Party conference season has begun and all the major parties are putting forward their vision for the UK. In the fringe events there will be debates about how to tackle the biggest challenges ahead – Brexit, climate change, the housing crisis, and many others. Most relevant to us are discussions on how the different parties plan to boost the financial resilience of households. These debates provide the rest of us – service providers, practitioners, researchers, campaigners, etc. – an opportunity to reconsider whether our current approaches to financial health are achieving the best outcomes for households and communities.
Our goal at the Financial Health Exchange is to create an “ecosystem” which enables households to be financially resilient, with each sector (financial services, housing, local government, advice services, etc.) playing a role in achieving this. Achieving this ecosystem requires us to develop a shared model for financial health policy and practice.
We have developed our own model for developing and assessing good policy and practice, which recognises that achieving financial health for all requires:
- Individuals who are empowered to use their money in a way that optimises their financial health;
- An environment that enables people to access the products and services they need and want; and where all sectors recognise where they can help as well as cause harm to people’s finances;
- An overarching policy framework that is human-centred and places value on people’s lived experiences of poverty and exclusion.
In this blog post we explore a financial empowerment model being developed by Kim Stephenson, Occupational Psychologist and former financial advisor. He is advocating for an approach to financial capability that he believes will help to empower individuals and help them maintain their financial health for the long-term.
Financial Triage and Concierge: a model for empowering individuals
In the UK, money worries are in the top three causes of stress (the other two are job worries and family and relationship issues). Not surprising, because in June 2016 the average UK adult had a debt of £29,379, around 112.2% of average earnings.
But it’s not actually about money. It’s not the money that loses sleep, makes poor choices about saving and borrowing, gets bored (with the job and/or not having “enough” money) and goes for retail therapy, ignores “good” advice, develops bad habits like alcohol abuse, or becomes depressed. Of course, it’s people who experience these complex mental and emotional states, and it’s within these states of mind that people are trying to make decisions about what to do with their money. There has been an increasing focus among policymakers and service providers in increasing people’s financial capability and financial literacy in order to improve financial health and decrease debt. The thinking goes, “If only people could better understand the money and how it works, they will be able to make better choices”, and then they shape policy around this. But a policy to help people manage money needs to focus on people, not money. The money is just a tool, and it’s a simple tool. People are unique; the brain is the most complex single entity in the universe and even twins (with the same genes and environment) are each unique.
However, the complexity and uniqueness of people mean that it’s hard to know what to do, and how to do it.
Whether it’s a resident struggling with debt, a tenant unable to pay their rent, or someone who has recently become unemployed; here is a (simplified) example of what this complexity looks like in practice:
- A client is advised how to budget and economise, negotiate with creditors, claim all appropriate benefits, but still has negative income. They don’t seem to respond to the advice on setting a budget, they have an adult child at home who makes no contribution, and when some progress is made they celebrate with a session of “retail therapy” that makes them worse off than before.
The advice about the money is useful, but there is no help with the personal issues, the inability to cope, such as prioritising urgent debt, handling a zero-hour contract and consequent irregular wages, the inability to speak calmly about money to a partner and child and the impossibility of building up any savings as a “rainy day” fund. And that is not to mention any possibility of clinical depression, or the disabling effect of the gloom of seeing no end to the situation and no possibility of a “happy ending”.
No advice in any current model – not from an Independent Financial Advisor, debt advisor, counsellor – is going to focus on the client, what would give them a meaningful existence and help them work out realistic positive goals – it only deals with the money and the negative emotions. So it doesn’t actually help the client change behaviour, and they are stuck in a situation of being offered useful advice they are unable to take, with increasing frustration on all sides.
So despite efforts to close advice gaps and provide more holistic financial support, the fact of the matter is that no provision of advice and guidance is yet good enough to meet the needs of people’s complex and unique financial lives.
Over the last few years, I’ve been developing a model for financial support which offers a two-part solution:
1 Financial Triage
Taken from the medical idea of prioritising wounds, this breaks the issues (with people, not money) into five categories.
- Coaching: Support to identify values and goals. For example, “what do I want my money to do for me”, “when I’m out of debt, or retire, what will I do differently?”
- Counselling: Support to deal with negative emotions, depression and self-destructive behaviours (such as being unable to make any decisions), including communicating about money.
- Debt advice: Dealing with creditors, debts, and support with budgeting. This should also include helping the client to maximise income where possible through benefits, grants, and local social fund schemes.
- Financial advice and guidance: Advice and information about financial products such as pensions, investments and other regulated areas, and generic advice and guidance on subjects such as saving and borrowing.
- Career coaching: Advice and support about increasing income through employment (for those unemployed or those in employment but wanting to increase wages), support to find more fulfilling work, and support for entering retirement.
There may be more than one issue, but these can be assigned to a simple urgent/important scale.
So, for the client in the example above, the financial triage might look like this:
What would a meaningful life be?
What could a future job be?
Budget plan longer term.
Communicating with family about financial priorities and income
High urgency and importance
Debts that jeopardise home, fuel supplies or liberty.
Mindset that prevents decisions or actions.
Low urgency and importance
Dealing with anxiety, depression long term – given motivation, goals.
Retraining, job change, engaging with job.
Short term budget.
This model works with the client, as opposed to forcing them to accept whatever is offered, irrespective of priority or reality in their situation.
- Financial concierge.
This is providing the right advice, at the right time.
In the example above, it would need to start with the urgent and important, contacting creditors, sorting out the immediate problem debts and enabling the client to take action and consider possibilities for change.
Then the focus would shift, possibly to other debts, or to working on the lifestyle, creating a positive vision and goals for motivation. This would need to be shared with the family, to enlist their cooperation and support, and an immediate budget plan made. Longer term, other elements would be brought in, shifting between the five areas of advice as appropriate to develop the client’s capability to manage themselves and their money. Unless there is enough to spare in the budget (when priorities are assessed and an adult child contribution is included) this still may not remove the negative income (it’s not a magic wand). But it opens up the possibility of changing, retraining, creating income as well as reining in costs. It changes the mindset, and hence the behaviour.
This model requires staff who have a reasonable knowledge of a range of client needs – so they are able to build the right partnerships, refer to other specialist advice when needed, and resolve resource conflicts.
Overall, it’s about aiding people to help themselves make better choices and take useful actions. This model is about providing support for behaviour change in the long term so that a person’s habits, i.e. their “automatic” responses to situations, help them cope instead of digging them in deeper.
This means the clients learn about themselves, their own habits, strengths, issues, decision making style. The goal is to allow them to become able to solve problems for themselves, so that the only input they need from “experts” is information to do even better, and they’re no longer dependent on aid for basic financial survival.