This week's chart comes from Morningstar's behavioural research team, looking at how to improve financial wellness, and therefore overall wellness.

They’ve found that objective realities like income and total wealth definitely contribute to financial wellbeing, but not as much as would think.

Financial wellbeing is split into two categories that need to be achieved to fully attain it. The first is objective, and the most obvious. It is the ability to meet current and future financial needs. The second is a little more nuanced. It is the subjective feelings of being financially secure and being able to enjoy your life. This feeling will vary from person to person, and will require different levels of the ‘objective’ goal to be achieved. For example, one person may feel financially secure holding six months of emergency savings. Another person might still think this is not enough, and want at least two years of emergency savings in the bank to have peace of mind.

The research shows that even those in their sample that are 'well-off' - meaning that they had more than $349,000 USD in investable assets - did not have the basis of financial security down pat. People of all levels of wealth had inadequate emergency savings, and this impacted their financial wellness.

emergency savings adequacy

30% of those that were financially satisfied and had higher assets than the average still failed to reach emergency saving adequacy. 

The study goes on to speak about how important emergency savings are for financial wellness, and peace of mind. It also proposed that there is a bi-directional relationship between financial behaviours and financial wellness, a key insight that may be the catalyst to achieving true financial wellness. 

For example, you fully pay off your credit card debt and this makes you feel better about your overall financial situation. This positive feeling prompts them to continue compelling them to enact other good financial behaviours as they continue to chase that positive feeling.

This is useful information to know. If financial wellbeing can be a catalyst for more good behaviours that strengthen that wellbeing, investors can focus not just on undertaking good behaviours, but taking a step back from your financial situation and understanding that you may be in an objectively better position than you think you are. 

I have written an article that explores the research in depth, and what investors can do to improve their financial wellness, and their overall wellness.

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