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What Drives Financial Health?

Oct 20th, 2022

I just returned from the XYPN Live Financial Planning Conference in Denver and wanted to share one of the most interesting presentations that I participated in. Dr. Sarah Newcomb, Morningstar's Director of Financial Psychology, presented key findings on what we know about Financial Health and how we can influence it.

What is Finacial Health?

- According to Dr. Newcomb, “financial health” includes both a person’s economic stability and emotional well-being around one's finances.

- Newcomb points out that even the wealthy can suffer because of their finances. For example, an investor may have enough wealth accumulated to care for their family the rest of their lives, yet not be anxious and lose sleep due to fear of losing it.

- Financial Health is so important in that it is so highly correlated with many other measures of well-being.

How can we positively impact financial health?

Surprisingly, the two biggest drivers of financial health are a long-term mindset and confidence. Notice, the largest drivers are not income, age, and education as one might think.

Key Points:

Financial health is clearly tied to well-being. The biggest drivers of financial health, as shown in the graphic below, are factors that we can influence: our mental time horizon and our confidence.

- By planning for and envisioning our long-term goals such as retirement and next-generation planning, we extend our mental time horizon, which is positively correlated with our financial health.

- By creating a long-term plan and executing preparations needed to achieve it, we increase our financial confidence, which is also positively correlated to our financial health.

Source: Sarah Newcomb, PhD, XYPN Live 2022 presentation.

I'm happy to talk this subject over with you on a complimentary call. As a fee-only fiduciary advisor, I never receive commissions and therefore am unbiased on this topic.

Disclaimer: Past performance is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. Investments in securities involve the risk of loss. Nothing in this blog should be considered financial advice or recommendations. Your questions are unique to you and your own personal financial circumstances. You should consult with a financial professional before making a financial decision. See full blog disclaimer.

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