Advisers want their clients to have good financial habits—but like any good habit, financial ones are not so easy to build. Good financial behaviors are particularly difficult to build because of their repetitiveness and because their results can take months, years, or even decades to come to fruition.

However, many people still succeed in doing so. So, why do some struggle to build good financial habits while others don’t?

Conversations about good financial habits often go hand-in-hand with financial wellness—which encompasses both the objective ability to meet current and future financial needs as well as the subjective feelings of being financially secure and able to enjoy life. Although good financial habits are typically seen as a precursor to financial wellness, the truth may be more like a feedback loop wherein good financial habits promote financial wellness which, in turn, encourage more good financial habits.

Take the habit of building your emergency savings. Saving for an emergency is regarded as foundational, scales based on income, and is protective against financial shocks, yet many people struggle to do so. Both objective and subjective financial wellness may help people build an emergency saving habit. For example, people who are objectively well financially may already have some positive financial behaviors like saving for retirement and thus may find it easier to save for an emergency because they already have the skills and knowledge on how to put aside (and leave be) money every month. Furthermore, people who are satisfied with their current financial situation may be inspired to do things like save for an emergency not only because they don’t currently feel financial strain but also because they want to safeguard their financial satisfaction against an unknown future.

Given this, in our recent research, we explored how financial wellness may influence emergency saving behavior.

The more we understand the link between financial wellness and the ability to build better financial habits, the better advisers can leverage clients’ mindsets and actions to help them make better decisions.

The Link Between Financial Wellness and Emergency Savings Behavior

In our study, we surveyed 786 higher-income individuals (from households making a minimum of $100,000 annually). We examined the relationship between these individuals’ investable assets, current financial wellness (that is, how satisfied they are with their present finances), and their progress toward an adequately funded emergency savings (defined here as half of three months’ salary).

Overall, only 41% of our sample had achieved emergency savings adequacy.

So, why do so many higher-income individuals not hold proper emergency savings? We found that strong emergency savings was linked to both objective and subjective financial wellness.

That is, those who were dissatisfied with their finances (either objectively or subjectively) were less likely to have good emergency savings behavior. This was even more the case when a person had lower investable assets.

Breakdown of Emergency Savings Adequacy by Objective and Subjective Measures of Financial Wellness

However, financial wellness is not enough to wholly explain why some people did not save for an emergency. Even 30% of our most “well-off” (those who both felt satisfied with their finances and had higher than average investable assets) had not saved for an emergency. This demonstrates how easy it is to neglect this habit.

Furthermore, those who had not saved for an emergency showed signs of needing help to form the habit. Most of this group had less than half of an adequate emergency savings fund in place, and 26% of them didn’t have anything saved at all.

What we see is that although financial wellness is linked to emergency saving behaviors, advisers would be remiss to assume that a client who is doing well with their finances in one sense also has good behavioral habits. That is, someone may be ahead of the game when it comes to saving and investing in retirement but still have nothing saved in the event of an emergency.

However, in seeing this connection between objective and subjective financial wellness and emergency saving behavior, we do uncover insight into how to help those clients who need to build better habits.

How Advisers Can Help Their Clients Build Better Habits

To help clients, advisers should focus on supporting clients’ emergency saving behavior by addressing both their actions and their mindset. Although we focus specifically here on emergency saving behavior, much of this advice is relevant to any good financial habit you’d want a client to build.

1. Promote financial self-efficacy. Financial self-efficacy is a person’s confidence in their own ability to manage their finances. Although it might sound odd for an advisor to promote this, it’s key for clients to feel confident about their ability to follow their financial plan to reap the rewards of working with an advisor. To that end, you should ensure that when you help your client build their habits, you are meeting them where they’re at. If your client only has the bandwidth to deal with one behavior change at a time, don’t foist more on them. As your client gains confidence, you can ratchet up the skills and habits you encourage in your client.
2. Help your clients define what they are working toward. Not having a clear target to work toward can often prevent us from starting at all. Educate your clients on what their emergency savings should be, but don’t just give them an endpoint number. Help them calculate how much they can reasonably set aside each month and how long it will take to achieve their goal. Financial advisers are well-suited to help clients define these numbers given their understanding of not only finances in general but also the circumstances of a client’s finances.
3. Create a step-by-step plan for execution. Although your clients might feel empowered after you help them crunch numbers in the first step, behavioral science research finds people often fail on the follow-through. However, you can help your client create a plan on how to enact these changes, which can help close the gap between wanting to do something and actually doing it. For example, if your clients are going to automate their saving, what steps do they need to get that done? Where will they keep the reserves, and what steps do they need to take to get it there? Helping your clients have a step-by-step plan can give them a leg up on the follow-through.

Altogether, advisers should remember that helping clients with their objective actions and their subjective mindset can help them build better habits like saving for an emergency.