I stumbled upon an article which gave the results of an American report on how couples make financial decisions. It made for interesting reading, particularly for someone like me who advises couples on their finances on a daily basis.
Men look after investing and women are in charge of day-to-day expenses
The 2014 report from UBS Wealth Management revealed that one quarter of respondents split financial decision-making down the middle. While men and women shared financial tasks, men tended to be in charge of investing, long-term planning and insurance. Women took care of daily expenses and charitable donations.
In four out of ten cases, the alpha male took complete charge of financial decision-making. As you might expect, among older couples and in families where the man is the main income earner, this approach was even more prevalent.
16% make independent financial decisions
The report revealed that about 16 percent of couples make independent decisions about their finances. They spend their money and manage their individual accounts without communicating with each other. It doesn’t surprise me that the report shows that four in ten of these couples report fighting about money at least every few months, a higher frequency than with other couples.
Couples should make the vast majority of decisions on a joint basis for number of reasons:
- Making financial decisions in isolation can be stressful. The burden is all the more intense for the decision-maker if it is not shared. Feeling stressed rarely produces positive results.
- If the alpha male takes the lead, it is possible that they will pursue more risky (and often times unnecessary) investment strategies. Men are typically more tolerant of risk than the fairer sex.
- Being the one who makes all the big decisions can lead to over-confidence. The psychology of financial decision-making tells us that our financial decisions tend not to be rational.
“Where a past decision has led to a good outcome, we put that down to skill and where the outcome was unfavourable, we put it down to bad luck.”
4. Unbalanced decision-making leaves the less active spouse vulnerable should the decision-maker die or the relationship breakdown.
5. Men are more likely to underinsure against death or critical illness. Who’s the one left picking up the pieces? Now you see how this may be a bit of a problem!
The report was based on an online survey of 2,595 high-net-worth investors. It found that couples who make financial decisions together are happier and more confident about achieving their financial goals.
Both parties being actively involved in joint decision making isn’t all sunshine and roses. There is of course the scenario where spouses differ in their approach or won’t listen to the other persons point of view. This is where an objective and independent financial adviser can alter the outcome.
Finally, the report showed that regardless of how they make their financial decisions, one third of women and a quarter of men say they hide information about money from their spouse. Surprised? Let me know.
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Hi, I am Bob Quinn, a fee-only independent financial adviser in Naas, Co. Kildare.
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