The Role of Positive Framing in the Future of Financial Planning

Research by Medvec et al. (1995) on counterfactual thinking reveals that people’s emotional responses are heavily influenced by “what might have been”. In an analysis of Olympic medalists’ reactions, bronze medalists were often found to be happier than silver medalists, because the latter focused on how close they were to winning gold, while the bronze medalists compared their outcome to not medalling at all. This highlights the sensitivity to context and relative comparisons, a concept particularly relevant in financial decision making. Prospect theory further demonstrates this tendency in showing that individuals evaluate gains and losses relative to a reference point rather than in absolute terms (Kahneman & Tversky 1979). In financial planning, clients may use peer comparisons as a reference point, which can lead to feelings of financial dissatisfaction even when objective progress is being made.

This social comparison is particularly prevalent in the digital age. Vogel et al. (2014) found that frequent exposure to upward social comparisons on social media lowers self-esteem; People view others who appear to be better off, often ignoring the curated portrayals of someone’s life. The tendency to measure progress against others can lead to dissatisfaction, as clients may feel inadequate if they perceive themselves as financially behind despite making substantial personal progress. Based on prospect theory (Kahenman & Tversky 1979) and research by Fagley et al. (1999), individuals take greater risks when they perceive themselves as being behind relative to their reference group, which could put them at risk financially if they are trying to match the behaviours of what they see on social media.

While financial professionals traditionally focus on finding objective indicators of financial status, positive psychology emphasizes leveraging client strengths and sense of accomplishment to enhance a more holistic sense of wellness (Seligman 2011). Over the years, social psychology has studied message framing by evaluating whether a message highlights the positive benefits of taking action or the negative consequences of not taking action (Rothman & Salovey 1997). For example, ‘exercising regularly will boost your energy, and build a healthy lifestyle’ versus ‘not exercising regularly will make you feel tired and put you at higher risk for health problems’. In a financial context, ‘if you start saving money now for retirement, you will be able to enjoy later in life’, versus ‘If you don’t start saving now for retirement, you won’t be able to enjoy life later’. Although both messages deliver the same information about exercise and retirement planning, research suggests that the positively framed message may be more persuasive. According to Salovey and Williams-Piehota (2004), factually equivalent information can be shared in a way that makes people see it as a gain or a loss. This has also been shown to be particularly effective when influencing motivation. For instance, when goals are framed with an emphasis on achieving positive outcomes, individuals tend to experience increased motivation and positive emotions (Roney et al. 1995). Similarly, the ‘growth mindset’ approach (Dweck 2006), which emphasizes framing challenges as opportunities for development, has been shown to enhance both the self-efficacy and resilience of clients, particularly in contexts of anxiety and depression management (Schroder et al. 2015).

Positive framing also plays a role in how individuals see themselves. In a study of newly married couples, Cast and Cantwell (2007) found that both positive and negative feedback from significant others is influential in how people see themselves. Positively framed messages about the benefits of interventions (e.g. ‘This treatment has a 90% survival rate’ versus ‘This treatment has a 10% mortality rate’) tends to be associated with more favourable attitudes towards treatment options and increased patient engagement in the medical field (Edwards et al. 2001). Similarly, positive messaging is associated with increased compliance in following recommendations (Gallagher & Updegraff 2012).

Neuroimaging research suggests that positively framed feedback activates the brain’s reward centers associated with motivation and goal-directed behaviour (Sharot et al. 2011). These neural responses may underline the increased engagement and perseverance observed in clients who receive positively framed feedback, as compared to those who receive neutral or negative feedback. In financial contexts, Todd (2019) explored whether framing (i.e. positive valence narratives versus negative valence narratives) could impact behavioural intentions in three different personal finance areas: retirement planning, cash flow management and insurance planning. Although results were mixed, in two of the experiments the negative valence narratives had higher mean intention scores than the control group, suggesting that framing effects may be impactful in the financial planning process.

While the evidence for positive framing is generally strong across various fields of study, overly optimistic framing may lead to unrealistic expectations or lead individuals to avoid confronting negative realities, especially where negative outcomes or risks must be communicated (Edwards et al. 2001). Financial planners should ensure that positive framing does not obscure critical information. While optimism can be a powerful motivational tool, if left unchecked, it may create a false sense of security for clients. Jung (2017) suggested that framing itself may have a greater impact on financial behaviour than financial stress, further emphasizing the importance of how information is presented. While positive framing has been studied in various contexts, its role in financial planning remains largely underexplored. Its potential impact appears significant, highlighting the need for further investigation.

Because of the nature of the pilot study, limited demographic data are available. Respondents were asked to indicate their year of birth. To calculate age, the year of birth was subtracted from the year of data collection (i.e. 2024). Household income was captured by asking respondents to report their actual household income to their best estimate. Assets were collected by respondent’s response to the following question: What is the total value of your household’s investable assets? Investable assets include all liquid financial assets that are, or could be invested (e.g. bank account balances, retirement accounts, trusts, etc.). Investable assets do not include businesses, real estate or other property. Options included the seven categories of (a) less than $50,000; (b) $50,000 to $99,999; (c) $100,000 to $249,999; (d) $250,000 to $499,999; (e) $500,000 to $749,999; (f) $750,000 to $999,999; and (g) $1,000,000 or more.

