In America, wealthy families can manage their finances with personalized, high-touch services. Private bankers handle almost all of the forms, phone calls, opening and closing of accounts, and movement of money involved in complex transactions. In exchange for a hefty fee, clients need to only make a few choices among well-presented options and sign off on documents. Low- and moderate-income (LMI) households, on the other hand, typically face significantly more complex financial situations, with volatile and often unpredictable cash flows to manage, but without any regular assistance. Just like the wealthy, LMI families need appropriately structured products and services to help them manage their personal finances. Using insights from behavioral science, we can design financially sustainable counseling services that integrate actual financial products and support immediate action steps that lead to economic stability and resilience.

Traditional financial counseling services are often positioned to assist consumers who are the worst off (e.g., those who need debt counseling), but most families need help managing day-to-day finances well before they reach crisis levels. Research efforts like the US Financial Diaries Project have exposed the extreme volatility that characterizes the financial situation of many LMI households. Incomes and expenses are mismatched and lumpy, and many households struggle to accumulate the savings or access the affordable credit necessary to bridge short-term gaps. Even more concerning, studies across a variety of contexts have shown that the stress of living in a setting of financial scarcity and vulnerability exacts a heavy “tax” on cognitive resources, with consequences quickly spilling over to affect health, academic performance, parenting, and other areas of life.

Financial coaches can help people think about their finances, but even action-oriented coaches may load clients with additional “homework” to resolve outside of counseling sessions. For behavioral reasons, clients can struggle to follow through, especially when this homework isn’t tied to specific financial products. It’s not hard to see why. Setting up new accounts or making changes to existing ones takes time out of work hours, may require in-person visits to the bank, and has to be juggled with other obligations like childcare, school, and managing a household. Add to that the task of anticipating future expenses against uncertain monthly income, and potentially the even-more-intimidating task of selecting a new financial institution or account type before even starting to use those services. At best, the minority of consumers who persist in navigating these hurdles have less mental bandwidth left for other important areas of life.

Taking a “behavioral” approach to financial counseling means helping clients take immediate action, with promising results so far. In 2010-2012, ideas42 partnered with a credit union to pilot the “Financial Health Check (FHC)” service: a one-time, 60-minute coaching session during which counselors work one-on-one with consumers to complete critical steps during the session itself. Much like a sports coach spends most of her time with players engaged in actual play, a counselor conducting an FHC walks a client through the actual steps leading toward better financial outcomes.

During the pilot, a typical FHC session focused on prioritizing and facilitating critical actions toward accomplishing goals common to most consumers:

• Discuss and prioritize goals: identify goals related to paying down debt or setting aside savings
• Identify monthly cash available: create a rough budget with an estimated range of values to name a monthly amount that can be set aside for debt or savings goals
• Set up automatic transactions: set up transactions such as automatic bill pay or recurring savings transfers, while there is live accountability to follow through on the client’s stated goals

• Add in safeguards: set up reminders and alerts for low balances and/or large deposits, and ensure that clients know how to adjust automatic transactions if needed

This approach leverages behavioral principles to address barriers to action. For example, goal setting helps clients remember their intentions to save and increases motivation to continue saving. Identifying concrete amounts to put toward goals counters uncertainty. When people aren’t sure how much to save, it’s easier to do nothing than to create a detailed budget. Doing this work with a counselor allows clients to access tailored help exactly when they need it, then pinpoint actionable next steps. Setting up recurring transactions during the session completes the action item so clients need not worry about follow up – and can’t procrastinate or forget. Recurring transactions also create a new status quo with clients working toward goals by default. Alerts and reminders act as a safety-net to make sure bill-pay and savings transfer amounts won’t overdraw client accounts.

Because the FHC was tested at a financial institution, direct access to the accounts allowed for both immediate follow-through and rigorous measurement of financial outcomes like savings activity and net asset holdings over time. In our pilot program, credit union members with no savings at the start of the pilot ultimately built balances that were 20 percent higher than similar peers who did not engage in an FHC session (both groups opted into the service, but services were withheld from a randomized control group until after the data collection period). Tracking these outcomes can help establish more informed targets for counselors, ensure consistent levels of service delivery, and encourage data-driven program improvements.

The FHC pilot serves as an illustrative example with broader lessons for the field. For financial counseling to be most effective, strong efforts to provide guidance and advice must be paired with directly helping people take action during the sessions themselves, with appropriate financial products integrated into the service. This approach helps consumers navigate behavioral barriers and follow through on intentions that build financial stability, such as saving more and paying down debt. Financial institutions offering services that use these principles could do so sustainably by building higher deposit balances, keeping accounts open longer, lowering credit risk across a wide range of account holders, and even identifying expanded lending opportunities. Most importantly, low- and middle-income families will have the effective, accessible, and actionable assistance they need to achieve their financial goals and stability.