Financial problems are generally acknowledged to be a major cause of divorce, suicide, and depression in our society. Often laymen and professionals assume that financial problems occur primarily because people are inadequately trained to manage money. Certainly many people would benefit by improving their money management skills, but often dysfunctional behaviors, more than inadequate money management skills, seem to contribute to peoples' financial problems. At times people find themselves in financial difficulties because of factors beyond their control, but in many situations problems can be prevented or reduced. The financial counselor is the "change agent" who helps individuals and families work through their financial problems as they make certain adjustments in the way they conduct their lives. Laymen, although lacking training and experience, can be effective in helping individuals and families resolve pressing financial concerns.

        Effective financial counseling is commonly a three-part process. First, the counselor is concerned with helping the family arrest, at least temporarily, the financial crisis that has caused them to seek help. Until these pressures are at least partially relieved, the family will usually not be interested in anything else. Successful financial counseling, however, goes beyond crisis resolution. The second part focuses on identifying factors that contribute to the family's financial problems. The counselor helps the family clearly understand why their financial problems are occurring and helps them learn how to accept responsibility for their roles in creating them. The family members become aware of behaviors, attitudes, and financial practices that must be changed or modified if they are to adequately manage their resources. Planning is the third part of financial counseling and includes developing workable plans that will enable the family to gain control of their financial affairs. The family comes to realize that they can achieve realistic financial objectives as they learn to apply proven money management principles and practices.

        Before discussing these financial counseling processes in detail, the following procedures or skills need to be mentioned. These recommendations may help you increase your effectiveness as a lay counselor.

1. Have the individual or family come to your office if possible. The famines home environment is usually not an ideal place because of distractions. Also, families who make an effort to come to you are more likely to take counseling seriously.

2. Meet with both spouses if the person seeking help is married. Counseling with just one spouse is not likely to be effective and can sometimes do more harm than good.

3. Ask the family initially to leave younger children at home. At a later session you may want to involve all family members.

4. Listen effectively and intently. Talk less than 50 percent of the time. Maybe you know more about financial counseling than the people seeking help, but you will learn more about their situation if you do not monopolize the discussion.

5. Do not judge. No one likes to feel condemned.

6. Ask questions effectively. Explain your need to know important information.

7. Acknowledge the fact that there are some things you don't know. Be honest; don't bluff.

8. Do not give tax investment or legal advice unless you are licensed to do so. Refer those you are helping to professionals when necessary. The rule of thumb is: when in doubt, refer. You should be able to provide a list of at least three professionals who could help.

9. Maintain confidentiality. Keep everything you learn about the family in strictest confidence unless you have their permission to share certain information with a specific person. Conduct interviews in a private room with the door closed.

        The following steps provide a systematic approach to crisis counseling: (1) establish rapport; (2) identify the crisis; (3) generate possible solutions; (4) resolve the crisis; (5) follow through; and (6) evaluate results. Adapt as necessary. When a crisis confronts the family, time constraints will usually allow you to meet with the family only one or two times.

Step 1: Establish Rapport

        Put the family at ease so that they feel comfortable discussing the crisis with you. Remember, people frequently need to tell you many things that may seem foolish and embarrassing to them. Attempt to create an environment that encourages them to open up, or the effectiveness of your counseling may be diminished. The first few minutes in the interview are critical in establishing an effective counseling relationship. Therefore, be as warm and friendly as possible, and let them know that for the duration of the session, you have no other concerns but theirs.

Step 2: Identify the Crisis

        At this stage you are not as interested in causes as in identifying enough details to effectively resolve the crisis.

        Although excessive note-taking maybe distracting, there is some specific information that is absolutely essential and that you must write down. For example, to whom money is owed; how much is owed; when it is due; expected consequences if payment is not made; and what attempts the family has made to try to resolve the problem.

        As important as objective facts are, subjective information is just as essential. How do individual family members feel about what has happened? Your primary objective here is to gain an understanding of the problem as the family sees it. Let them describe the crisis. Make sure that you understand their view of the problem by restating it in your own words. Seek feedback until you clearly understand key aspects of the crisis. Try not to appear shocked by the circumstances that are presented. What they want and need is your help, not your criticism.

