HanNa Lim, assistant professor of finance at Cal State Fullerton’s College of Business and Economics, was recognized with the best research award from the Financial Planning Association. The accolade was for her study on emergency savings on goal outcomes.

Lim looked at the role of emergency savings across three separate dimensions: mental attitudes such as financial anxiety, other financial behaviors such as equity allocation, and beliefs about financial goal achievement.

The study used the data from the 2021 National Financial Capability Study, a triennial study conducted by the FIRNA Investor Education Foundation examining financial attitudes, behaviors, and knowledge of and access to financial products and services among U.S. adults. The study analyzed 2,279 investors in non-retirement accounts who are the primary or shared decision-maker regarding their investments.

She discovered that emergency savings have an impact across all three dimensions.

“We have a lot of rules of thumb and conventional wisdom in financial planning,” says Lim.

“For example, the advice to have three to six months’ worth of emergency savings. These rules are often borne out of personal experience and anecdote, but have not been subject to rigorous empirical examination despite being widely accepted. A focus of this piece is to examine whether this conventional wisdom of financial planning is empirically true. That is, does it actually help clients, and can this be demonstrated statistically?”

How will this impact the financial planning field?

The major finding is that emergency savings can have additional effects and benefits in addition to just having some extra cash on hand.

“In other words, the presence of emergency savings can be associated with better coping with financial anxiety and even beliefs about future financial goal attainment,” says Lim. “In short, emergency savings can be helpful across various dimensions.”

And that helps consumers understand the importance of good savings strategies.

Even professionals in other disciplines – such as psychologists, therapists and mental health professionals – can take Lim’s research in mind when advising their clients on optimal wellbeing.

As financial advisors emphasize the benefits of saving for a rainy day, Lim encourages them to explain the synergies that healthy and prudent financial behaviors can have on a client’s holistic financial picture and life journey.

Lim’s forthcoming study, which is co-authored with Timothy Todd of Liberty University School of Law and Michael Kothakota of Columbia University, is entitled “Evaluating the Impact of Emergency Savings on Mental, Behavioral, and Future Goal Outcomes”.

For more on Cal State Fullerton’s financial planning education program, read more of our articles on financial planning.