that same formula to determine the effect of financial
counseling and assume the percentage of personal problems due
to financial concerns, we can estimate the cost savings to
employers of financial counseling programs.
Benefits to Employees
The benefits of financial counseling to employees are also
substantial. Clients report, for example, "a great series of releases
from financial stress." Financial counseling for these individuals
means less family stress and fewer health disorders, yielding more
work success and productivity. Clients also report "fewer
problems off the job, and fewer problems on the job."
Clients typically expect more from financial counseling than
simple credit repair. They want to manage their money better for
greater future security. And they want to become financially
independent, rather than continuing to be virtual bonded servants
who owe their souls to the company store. These are tangible
benefits that financial counseling delivers to its clients.
With a financial counselor, individuals and families with money
troubles have someone to turn to rather than moving along life's
highway adding more debt and disrepair. With a financial
counselor, they can expect reduced monthly interest payments,
late fees and penalties. They can also achieve reduced expenses
and increased savings. They become empowered to:
- Know what needs to be done and get it down on paper to
build moral support and commitment.
- Build their confidence with defined steps to talk with
creditors and family members. Counseling gives them the
power to be in control of their financial affairs.
- Have the ease and convenience of handling their financial
affairs rather than taking time off from work.
In short, counseling helps to fulfill dreams and meet goals for
clients, because they have the information they need to take
control of their financial lives. Financial counseling assists clients
in the creative use of their resources to change behavior. People
change their behavior as a result of relationships with others who
have faith in them. Most of the people who come to counseling
need that relationship to force them to carry through on a program
of financial management that will change their behavior.
Counseling involves more than information and education. It
builds new relationships that in turn encourage solutions.
The barriers to change that we examined in our initial model of
financial counseling include the willingness and ability to change.
The role of the counselor includes addressing those barriers, and
overcoming behavioral factors. The counselor helps to reduce
anxieties in other facets of the client's life, so that change is more
accessible. Both psychological and financial factors are involved in
the counseling process.
Employee Cost
Once again, we need to consider not just the benefits but also the
costs of financial counseling to the employee. There's the obvious
time required to meet with the financial counselor. There's also
time required to gather appropriate information, and provide that
information to the counselor. If the employee is taking time off
work to do that, it must be balanced against the benefits reaped in
the counseling process.
There are confidentiality issues as well. For example, the client
must show pay stubs to the counselor, thereby giving up a certain
degree of privacy. Many clients fear that admitting failure will
reflect on their on-the-job capabilities. If they are observed
visiting a counselor by a co-worker, they relinquish more
confidentiality, because they often see seeking help as a sign of
weakness, rather than strength. Counselors make it a point to
compliment new clients on their strength in seeking assistance, to
reassure them that help is a step forward, not a character flaw.
If the client is forced to participate or recommended by a
supervisor, the counseling process may create resentment and
close the door to some alternatives. The counselor needs to deal
with these resentments, and turn the discussion to a positive
examination of options.
The client in financial counseling also pays a price in deferring
satisfactions and postponing some of the things he wants. And he
needs to get the cooperation of family members for changes in
their group priorities and practices. The greatest price some clients
pay for entering a counseling program is having to mobilize the
cooperation of every family member to set their financial house in
order. But we have found over time that family members are
usually more willing than the client might believe to make the
necessary changes.
Credit Union Benefits
First and most obvious of the benefits to the credit union of a
financial counseling program is that it fulfills and demonstrates
the credit union philosophy of people helping people to help
themselves. It also reduces the risk of costly loans, ineffective
loans, and bad loans. A financial counseling program can also
promote the use of more credit union products and services by
members. And it enhances credit union service to its members
with a relatively small additional cost of training existing
counselors, or an expansion of service through an independent
department.
Counselors are a positive alternative to traditional collection
methods, creating value added services that help members
maintain their financial health and build their long term assets.
American society increasingly is asking its institutions to fulfill a
new responsibility, to not only provide its citizens with an income,
but to educate them in how to manage their income. A counseling
program is an excellent way for the credit union to respond to
those societal demands. This is a relatively low cost, high impact
enhancement to credit union services. A counseling program
smooths out life transitions to maximize return on investment in
training employees.
Credit Union Costs
The credit union incurs costs in setting up a counseling program,
including the cost of training personnel to staff the service. Costs
include both staff training time and the materials needed to
support the program. The Boeing Employees Credit Union offers
a counseling outreach program that provides financial counseling
resources for credit unions. They train people to become financial
counselors in a week-long session. The cost is $3,200 for the first
participant, and $1,400 for each additional participant.
There are also salary considerations. My research indicates that
the cost of a single counselor in salary, benefits and support is
about $50,000 per year. If the credit union were to establish a
new department to handle the counseling function, including
support staff and separate housing, the cost might approach
$250,000 per year.
Once the program is initiated, the credit union can also expect to
incur the cost of advertising and marketing, along with continued
training for its counselor or counselors. There are professional
meetings, certification, and support publications to consider.
These support programs and materials are critical to the success of
both the counselor and the overall program. The credit union must
be willing to provide emotional support and time to present the
program and document success (figure 2-6).
