Why include Spouse in Financial Decisions ?

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India is still largely a patriarchal society and financial decisions in families are almost an exclusive domain for men only. Percentage of women in the Indian workforce is only 27%; taking care of the family is seen as the main responsibility of women in our country.

In households where women are involved in some kind of financial decisions, the decisions are primarily related to property purchase (where women’s choices are given importance) and in life insurance (so that the wife is aware to make a claim in the event of an unfortunate death of husband).

However, as far as, investment decision making is concerned, I have seen that in almost all families, it is the men who make the decisions.

Attitude towards risk

Some behavioral finance studies have shown that women are more risk averse than men, while there are other studies which disprove the conclusion of the studies which show women are more risk averse. Without debating whether women are more risk averse than men or not (do not have enough evidence to suggest either), that risk attitudes differ between men and women. I have noticed that, women are more cautious towards risks.

There are cultural and economic reasons for a cautious attitude to financial risks. Culturally women are a more vulnerable part of our society in India and it is quite natural that they will be cautious. From an economic standpoint, as well, women face more risks than men.

While excessive risk taking is harmful towards your financial interests, excessive risk aversion is also detrimental towards long term goals. Husbands and wives should both educate themselves about investments and work together on planning their personal finances. By working together as a team they can make their differing risk taking attitudes a complementary strength and make better investment decisions for their families’ short term, medium term and long term goals.

Investment temperament

Studies have shown that, financially educated women have better investment temperament than men. Investment portfolios of women have given 1% higher annualized than those of men, as per one of these studies. While 1% higher returns may not seem high, over 15 – 20 year investment period it can result in significant difference in the accumulated corpus.

The financial services industry is evolving on a constant basis with new and better products being offered. Lack of awareness may prevent women from making the best investment decisions. Again, we would like to reiterate that, husbands and wives should work together as team. A husband’s weakness in investment temperament may be the wife’s strength and vice versa. By working together, they will eliminate weaknesses and fortify their strengths.

Family is team

In modern day corporate culture, lot of emphasis is given to team work and team building. However, you should realize that your family is the most important team.

In a business organization, the team with very engaged members creates the highest shareholder value. Similarly, if all the members of your family are engaged in working towards financial goals, you will get the best results.

Women usually manage the household expenses and are able to find savings which men cannot. Studies have shown that, a single working woman is able to save a bigger percentage of her income compared to a single working man.

If you share with your wife a unified financial goal for the family and involve her in investment decisions, she may be able to squeeze out some extra savings from her monthly budget and this will go a long way towards your financial goals. She will also be able to help you make better investment decisions. Women should also take more interest in financial matters of the family and not get lulled into a sense of financial comfort by their husbands.

The world we are living in today is very dynamic and situations can change dramatically in a short period of time.

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