Habits are the Hidden Engine of Financial Behavior!

This week’s newsletter comes from the final stages of the writing of my new book, “The Goal Standard,” which is releasing Black Friday. There’s my plug.

I did take last week off trying to tackle this book deadline so I am sorry if you missed me (did you? Did you?). Anyway, I thought I would share a portion of one chapter of the book that rarely gets a lot of attention in financial planning: Habits.

Have you ever driven home from work and realized you don’t remember the last five turns? Or found yourself scrolling social media when you meant to check your email? That’s habit in action.

For financial advisors and clients alike, habits are core operating systems. They determine how we save, how we spend, how we advise, how we respond to stress, and even how we build (or avoid) trust. Understanding habits is essential for anyone working with human behavior, which means it’s essential for financial professionals.

What Are Habits?

Habits are automatic behaviors, repeated actions that have become so ingrained that they bypass conscious thought. Every habit follows a neurological loop (Duhigg, 2012):

1. Cue – A trigger that tells your brain to go into automatic mode
2. Routine – The behavior itself
3. Reward – A positive stimulus that reinforces the behavior

For example:

• Cue: Receive a paycheck
• Routine: Spend 25% online shopping
• Reward: Short-term dopamine hit

Over time, these loops become encoded in the basal ganglia, which is the part of the brain involved in emotions, memories, and pattern recognition (Graybiel, 2008). The brain loves efficiency, and habits reduce cognitive load.

Client Habits Shape Financial Outcomes

Clients don’t make financial decisions in a vacuum. They operate within a network of behaviors formed over years and often decades. These include:

• Spending to regulate emotions (retail therapy)
• Avoiding account logins due to shame
• Automatically transferring money to a “fun” account on payday
• Never revisiting a financial plan after a market dip

People are not only irrational. They’re habitual. Up to 45% of our daily behavior is habitual (Wood, Quinn, & Kashy, 2002). Clients may nod along to the financial plan but revert to old behaviors unless habits change.

Advisors Have Habits Too

Yes, you.

Advisor habits shape how we interact with clients:

• Do you default to the same investment models regardless of client personality?
• Do you assume quiet clients are risk-averse?
• Do you assume elements of a client’s financial psychology based upon their appearance or speech patterns?

These habits shape trust, communication, and ultimately, outcomes.

Three Steps to Breaking (or Reshaping) a Habit

1. Identify the Cue, Routine, and Reward

To change a habit, you must diagnose it. Let’s take a common client habit: 

“Every time I feel overwhelmed, I check my portfolio and panic-sell.”

Here’s the loop:

• Cue: Stress or market volatility
• Routine: Log in and sell
• Reward: Sense of control (even if irrational)

Once you isolate the loop, you gain leverage. Research suggests that awareness of the trigger and reward can significantly reduce the grip of the routine (Duhigg, 2012; Neal, Wood & Drolet, 2013). 

2.  Replace the Routine

You can’t simply erase a habit, but you can replace the behavior while keeping the same cue and reward.

Let’s update that loop:

• Cue: Stress
• New Routine: Call advisor or journal feelings before acting
• Reward: Regain control and emotional release

This is where coaching shines. You’re not just providing strategy; you’re becoming part of the client’s replacement routine.

For advisors, the same approach works:

• Cue: Tight meeting schedule
• Old Routine: Rush through next client call
• New Routine: 2-minute breathing reset before next call
• Reward: Sharper focus and better engagement

3.  Build in Friction (or Remove It)

Want to kill a habit? Make it harder. Want to build a habit? Make it easier.

This is called behavioral friction, and it’s powerful.

• Clients who impulse spend? Encourage a 24-hour rule before purchases. Use browser extensions to block shopping sites.
• Advisors who over-schedule? Use Calendly to force buffer time between meetings.
• Clients who never check their budget? Set an automatic weekly notification with one click access.

For most, behavioral design isn’t flashy. It is for me. But regardless if you like it or not, it works. The easier it is to start a new routine — the more likely it will stick.

Whether you’re a client trying to save more or an advisor aiming to be more present, success starts in the automatic. Habits aren’t destiny, but they are powerful. And breaking or reshaping them is about structure, environment, and strategy.

To learn more about my work or have me come visit, visit www.CharlesChaffin.com.

Or…to explore our advisor programs, or schedule a demo of MRI™ for yourself or your firm, email me directly at DrCharles@moneyandriskinventory.com. MRI Genesis™ Webinar is August 14!

And yes, my newest book, The Goal Standard: The Psychology of Defining, Pursuing, and Achieving What Matters,releases Black Friday 2025!

 References:

• Duhigg, C. (2012). The Power of Habit: Why We Do What We Do in Life and Business. Random House.
• Fogg, B. J. (2020). Tiny Habits: The Small Changes That Change Everything. Houghton Mifflin Harcourt.
• Graybiel, A. M. (2008). Habits, rituals, and the evaluative brain. Annual Review of Neuroscience, 31, 359–387.
• Neal, D. T., Wood, W., & Drolet, A. (2013). How do people adhere to goals when willpower is low? The role of implementation intentions. Personality and Social Psychology Bulletin, 39(1), 51–62.
• Wood, W., Quinn, J. M., & Kashy, D. A. (2002). Habits in everyday life: Thought, emotion, and action. Journal of Personality and Social Psychology, 83(6), 1281–1297.