According to previous research, an essential indicator of individuals’ ability to make financial decisions is their level of financial literacy. Financial literacy encompasses not only knowledge and understanding of financial concepts, but also the ability to apply this knowledge. Thus, financial literacy includes both knowledge and behaviour (Lusardi 2019). In this study, financial literacy was measured using a set of five questions covering fundamental economic and financial concepts. These questions, known as the Big Five, expand upon the Big Three (Lusardi & Mitchell 2011; Lusardi & Mitchell 2014) and are among the most used to measure financial literacy. The Big Five consists of multiple-choice questions assessing aptitude in simple interest calculations (related to savings accounts and inflation) and understanding the relationship between interest rates and bond prices. Additionally, the Big Five include two true/false questions that test knowledge of the relationship between mortgage length and total interest paid and the concept of risk diversification. The questions are presented in Table 2. They each measure a distinct area of personal finances and are not meant to be used as a “scale” with a computed Cronbach’s alpha. The five items were totaled, however, to create a range of accumulated knowledge from 0 to 5 correct responses.

To test the framing effect, a peer comparison option was presented in one of two ways: (a) ‘Compared to my peers, I am better off financially’ versus (b) ‘Compared to my peers, I am worse off financially’. Respondents were asked to respond on a five-point scale of 1 = Strongly agree; 2 = Agree; 2.5 = Neither agree nor disagree; 3 = Disagree; and 4 = Strongly disagree. Scores were reverse coded when presented with the ‘worse off’ scenario and merged into a new single item variable to test the framing effect. To test the framing effect, the new combined variable for ‘framing’ had the categories of 1 if shown the ‘better off’ condition and 0 if shown the ‘worse off’ condition. The questions that immediately followed the framing question are detailed in the Appendix and displayed in the order in which they appeared to respondents.

To explore these wellness characteristics, respondents were asked a series of feelings-based questions and resource management questions. Items were selected to determine how individuals perceive both their happiness and financial stability, capturing emotional dimensions of well-being and objective financial security.

Firstly, respondents were asked to assess their own happiness with the statement: I use money to create joy and happiness in my life with five response options ranging from strongly agree to strongly disagree. Respondents were also asked to respond to conflict about money with the item, I frequently have conflict with family members about money with the same response options of strongly agree to strongly disagree. Respondents were also asked to select all relevant feelings regarding the question, When you think about your personal or household financial situation, which of the following words describe how you feel? Feelings included: Competent, Secure, Sad, Frustrated, Content, Overwhelmed, Confused, Unprepared, Stressed, Worried, Successful, Excited, Confident, Disciplined, Prepared and Insecure.

To evaluate respondents’ resource management within financial wellness, they were asked, If I die tomorrow, my family will be financially okay, If I get sick and am unable to work for a long time, my family will be financially okay, and Overall, which one of the following best describes how well you are managing financially these days? The first two items had five response options, ranging from strongly agree to strongly disagree. The overall financial assessment item had response options of not getting by, just getting by, doing okay and living comfortably.

Table 3 summarizes the known demographic characteristics of the sample. The sample surveyed is generally middle-aged (M = 43 years of age) and has income slightly above the national median. Based on a standard five-item financial literacy knowledge battery, the typical respondent could correctly answer about half of the questions, which is similar to other surveys of respondents in the United States. Fully one-third of respondents had less than $50,000 in investable assets, although around one in five has more than $500,000 in assets. Overall, the sample is a reasonable proxy for populations engaging in some level of formal or informal financial planning.

Respondents who were shown the ‘better off’ compared to peers framing reported their situation more favourably (M = 3.41) than those who were shown the ‘worse off’ framing (M = 3.06; t (874)−4.59; p < .001) despite showing no statistical demographic differences between groups (i.e. there were no statistically significant conditions based on the groups based on age, income, financial literacy or assets). Data were then analyzed to assess how respondents answered questions immediately following the framing of peer comparison. Table 4 presents the results of two-sample t-tests comparing the statistically different means based on whether the option of Compared to my peers, I am worse off financially (Group 0) or Compared to my peers, I am better off financially (Group 1) was displayed to the respondent.

Respondents shown the ‘better off’ option reported a statistically higher mean score for “Joy” compared to respondents shown the ‘worse off’ option (M = 2.08 v. 1.99; p < .05). There were no differences in the frequency of conflict with family about money based on framing of peer condition. The only feeling that was statistically significant between groups was feeling prepared. Those shown the ‘better off’ option scored higher than the ‘worse off’ option (M = 0.72 v. 0.66; p < .05).

There were no statistically significant differences on the two resource management items related to family members being financial okay upon the respondent’s death or disability. Though respondents shown the ‘better off’ option had a more favourable opinion of their overall financial situation compared to those shown the “worse off” option (M = 2.78 v. 2.65; p < .05).