Financial coaching and life transitions
This blog is the first in a series which encourages the creation of positive money habits. I start by examining financial coaching within the context of life stages and life transitions. The consideration of coaching over the life course draws on solutions focus coaching, positive psychology, life stage theory and transition theory. There is an explicit recognition of the role of broader social and cultural factors. As Figure 1 shows this means individual personal finance decisions are shaped by interaction with the broader social and economic context. As Callaghan et al (2011) argue, the turn towards economic liberalisation in the early 1980’s has meant individuals taking more responsibility for financial decisions. Within the UK this process has intensified over time with areas such as higher education, savings for later life and aspects of the welfare state increasingly being opened to market forces. Such policy changes have been accompanied by a shift towards a consumer society with substantial resources put into marketing and advertising.
Figure 1 Interaction between individual and broader economic and social context
While such social and economic change provides more choice, it also means that individuals must make more (and more important) financial decisions over the course of their lives. Given the challenges around financial capability (Financial Conduct Authority, 2021) and the emotional and psychological importance of money (Pine and Gnessen, 2009) has led to a situation where many millions of individuals in the UK are relatively ill equipped to positively engage with financial opportunities and challenges. Considering change over the life course offers a useful framework to better understand money behaviours, choices, and decisions. Coaching conversations can lead to improved coachee understanding and regular self-reflection around money. The resulting insights may stimulate goal setting and coachee action.
A model which splits the life course into stages is offered by Levinson (1978). He used data drawn from male academics to develop a theoretical framework which describes the “Seasons of Man’s Life”. Table 1 below presents a summary of these:
Table 1: Seasons of man’s life |
Pre-adulthood (0-17) |
Early Adult Transition (18-22) |
Era of Early Adulthood (22-40) |
Mid-Life Transition (40-45) |
Era of Middle Adulthood (45-60) |
Late Adulthood Transition (60-65) |
Late Adulthood 65+ |
While acknowledging important limitations of his model, including gender bias and the cultural specifity of his data, the framework offers conceptual utility in two main areas. Firstly, it provides a useful starting point in mapping a coachees age and stage over the life course. Secondly, as Palmer and Panchal (2011) argue, life transition offers opportunities to work with a coachee on their growth and development.
Table 2 below takes elements of Levinson’s model and adds a column setting out the typical financial choices and decisions at each stage.
Life Stages | Financial choices/decisions |
Pre-adulthood | Few, dependent on others |
Early adult transition | Shift to independence, student life, house share, beginning paid employment, car purchase |
Era of Early Adulthood | Early career, home purchase, savings, investment, parenting, part time work for one parent |
Mid-Life Transition | Career advancing, housing ladder, family expenses, role changes |
Era of Middle Adulthood | Career plateauing, shift to working patterns, supporting children and University, supporting parents, divorce/separation |
Late Adulthood Transition | Thinking about retirement, possible lump sum from pension, receiving inheritance, need to keep working, still in paid employment |
Late Adulthood | Care costs, inheritance planning, downsizing house, releasing equity, helping children financially, bereavement, |
Pre-adulthood
While acknowledging the uniqueness of each person’s life course and experience, the life stages and transitions offer useful triggers for considering typical personal finance decisions. These are relatively limited in the pre-adulthood stage of childhood and teenage years as the young person is usually highly economically dependent on parents/caregivers.
Early Adult Transition
There is then a period of early adult transition where the individual begins to move towards more financial independence. In terms of income, the young person might be in paid employment or as is the case for around 50.2% of UK people aged 30 (Department for Education 2019), studying in Higher Education and relying on a combination of parental assistance and student loans. Expenditure is likely to include, housing, food, heating, council tax, utility bills, transport, and discretionary spending.
Era of Early Adulthood
From the early twenties and into the thirties, a period Levinson describes as the Era of Early Adulthood, the process of independent financial decision making becomes more embedded.
The emerging financial landscape is beginning to take shape, in the foreground there are daily, weekly, and monthly spending decisions to be made and, stretching into the far distance, perhaps a commitment to repay student loans for 30 or 40 years. Other long term financial commitments include home purchase for the 63% individuals who are homeowners (Ministry of Housing, Communities and Local Government, 2020) and investments for later life such as workplace pensions, into which around 73% of employees contribute (Office for National Statistics, 2018).
Life experiences at this stage include living with a partner, with over 234,795 marriages per year in England alone in 2018 (Office for National Statistics, 2021a) – plus around 7,000 or so civil partnerships (Office for National Statistics, 2021b). From a personal finance perspective, this adds another layer of complexity: What is the partner’s financial personality? Do the couple combine income and expenditure, keep them separate or a hybrid? Do they even talk about money? And for those who become parents, how does this combination of financial personalities shape the money environment of the household’s children?
