The Trick to a Happier and Wealthier Life: Framing
How This Cognitive Bias Can Help You Gain a More Positive OutlookKathy Longo, CFP®, CAP®, CDFA® Monday, 14 February 2022
Do you feel like there’s a lot in your life that you don’t have control over? From the stock market to elections to COVID-19, it’s easy to feel like you’re not in control of much of what is going on around you. However, one thing you can always control is your frame of mind, which is actually an important predictor of how happy – and even how wealthy – you feel.
Why Your Frame of Mind is So Important
You might think that the level of happiness you feel about money, your work, your social life, or your relationships is derived by what happens in each of those areas of your life. In reality, your perception of the things that happen is what truly makes a difference in your outlook. It really is all about perspective, and psychologists who study this cognitive bias call it the “framing effect.”
How the Framing Effect Works
This psychological principle says that our decisions as human beings are influenced by how our choices are presented – either positively or negatively. Amos Tversky and Daniel Kahneman have done groundbreaking research around the psychology of choice, and one experiment shows just how powerful framing is:
In a role-playing experiment, participants were presented with a life-or-death scenario. While most participants chose to avoid agreeing to a scenario that let 10 out of 100 lives perish, they overwhelmingly took the opportunity to save 90 out of 100 lives. Of course, these options both produce the same outcome, they were merely framed in different ways.
If framing impacts our decision-making so heavily in a life-or-death scenario, you can only imagine how it’s impacting the hundreds of less significant – but ultimately important – decisions we make every day.
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How to Use Framing to Your Benefit
If your mind is already going to all the ways framing is probably used by advertisers to get you to spend your money, you aren’t wrong! Our natural cognitive biases are certainly used “against” us. For instance, did you know that there are many naturally gluten-free foods that still have “gluten-free” stamped on the package just to make them more appealing to consumers?
Luckily, there’s a silver lining to the framing effect. You can use framing to your benefit in making better decisions and feeling happier about your money, work, relationships, and more.
Framing and Your Outlook as an Investor
There’s a really enlightening investment chart you should keep in your back pocket – the It illustrates the S&P 500’s low points and ending year returns every year since 1980. During more volatile times for the markets, it’s a nice reference point, and here’s why:
Over the past 41 years, the average intra-year market decline has been 14.3%. Still, in that same timeframe, annual returns have been positive in 31 of the 41 years – more than 75% of the time. Now, the past is not a guarantee of future events, but it does go to show that there are two distinct ways of perceiving a market downturn: something to be concerned about, or a typical decline that will be short-lived in a year that will probably end in the black anyway.
This sort of framing can help you make smarter choices with your money so that you experience better outcomes over the long-term. If you’re prone to making rash decisions with your portfolio – based on impulse or emotion – framing can be a valuable tool.
SEE ALSO: Resolve to Reduce Your Financial Stress with These Eight Strategies
Experience Greater Happiness Using Framing
Not only can framing help you make better financial decisions, but it can also help you better appreciate what you have – in money matters and in life. Framing can help you to feel more content with what you have already achieved. For example, choosing to think, “What I have right now is exactly what I once wanted.” If overspending is a struggle for you, change your outlook by focusing on the fact that saving is your ticket to living the exact life you want to in the future.
Framing and Your Financial Goals
You’re in the driver’s seat when it comes to framing money matters. It starts with self-identifying as a “re-framer.” Set aside time to actively reframe. Here are a few examples:
- Your employer’s 401(k) match: Is it a measly 6%? Or is it a guaranteed 100% return on your contribution?
- Your student loan debt: Is it a roadblock holding you back? Or is it an investment in yourself and your career?
- A market downturn: Is it time to sell everything? Or is it a great opportunity to buy valuable stocks at a discount?
You get the idea! Since your brain is like a muscle, the more you practice this sort of positive framing, the easier it becomes. Eventually, it’s a habit that becomes second nature.
Final Thoughts on Using the Framing Effect to Live a Happier and Wealthier Life
Things happen around us and to us every day. If you tend to assign a positive or negative value to everything you experience, focus on how you can begin using the framing effect to change your own perception. In time, you’ll find that you’re more content with the current state of things, rather than how you wish they were. You’re setting yourself up to live a happier and more fulfilling life when you can do that – one where you can flourish every day.
About the Author
Kathy Longo, CFP®, CAP®, CDFA®
Kathy Longo brings over 25 years of expertise and experience to Flourish Wealth Management. Kathy is wholly dedicated to improving the life of each client and finds joy in making complex matters simple and easy to understand. She excels at asking the right questions, uncovering new possibilities and implementing the most advantageous strategies for success. Playing such a pivotal role in her clients’ lives remains an honor and a privilege. After earning a degree in Financial Planning and Counseling from Purdue University, she began her career at a small firm in Palatine, Illinois where she worked directly with clients while learning to build a viable, client-centric business. Over the years, she gained extensive knowledge and wisdom working as a wealth manager, financial planner, firm manager and business owner at notable, various sized companies in both Chicago and Minneapolis.