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CFP - Steps in the Financial Planning Process > Psychology of Financial Planning Definitions > Flashcards

Psychology of Financial Planning Definitions Flashcards

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1
Q

Anchoring

A

Relying heavily on initial information in decisions.

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2
Q

Availability Bias

A

Relying on recent information over all data.

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3
Q

Behavioral Finance

A

Study of psychology’s impact on financial decisions.

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4
Q

Belief Perseverance

A

Maintaining beliefs despite contrary evidence.

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5
Q

Choice Architecture

A

Presentation of options influencing client decisions.

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6
Q

Client Biases

A

Psychological tendencies affecting financial planning.

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7
Q

Cognitive Dissonance

A

Mental discomfort from conflicting beliefs or actions.

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8
Q

Confirmation Bias

A

Seeking information that supports existing beliefs.

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9
Q

Endowment Effect

A

Valuing owned assets higher than market value.

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10
Q

Emotional Bias

A

Decisions driven by emotions

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11
Q

Framing Effect

A

Decisions influenced by how information is presented.

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12
Q

Goal Setting

A

Defining SMART financial objectives for clients.

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13
Q

Heuristics

A

Mental shortcuts simplifying decision-making processes.

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14
Q

Hindsight Bias

A

Seeing events as predictable after they occur.

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15
Q

Mental Accounting

A

Categorizing money based on arbitrary distinctions.

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16
Q

Overconfidence

A

Overestimating one’s knowledge or skills.

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17
Q

Present Bias

A

Prioritizing immediate rewards over future benefits.

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18
Q

Prospect Theory

A

Losses felt more strongly than equivalent gains.

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19
Q

Recency Bias

A

Undue weight given to recent events or trends.

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20
Q

Representativeness

A

Classifying based on superficial similarities.

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21
Q

Status Quo Bias

A

Preference for maintaining current conditions.

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22
Q

Sunk Cost Fallacy

A

Continuing based on past investments

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23
Q

Regret Aversion

A

Avoiding actions due to fear of future regret.

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24
Q

Financial Comfort Zone

A

Perceived equilibrium affecting risk tolerance.

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25
Q

Financial Socialization

A

Learning financial norms from family influences.

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26
Q

Money Scripts

A

Deep-seated beliefs about money from early experiences.

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27
Q

Financial Status

A

Perceived financial position affecting behavior.

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28
Q

Subjective Financial Well-being

A

Personal perception of financial health and satisfaction.

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29
Q

Pathological Financial Behaviors

A

Dysfunctional behaviors needing behavioral intervention.

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30
Q

Nudging

A

Behavioral interventions designed to influence choices subtly

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31
Q

Mental Inertia

A

Resistance to change or adjustment in thinking

32
Q

Checklist Strategy

A

A structured approach to decision-making that reduces biases by ensuring comprehensive evaluation of factors.

33
Q

Financial Therapy

A

Combining financial advice with therapeutic practices to address emotional aspects of financial decision-making.

34
Q

Psychological Barriers

A

Mental obstacles that impair rational financial decisions

35
Q

Client Motivation

A

Understanding what drives clients to pursue their financial goals

36
Q

Financial Transparency

A

The open and honest disclosure of one’s finances

37
Q

Conflict Resolution

A

Techniques and skills that financial planners use to identify and mediate client conflicts

38
Q

Goal Congruence

A

Ensuring that clients have aligned financial goals

39
Q

Financial Manipulation

A

The misuse of financial resources to exert control

40
Q

Financial Enabling

A

Providing financial support in a way that hinders a person’s ability to achieve financial independence

41
Q

Financial Abuse

A

Exploiting someone financially

42
Q

Financial Independence

A

A goal for many clients

43
Q

Financial Alignment

A

Achieving consistency between a client’s financial behaviors and stated goals

44
Q

Emotional Finance

A

Recognizing that emotions influence financial decisions

45
Q

Family Financial Dynamics

A

The study of how family roles and relationships affect financial decisions

46
Q

Financial Infidelity

A

The act of concealing financial behaviors

47
Q

Power Imbalance in Finances

A

The unequal influence one partner may hold over financial decisions

48
Q

Trust in Financial Planning

A

Building credibility and benevolence trust with clients

49
Q

Financial Goal Setting

A

The process of identifying and articulating clear financial objectives

50
Q

Boundaries in Financial Relationships

A

Establishing clear

51
Q

Money Conflicts

A

Disputes that arise between individuals or within families about financial matters

52
Q

Financial Counseling

A

The process of guiding clients through their financial challenges and opportunities

53
Q

Empathy

A

The skill of understanding and sharing the feelings of the client

54
Q

Reflective Listening

A

A technique where the counselor listens actively and reflects back the client’s statements to confirm understanding and encourage further sharing.

55
Q

Financial Literacy

A

Knowledge and skills that enable clients to make informed financial decisions

56
Q

Cognitive Behavioral Techniques

A

Techniques aimed at changing a client’s thought patterns to influence financial behavior positively.

57
Q

Trust

A

A core component in the client-advisor relationship

58
Q

Client-Centered Approach

A

A counseling style that focuses on the client’s perspectives

59
Q

Communication Skills

A

The essential verbal and non-verbal skills required to convey information clearly and build rapport with clients.

60
Q

Boundary Setting

A

Establishing professional boundaries that define the advisor’s role and prevent overstepping into personal matters.

61
Q

Professional Ethics

A

Adhering to ethical guidelines that ensure integrity and professionalism in client interactions.

62
Q

Multifaceted Communication

A

The various strategies and techniques that financial planners can employ to effectively communicate with clients

63
Q

Active Listening

A

A skill where financial planners fully engage with clients

64
Q

Nonverbal Communication

A

Communication through body language

65
Q

Sympathy vs. Empathy

A

Sympathy is feeling sorry for someone

66
Q

Crisis Events

A

Situations that have severe financial and emotional consequences

67
Q

Crisis Management

A

Techniques used to support clients through crises by reassessing financial goals

68
Q

Emotional Intelligence

A

The ability to recognize

69
Q

Triage Approach

A

In crisis situations

70
Q

Trust and Credibility

A

Trust in financial planning is built on the planner’s credibility (technical competence) and benevolence (acting in the client’s best interest).

71
Q

Benevolence Trust

A

The confidence clients have that their financial planner acts with their best interests in mind

72
Q

Resilience Building

A

Strategies to help clients and planners build resilience to withstand future financial crises or stressors.

73
Q

Cultural Awareness in Communication

A

Recognizing and respecting diverse cultural backgrounds in communication

74
Q

Stress vs. Crisis

A

Differentiating between general stressors

75
Q

Repairing Trust

A

Techniques to rebuild trust after it has been damaged

CFP - Steps in the Financial Planning Process (9 decks)

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