        Even with the use of effective counseling skills, however, some families may resist exposing their private lives. There are many reasons why a family may not adequately explain their financial problems to you, reasons such as a lack of confidence in you as a counselor, their failure to understand their own problems, reticence to expose obvious individual shortcomings, and failure to take responsibility for the crisis. In addition, sometimes one spouse will resist revealing information that is as yet unknown to the other spouse. It is important to look for clues as to the hidden reasons why one partner may refuse to be open and fair in the discussions. But remember that at this stage in counseling you are still trying to understand the problem—you are not diagnosing the causes of the financial crisis. Be sure to mentally file useful bits of information for future use. By now you should have a pretty good idea of the parts of the crisis and how they fit together.

Step 3: Generate Possible Solutions

        You are now ready to consider solutions. First of all, restate the crisis to make sure you have the big picture as the client sees it. Once the crisis has been adequately defined, a plan to resolve the crisis must be developed. Strategies that might be employed to resolve financial problems are of two types: quick fixes and term adjustments. Quick fixes are designed to defuse the present crisis but require no basic change in the way the family functions. As a result, problems are likely to occur again. On the other hand, term adjustments require the family to change certain behaviors and also to systematically perform certain procedures over an extended period of time. Term adjustments, sometimes employed in crises, are typically associated with helping the family deal with the basic causes of their financial problems and will be dealt with in greater detail in part 2 of this chapter. Quick fixes are usually more common in crisis situations and are therefore discussed here is detail.

        A quick fix is needed when a family is faced with situations such as eviction from their apartment or home, loss of utility service, or repossession of a needed personal asset, such as a car or washing machine. Before selecting a quick-fix strategy, however, you should devote a few minutes to brainstorming other solutions. Write down all possible solutions mentioned by family members that may be useful. Some combination of the alternatives listed below could help reduce or eliminate the crisis:

1. Reduce living expenses.

2. Sell assets.

a. Investments (stocks, bonds, and mutual funds)

b. Personal property

3. Increase income.

a. Get another job.

b. Seek assistance from extended family.

c. Seek assistance from Church and community organizations.

File for entitlement program benefits: disability, veterans, Medicare, Social Security, and so on.

4. Renegotiate debt-payment schedules.

5. Seek additional loans (use with caution).

a. Life insurance

b. Credit union

c. Bank

d. Relatives

e. Loan consolidation (not advised in most situations)

f. Second mortgage on home (not advised in most situations)

g. Pawnbrokers

6. Request legal assistance.

7. File for bankruptcy.

a. Chapter 13

b. Chapter 7

        Each alternative needs to be examined from a cost/benefit perspective. It is important to accurately assess what the family must give up in order to obtain the desired benefit. In some cases the suggested cures could be worse than the illness. Often lay counselors, instead of recommencing a solution, may be of more help by identifying several alternatives for the family to consider. The nonprofessional may have a limited knowledge of resources available to the family, but he can be effective in helping the family identify those resources. After all alternative solutions have been explored, work with the family to select the most desired ones. Help them identify which ones they think might be the wisest or most reasonable for them to employ. Try to obtain a consensus. Once the best solution has been identified, outline basic steps the family must follow to make it work.

Step 4: Resolve Me Crisis

        Families need to gain control of their lives by working through their problems. Counselors usually prefer not to interfere any more than is absolutely necessary. To keep interference to a minimum, you should review with each family member his responsibilities in resolving the problem. In some cases you may wish to write out instructions for the person or family and request that they periodically report back to you. When the person encounters an unexpected problem while trying to implement a strategy, you must jointly decide if it is more advantageous to adjust the original plan or to try something else.

        Creditors usually prefer dealing with their customers instead of with a third party, but a financial problem reaches the crisis stage when a creditor refuses to talk with the customer. In such cases, consider referring the family to a professional financial counselor such as a consumer credit counselor who can contact creditors, government agencies, and employers.

        If a creditor refuses to work with the family, if a community service program cannot provide needed service, or if the family does not perform their responsibilities as promised, the crisis may not be averted. This usually happens when the family waits until the last moment to seek assistance and it is simply too late to implement any solutions. However, if the problem is caught soon enough, you may be able to guide the family through the crisis.

