Framing Decisions and Tax Refunds

This is found money. I have to blow it on a horse.
—George Costanza, Seinfeld.

How we frame an issue determines how we think about it and the meaning we attach. A dollar is treated differently depending on its context. Found money—in a forgotten coat pocket, an unexpected bonus, or tax return—can be spent freely. Salary or professional fee money is spent with careful consideration. Savings or retirement money spent only in emergency.

The dollar is the same. It doesn’t even know who owns it, anymore than war bonds knew about the war. Money is a Rorschach onto which we project various personal meanings, as well as set in a variety of frames.

The IRS says that the average personal tax refund is just over $3,000. If this is treated as found money, it may be regarded quite differently than as a return of your savings from an interest-free loan to the IRS. Or, it could be viewed as part of a business plan, perhaps combined with an injection of capital with business lending, crowdfunding, or working capital loan to expand your business.

A remedy for default framing decisions is to consider each decision objectively as an independent choice, regardless of the source of the money. Would I make this purchase if I had to take it from my salary? From my savings? Is this a choice I will be proud of tomorrow? A year from now? Ten years from now? This is one of the several dozen psychologically based money mistakes and financial fallacies that can be identified to avoid mistakes and generate productive strategies.

The way we frame a question makes a great deal of difference. For example, when companies automatically enroll their employees in retirement savings plans, the employee has to opt out to not participate—to actually make a choice that says I will not save for the future. When it’s automatic, it’s 100% initially, by definition, then levels to between 86-94% participation. At companies where it isn’t automatic and someone has the choice to opt in, 20% participate. Over a fourfold difference.

We make money—a ubiquitous metaphor that can represent anything—a portal to the immaterial and the intangible. And since we spend with one part of the brain and plan with another, we need a map.