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I recently had a conversation with some colleagues at work about who handles the finances in their households. I was surprised to hear that for the most part, the men in the group handled the long-term investments. The women mainly handled the day-to-day bills.
Keep in mind my “sample size” was not large. There were roughly five of us talking. But honestly, this is not unlike the household that I grew up in. My mom handled the day-to-day bills while my dad handled the investments. My wife grew up similarly with the exception being her father hired a financial advisor to handle their investments.
A study by MainStay Investments discovered there is a huge perception gap between married couples when it comes to handling the household finances. 81% of the married women surveyed said that they share equal responsibility for financial planning decisions with their spouses. In contrast, only 44% of husbands surveyed agreed with that statement. The majority of married men surveyed (56%), said they made most of the household financial decisions on their own.
“Married couples often believe they are on the same page when it comes to financial goals but it’s apparent that they are often carrying different play books altogether,” said Mike Coffey, managing director of MainStay Investments.
A 2014 UBS Wealth Management Americas reported when it came to investing, men made the decisions ALONE exactly half the time. Meanwhile, just 13% of women solely made investing decisions. The remaining 37% of couples shared the decisions. Even more shocking, among younger women, just 15% of millennials and 18% of Generation X-ers solely made investment decisions.
One reason for these stats is that men tend to come into a marriage with more assets. A 2014 Wells Fargo study of millennials found that males had both a higher median household income ($83,000 vs. $63,000 for women) and higher median assets that were available for investing ($59,000 vs. $31,000 for women).
So now the question is should women defer to men when it comes to investments? The research says no.
Women Are Better Investors
Women actually tend to be better investors than men. A study done by Brad Barber and Terrance Oden demonstrated that men are overconfident in their ability to meet or beat the market. Men, often times, take on too much risk as well. The research shows that men’s investment returns suffer because men tend to trade their stocks too often. Men, on average, traded 45% more often than women, which reduced their net returns on average by 2.65%.
There is clear evidence that women are better investors. But, are there any other benefits to women being involved in the finances? Yes!!!
Do you know how most children learn? They learn through learning and observation. Surveys of families, however, have found that parents talk to 8-14 year old girls less often about money than they do so with boys. In turn, teenage boys end up believing they will earn more when they get older. In order to counteract this, parents need to talk to all of their children about finances, and if possible, demonstrate mom’s ability to take charge of finances to serve as a role model and empower daughters.
Knowledge Is Power
Finally, most women will outlive their husbands, and at some point, they could be the primary household money manager. Women live 5% longer than men, and 700,000 women lose their husbands each year in the United States and will be widowed for 14 years, according to Widow’s Hope. This is why it is so important to include your spouse now in all financial decisions in order to ensure both spouses are equipped in case anything should happen.
My wife’s mother passed away five years ago. Her mother solely handled the day-to-day expenses, so when she passed, her family was left with a ton of questions. My wife spent months trying to clean up her family’s finances. She seemed to keep stumbling upon different accounts and way too many credit cards that had been opened over the years that all needed to be closed out.
Finances in Our Household
I have to admit, when my wife and I first got married, since she was consumed with trying to help her family get their finances in order, our household finances took a backseat to her. Since I am a super nerd when it comes to personal finances, my wife had no problem letting me nerd out.
While I still mainly make investment decisions, I do include my wife in the decision-making and sharing. She cautioned me against buying Chipotle last November, and I should have listened. But I did take her advice when the market dipped, and we bought an ETF.
I encourage everyone to make sure that their spouse has a list of passwords and knows all the accounts that you have as a couple. Quick side note: this is why I love Personal Capital so much because it aggregates all the data into one place.
So with all that said, who makes the financial/investment decisions in your family? Share your thoughts below.