How much did you stick to your financial goals this year?
Researchers pulled five questions from the Federal Reserve’s Survey of Consumer Finances related to key financial habits. People who did these five things — who saved, paid their bills on time, didn’t carry credit-card debt, had assets they could access easily and kept their debt low — tended to also have more wealth.
“It would be too simplistic to say that if you do these five things you will be wealthy,” says William Emmons, an economist with the St. Louis Fed and co-author of the report. “But it increases your odds.”
Emmons and his co-author Bryan North, a policy analyst with the St. Louis Fed, analyzed responses for the 38,385 families that took the survey between 1992 and 2013. They scored people based on their financial habits, on a scale from zero to five, and compared those scores with other aspects about their lives, such as their net worth, education and age.
The average score was 3. People who scored below that tended to have below-average levels of median net worth. Those who scored above that were likely to have above average wealth. The findings are summed up in the chart below:
People with high scores tended to have a few things in common. Generally, they were older. The trend held true across all groups of race and ethnicity, which may be a sign that people learn better financial habits over time, Emmons said. It could also point to the fact that younger families may have more competing demands on their money, between buying a home, paying for college and starting a family, he adds.
The analysis also showed more evidence of a racial wealth gap: Non-Hispanic white and Asian families also had better financial health and wealth than Hispanic and African American families.
Of course, it’s difficult to know which came first: Are people financially healthy because they have more wealth? Or are they wealthy because they’re financially healthy? Either way, chances are that sticking to some of these rules will leave you in a better place financially, Emmons said.
So how does it look? Are you financially healthy?
Try your hand with this adaptation of the St. Louis Fed’s financial health scorecard: