What is the Difference Between Financial Counseling and Coaching?
Understanding the difference between financial counseling and financial coaching can save you precious time and set you on the right path towards financial wellness.
(This post was updated from its original publication date of April 6, 2023.)
Greetings, Talking About Money community!
I frequently see this topic bubble up in the many networks that I belong to, so I want to delve into this question, “what is the difference between financial counseling and financial coaching?”
This is an exceedingly important question as you do your research to decide which practitioner is going to be right for you at this stage of your financial journey. And as a professional who is both an Accredited Financial Counselor (AFC) AND an Associate Credentialed Coach (ACC), who better than me to explain the difference!
Let’s dive in.
What is financial counseling?
According to the Association for Financial Counseling and Planning Education, financial counselors meet individuals and families where they are and help them build a strong financial foundation. More broadly, counseling provides a trusted space for problem solving between and expert and a client. Financial counselors are skilled at working through difficult financial situations up to their resolution.
Professionals who hold their AFC accreditation prove their expertise in areas such as:
Gathering information relevant to your financial situation
Creating an achievable action plan
Developing personalized financial statements, ratios, and spending plans
Helping you to effectively manage money, credit, and debt
Educating you about major acquisitions (such as a home)
Helping you to manage financial risks
Discussing investment basics with you
Educating you about the financial aspects of retirement and estate planning
According to PositivePsychology.com, counseling is typically retrospective, meaning that it looks into the situation that has evolved over time. You might consider working with a financial counselor because you have a financial problem that you want help solving, either of your own accord, or due to falling victim to some sort of financial predator.
Financial counseling tends to have “why” orientation, in that the counselor is going to work with you to figure out why you are in the financial situation that you currently find yourself in, and what are the necessary steps to help get you to a better place. There may be a behavioral aspect to counseling, where the counselor might prescribe to you a better way for you to use your money, and you report back to the counselor on how your behavioral modification plan is going.
Financial counselors tend to take the time to collect your financial information so that they can review and analyze it. As they are financial experts, you can feel safe in following their advice. Financial counseling may be a long-term commitment, though this varies based on what type of service your chosen financial counselor offers. While some financial counselors work in the nonprofit sector and offer their services free of charge, others work in fields as varied as banks or credit unions, higher education, military, and the government. Still others work in private practice where you would pay them directly for their services.
Like mental health counseling, there can be stigma attached to financial counseling, as you may believe that you need to meet with a counselor because you have done something wrong. It is important to recognize that the American financial system is quite complex, and few adults learned adequate financial literacy either at home or while they were in school. Further, systems of oppression such a racism, sexism, and ableism keep people back from reaching their full potential. Financial counselors can work with you to solve past financial problems that have been keeping you from leading your best life.
Okay, I’ve got that. So, what is financial coaching?
The International Coach Federation defines professional coaching broadly as partnering with clients in a thought-provoking and creative process that inspires them to maximize their personal and professional potential. The ICF is a credentialling organization that offers three levels of professional coaching credential: Associate, Professional, and Master. While professional coaching is not yet a regulated profession, training and credentialing is highly encouraged in this field.
Professor J. Michael Collins of the University of Wisconsin-Madison defines financial coaching as
…regular one-on-one sessions with clients to ‘coach’ performance improvements to meet goals mutually set by the coach and client. Coaching is differentiated from counseling in that coaches are not “experts,” but instead they provide encouragement and monitoring over advice and do so in a process largely driven by the client.
As Professor Collins’ describes it, professional financial coaches do not necessarily need to be financial experts (though it is indeed preferred) but rather have mastered the skills of coaching in order to serve the identified goals of their clients.
According to PositivePsychology.com, professional coaching includes several specific characteristics. Coaching is generally future-oriented, without much attention or weight given to past life events. Rather, you work in partnership with a coach to examine your current resources—both external and internal—as well as your capacity to change so that you can reach your goals.
Unlike counseling, which often is designed as open-ended, coaching more frequently is designed as short-term and time-bound, where you as the client commit to a specific number of sessions or a certain period. Further, coaching does not have a diagnostic element; it is unusual to see a financial coach preemptively gather all your financial account information for review and analysis without you specifically requesting this to happen. There may be little to no data collection or measuring metrics of success beyond your own satisfaction with the coaching engagement.
Professional coaches assist you in clarifying your goals and assessing your readiness for change. Fundamentally, coaches view their clients as “creative, resourceful, and whole,” and have full faith in them to achieve their goals during the timeframe of the coaching engagement.
Okay, now I understand this difference. Why is this important?
There are marked differences in the professional attributes of financial counselors and financial coaches. Financial counselors are trained in the elements of sound money management and harness their expertise to assist you in adopting positive financial knowledge and skills in your own life. They help solve financial problems and can offer you sound financial education. Financial counselors are invaluable in a financial system that preys on the financially insecure and they help fortify their clients with individualized solutions to their problems.
Financial coaches, while frequently experienced personal finance experts, do not lead with this aspect of their professional background and training. Coaches enter a professional partnership with their clients to support them in achieving their self-determined goals. Coaches believe in your ability for growth and utilize their coaching skills to work with you to unlock your external and internal resources and capacity for change.
It’s important for you as a consumer to understand what each modality entails because each skill set is unique and provides value in its own way. If you are trying to get out of credit card debt, a skilled financial counselor can work with you to discern what caused you to get into debt in the first place, to reflect and consider better spending choices going forward, and to learn how to advocate for yourself to credit card companies and credit bureaus.
If you want to get on track with your retirement savings, a skilled coach can work with you to help you recognize the importance you place on retirement security, to identify your personal characteristics that will buttress your attempts to establish new savings habits, and to serve as an accountability partner as you try out new perspectives and actions.
Finally, can a financial counselor practice coaching skills, and can a coach pause to listen to a client vent about their past? Yes, and yes. Many of the strongest financial counselors I know utilize the skills of active listening, being comfortable with silence, and maintaining curiosity. Financial coaches that I work with adhere to high ethical standards, maintain confidentiality, and express respect and non-judgement of their clients. While there is certainly an overlap between the two modalities, for you to have the best experience in solving your financial problems or achieving your financial goals, it is important to seek out the credentialled professional who offers what you need today so that you can experience the best results.
Resources:
Find financial counselor or coach: https://findanafc.org/
Learn more about the Dragonfly Signature Coaching Program: https://www.dragonflyfinancialsolutions.com/financial-coaching
What do you think?
What do you think would enhance your financial life right now, solving a problem that’s been plaguing you for some time, or getting “unstuck” and finally on track towards accomplishing a financial goal that you’ve been dreaming about?
What else are you curious about with regards to financial counseling or coaching?
Share your thoughts with this insightful and supportive (and did I mention good-looking?) community in the Comments Section below, or on LinkedIn (in the footer).
Thanks, stay safe, and be well.