The credit union may also want to analyze additional factors
connected with its counseling program, which will also incur costs.
These additional factors are shown in figure 2-7.
Finally, the credit union may encounter certain conflict of interest
issues in the process of operating a counseling program. For
example, a member may come in to apply for a consolidation loan
to pay off current debt. The counselor may determine that a
consolidation loan will only exacerbate the member's financial
problems, and recommend other solutions, such as reducing
expenses. The credit union must be willing to stand by the
counselor's recommendations, which may occasionally involve
short-term business costs. However, these costs are minimal
compared to the long-term benefit of helping to develop
financially-healthy members.
BEST PRACTICES
Armed with these cost and benefit factors, let's look at the criteria
for a successful credit union financial counseling program. The
following criteria give us standards for a professional practice.
These standards are those that are most likely to change behavior,
handle crisis situations, and optimize resources. They are
capsulized in figure 2-8:
Efficient: The program should be timely, avoid waiting periods,
be accessible and inconspicuous, offer flexible hours, and be
otherwise convenient. It should involve the client's partner if
possible, and offer telephone consulting through a call center. It
should offer crisis intervention and understand the process clients
use to respond to crises. The counselor should develop a form to
record meeting sessions, advice given, suggestions offered, and a
date and time for the next meeting.
Attractive: Surroundings and space should be professional and
attractive, with a furniture arrangement conducive to discussion.
There should be a confidential waiting area with educational
material to read.
Accountable: Three meetings should be arranged to facilitate
progress reports. The counselor should promote continual
communication, and consult with clients on their life events. The
approach should be long term except in the case of a single focus
request for information and advice. Clients usually take three
years to change their behavior and master control over their
changed consumption habits. Client and counselor should target
one task to be achieved each week. And counselors should use
open ended questions in probing for problem solving behaviors.
Offering Strategies for Change: Counselors should engage in
crisis intervention and strive for long term behavior modification.
They should use techniques for handling change in consumption,
attitude, habits, management, communication and practices. They
should address basic needs to be met, and find less expensive ways
to meet them. They should address barriers to change. And they
should apply the financial counseling change model: Increase
income, reduce wants, control, and be efficient.
Education: Effective counseling empowers the client by warning
about others' vested interests, frauds, and scams. It provides
information through sight, sound, and kinesthetic processes.
Counseling provides clients with educational materials such as
leaflets, posters, lunch meetings, and seminars in the work place.
And it offers case studies and comparisons that humanize the
counseling experience.
Presents Alternatives: Counseling should provide several
alternatives from which the client can choose, so that she can claim
the solution as her own. It should employ checklists of
recommendations for each area to guide the discussion, and to
serve as a tool for quality control of processes and
recommendations of counselors. And it should present the
advantages and disadvantages of sets:
- Alternatives to loan consolidation and bankruptcy
- Alternative loan sources
- Debt adjustment strategies and agencies
Creates a Trusted Relationship: The counselor should assure
confidentiality. The counselor should have faith in the client to
solve her problem and increase her productivity, and care about
the client as a person. There should be no effect on the client's job
performance evaluation as a result of seeing a financial counselor,
and the counselor should be empathetic and assertive.
Realistic: The counselor should personalize the client's budget,
and involve family members in ways that increase income and/or
reduce expenses, in order to be more efficient. The counselor
should address barriers to change to build confidence and hope.
Hope in turn will give the client energy and confidence to talk to creditors and family members. Counseling should give the client
the incentive to keep working on her financial problems.
Comprehensive and Holistic: The plan should follow the
financial counseling model presented earlier, involving the
application of resources, assessment, education and intervention
to produce economic wellbeing and improved quality of life.
Multi-Purpose: A best practices counseling program works to
achieve a number of purposes. It prevents future mistakes and
crises; provides credit repair, crisis intervention, self-help, and
checkups. It helps the client put money to work for maximum
benefit, and reduces the risk of loss. It assists in decision-making
such as elder care, child care, mortgage prepayment, response to
job loss, and purchase and retention of housing. A best practices
program also develops budgeting and spending plans; addresses
consumer disputes, rights and responsibilities; and gives clients a
working knowledge of all credit union products.
Effective: The counseling program clarifies steps necessary to
implement changes and solve problems. By calculating the cost of
delay it prevents procrastination. It uses behavioral science and
economic techniques to achieve client goals. It provides referral
services to EAP programs, network services, and community
resources. And it gives clients hope, control, and realistic
expectations within designated time frames.
An excellent place to gain access to the resources necessary to
implement a best practices financial counseling program is the
county extension service office. Extension educators have
materials and are willing to create partnerships in the area of
consumer finance. The Federal Trade Commission is another good
source of materials and advice.
By taking advantage of all available resources and bringing these
resources to bear on client circumstances, the financial counselor
can have a profound effect on the lives and success of the people
she serves. And as employees gain control of their financial lives,
they become more competent on the job. Both employers and
employees benefit as the interrelatedness of financial affairs and
personal difficulties is recognized, and problems are confronted.
Click here to download this article (PDF). |