Step 5: Follow Through

        In order for the problem-solving process to be effective, coordination and follow-through are essential. Remember, the family may have created this problem by behaving irresponsibly. In addition, people who have experienced financial problems often become easily discouraged; they may have grown accustomed to being defeated. Therefore you should not be too surprised if family members do not adequately complete all of the steps as agreed. Be prepared to closely monitor their performance and repeat Step 4 if necessary.

Step 6: Evaluate Results

        If the crisis has been successfully averted, you may wish to evaluate the solution that was implemented to determine its relative long-term effectiveness. Has the crisis been resolved permanently or is this just a temporary solution? Specifically, what must the family continue to do to ensure that the crisis does not reoccur?

        The crisis has been resolved, but without additional counseling most families will again find themselves in financial trouble. If you and the family can still meet together, you have an opportunity to examine fundamental causes of financial mismanagement and institute new financial procedures that can permanently solve financial problems.

        The second stage in financial counseling focuses on discovering and identifying factors that have helped create financial problems for the family. Initially, you must collect and organize essential information from the family. If you have not already obtained such data, now is the time to record names, addresses, and ages of the family members, as well as financial information such as income and expenditures. You may wish to develop a specific form to gather such information. (Check the references in the back of the chapter for assistance.) Ask the family to bring items such as recent pay stubs, checkbooks, and bank statements. Have them compile a list of balances owed to each creditor, indicating the number of payments they are behind. A list of important family financial goals is also useful. If possible, provide the family with a list describing the various documents to bring to the next counseling session.

        After the family has brought in their financial information, it is useful to quickly construct both a net worth and a cash flow statement. The net worth and cash flow statements are valuable in helping you and the family obtain a picture of their current financial position. A simple net worth statement will be similar to the one on the next page.

        Assets should be listed at their current market value (what each one could be sold for today). Liabilities are listed by the balances presently owed creditors. The basic formula for examining the net worth statement is: total assets minus total liabilities equals net worth. Any family with a negative net worth owes more than it owns. The size of the net worth is important. A family with a negative net worth or a small positive net worth has limited assets to use in solving financial problems.

        A cash flow statement (see the form in this chapter) once completed may be useful later in setting up a preliminary budget. You should ask all family members to realistically estimate income and expenditures for the previous twelve months. Referring to last year's bills, check registers, and income statements can be helpful.

        When examining cash flow for the previous twelve months, use this formula: total income less total expenditures equals income available for saving or investing. Don't be surprised when income available for saving or investing is negative.

        An examination of the cash flow statement holds many clues to the family's money problems. Discuss the following questions with the family: How adequate was total income [(A) on the cash flow statement]? What expenditures (B) appear to be excessive? Is too much income required to make debt payments? After the statements have been analyzed, you are ready to move on in the counseling process and learn about the family's basic financial problems.

        It is essential that family members assume personal responsibility for their financial mismanagement. If they are not willing to do this, you will probably find it extremely difficult to teach them sound money-management concepts. Typically, people will not change a behavior pattern unless they make a connection between their present actions and their current financial problems. Even so, recognition and acceptance alone are often not enough. In order for a money-management plan to be successful, each bad habit must be replaced with- a new appropriate behavior. Review how the family acquires and spends its income. Identity habits that seem to contribute to the family's financial problems. When examining each of the three problem areas (inadequate income, living expenses, and excessive debt), focus on replacing bad habits with new patterns of behavior that contribute to sound financial management.

        If you identify problems that you are not trained to handle you should refer the person to a professional. In referring someone for more extensive counseling, it is preferable to first get the individual's permission. Strongly recommend to the person that he contact the agency as soon as possible, and be sure to give the person's name, address, and phone number to the agency. In many cases, you may still work with the individual or family.

        Sometimes you must refer a person or family to a specific specialist, but in such cases it is usually a government or private agency offering a unique service. If you live in a large city you may refer them to the local Consumer Credit Counseling service (CCC), which is prepared to help them work out a debt repayment plan with their creditors. The local CCC office also teaches effective budgeting skills.

        A referral to appropriate legal services may be required in certain situations. Sometimes a family has been wronged by a creditor and needs to seek redress through the courts. In many cases, families are defendants in court actions. Most people experiencing financial difficulties are not aware of their rights under the law and do not understand "due process." Since you too may be uninformed, be certain to refer the person for legal assistance when it may be beneficial. (In larger cities, legal aid may be available at no or low cost to low-income families.)