During this life stage there will also be decisions such as where to live from a geographical perspective and the cost of any accommodation. Decisions made over the nature and form of childcare (maternity, paternity, part time paid employment) will have important financial consequences. Gender also plays a role here, with 75.1% of mothers in paid employment compared to 92.6% of fathers (Office for National Statistics, 2019a)
Mid-Life Transition
The mid-life transition stage, in the original model, is described as a difficult period, particularly for those who have not yet realised their aspirations. Levinson saw this as a key feature of his model and as a “necessary” stage. Within the sphere of personal finance this is likely to be a time of increasing financial complexity. On the income side there may be career advances, possibly increased time in paid employment for the parents (usually the female) whose children are now in school and greater numbers of people in self-employment. On the latter point, while there is limited official data there are indications that most small business start-ups are most common between the ages of 45-54 (Startups, 2022).
On the spending side there might be increased mortgage through moving to a larger house, higher family expenses, increased clarity around the need for pensions and consideration given to saving/investing for children.
Era of Middle Adulthood
During middle adulthood people begin coming to terms with ageing and for some it is a time of “mid-life crisis”. For personal finance this might mean working through the financial conflict and crisis associated with divorce or separation. For example, data from the Office for National Statistics shows that the average age for divorce for male and female couples is 46.9 years for men and 44.5 years for women (Office for National Statistics, 2019b). This same report finds that providing care for family or friends impacted by old age peaks at 56 for women (who provide most support) and 59 for men. Financial implications include the amount of paid employment carers might be free to take on, paying for care out of household income or selling the financial assets of those who are receiving the care. This is also the time when dependent children may well leave the family home for paid employment or study. Again, it is likely this will have financial implications for parents.
Late adulthood transition
According to Levinson, the late adulthood transition “may be a crisis or calm acceptance.” Social norms around “old age” might also shape societal and personal opportunities and constraints. Life events include possibly becoming a grandparent, for which the average age is 63 and retiring from full time employment, for which the average age is 65.3 years for men and 64.3 years for women (Office for National Statistics, 2019b).
The financial implications here include people accessing workplace pensions, with associated decisions including withdrawing tax free lump sum and working out how to budget for an average 34% drop in income (Office for National Statistics, 2021c). It is also possible parents are still offering financial support to adult children in terms of accommodation, help with house purchase deposits or with regular spending.
Late Adulthood
During the retirement (or late adulthood stage under Levinson’s model) roles may be redefined and people are also likely to reflect on what has been achieved. Interestingly, there is some evidence that happiness increases with age, peaking between 65 and 74 years (Office for National Statistics, 2019b).
From a personal finance perspective, issues may include the need (or choice) to stay in some form of paid employment. For example, in 2019 3.35 million people aged 60-64 years and 1.30 million aged between 65 and 69 years old were in some form of paid employment (Office for National Statistics, 2020a). Other issues include the possibility of paying for social care, with 143,774 out of a total 391,927 occupied care home beds self-funded in England between 2019 and 2020 (Office for National Statistics, 2021d). In the UK, at age 67 most households will see incomes rise as people receive the State pension.
Life events with important personal finance implications at this life stage include bereavement. As females live for an average of 3.7 years longer than men (Office for National Statistics, 2020b), it is usually the woman in an opposite sex couple who is likely to have responsibility for sorting out the deceased’s estate. A linked issue at this life stage is inheritance. Although only 3.7% of UK deaths between 2018 and 2019 were subject to inheritance tax payments (HM Revenue and Customs, 2021) many more deaths will result in an intergenerational flow of wealth.
It is also worth acknowledging that while a linear narrative to each person’s life offers a useful analytical starting point, the often complex lived experience of individuals means some might repeat experiences or transitions at different times. For example, within the personal finance sphere, an individual might get into problems with unsecured debt in their twenties, clear the debt, then be back in a similar position in their mid-life. Similarly, many people might experience redundancy, re-employment, and periods of self-employment more than once. Yet others might form a household with another person, split up or divorce, remarry and possibly split up again.
So, while life stages and transitions provide a useful trigger for coaching conversations, the underling complexity of each individual life mean that, while many people experience life events at a similar stage in the life course, for others the route through life involves detours, roundabouts, and the occasional dead end.
This is where the “conversations with a purpose” offered by financial coaching add value. The insight and reflection gained by coachees clarifies financial options. This increased clarity can in turn motivate coachee action towards goals.
I invite you to consider which life stage or transition you are going through – and reflect upon your financial choices, opportunities, and decisions.
Look out for the next blog, where coaching models for exploring life stages and transitions are introduced.
If you want to get in touch regarding points made in this blog, or about financial coaching, please get in touch at callaghanfinancialcoaching@gmail.com.
George Callaghan
Professor of Economics and Personal Finance
References
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