        Often families simply do not realize what a high percentage of their income is already committed before it is even received. After subtracting taxes, payroll deductions, and debt payments from gross income, many families find that they have less then 40 percent of gross income remaining to cover living expenses. Part of what remains may also be committed to nonmonthly expenses such as car insurance and real-estate taxes, which are seldom budgeted for adequately. In some cases, the families do not have any particular plan for spending their income, and since their income and outgo are so closely matched, they often overspend. Budgeting can help people control where their money goes.

        As you have explored these three problem areas (inadequate income, increasing expenditures, and excessive debt) with those you counsel, it may have been easy for some people to readily identify their inappropriate behaviors, but for others, such insights were much more difficult, and some may not have had the slightest idea how they got into their financial difficulties. Once the causes of an individual or family's financial problems have been identified, you will need to shift your focus to changing their behaviors that seem to contribute to each problem.

        This third section focuses on teaching sound money-management skills and will require family members to replace self-defeating behaviors with effective financial practices. An effective place to begin helping family members change their bad habits is to review the famines current financial decision-making process. For instance, have a family member recount how a recent important financial decision was made. Was the decision made on impulse? Was the decision's impact on other aspects of family life examined before the decision was implemented? were alternative ways to implement the decision considered? What did the family have to give up in order to make this purchase? Could the budget accommodate the spending required to implement the decision? Is it common for one or more family members to be unhappy with the decision-making process? Understanding how decisions are made and implemented can provide useful insight into poor money-management behaviors. Based on such insight, you may more easily recommend new procedures that, if properly implemented by the family, are most likely to improve the quality of their financial decisions.

        Funding future goals does not require that money be set aside today or even this year for any goal, but it does require that a plan be developed indicating when money can be set aside to fund important goals. Families who can see their way to start funding a goal in one, two, or even three years from now are a lot happier than those who think that they will never be able to achieve any important goals. Hope is an essential ingredient in money management. If a family cannot save, their financial future will seem, and often will be, bleak.

1. Estimate income sources for twelve months.

2. Estimate expenditures for twelve months.

3. Compare estimated income with expenditures for each month. If income is less than expenditures for any month, figure out ways to increase income or reduce expenditures. Be realistic.

4. Set up a record-keeping system to monitor expenditures each month; make sure that they do not exceed actual income.

5. At the end of each month, compare actual expenditures with estimated expenditures. Make adjustments to future spending plans.

        In instructing the family, do not assume that there is only one effective money-management system. Actually there are many, with no two families following the same one.

        There are several excellent books listed at the back of this chapter that offer sound instruction on developing budgets and financial statements. If you find yourself needing to teach the mechanics of money management, they can serve as useful reference guides.

Suggested Readings

Albrecht, W. Steven. Money Wise: Money Management for Latter-day Saints. Salt Lake City: Deseret Book Company, 1983.

Ballard, Thomas; David Biehl; and Ronald Kaiser. Personal Money Management, 4th edition. Chicago: Science Research Associates, 1983.

Credit Counselor Training Handbook. Credit Counseling Centers, Inc., 17000 E. Eight Mile Road, Southfield, Michigan, 48075, 1981.

Pulvino, Charles, and James Lee. Financial Counseling: Interviewing Skills. Dubuque, Iowa: Kendall/Hunt Publishing, 1979.

VanArsdale, Mary. A Guide to Family Financial Counseling. Homewood, Illinois: Dow Jones-lrwin, 1982.

Weirich, Jean Luttrell. Personal Financial Management Boston: Little, Brown and Company, 1983.

Williams, Flora. Guidelines to Financial Counseling. Agricultural Experiment Station, Purdue University, West Lafayette, Indiana, 1980.

About The Author

Dr. Jerry Mason, assistant professor of family sciences at Brigham Young University, received his B.S. degree from BYU, his MBA from Stanford University, and his Ph.D. in family economics from the University of Missouri. He is a member of the International Association for Financial Planners.

He has served in many Church callings, including ward executive secretary. He and his wife, Joyce, are the parents of six children.

The author wishes to express his appreciation to his colleagues Bud Poduska and Virginia Langrehr for their critical reviews and helpful suggestions.