Financially literate partners make for confident investors

Financially literate partners make for confident investors
Highlights

One common aspect I have experienced in the financial planning area is involvement or lack of it by the lifepartner Many times, even upon insistence by the advisor, the dormant partner does not stake claim in the responsibility to manage money Moreover, they consider themselves ignorant in terms of finances and would allow their knowledged partner to take calls

One common aspect I have experienced in the financial planning area is involvement or lack of it by the life-partner. Many times, even upon insistence by the advisor, the dormant partner does not stake claim in the responsibility to manage money. Moreover, they consider themselves ignorant in terms of finances and would allow their ‘knowledged partner’ to take calls.

I have also come across situations when the person is widowed… all the hell breaks loose in their financial life, no…not because the contingencies are unplanned, but as the widowed person is unable to grasp the situation and handle finances. I do not want to concentrate on this extreme event to highlight the need for financial literacy of couples involved in financial planning.

In most cases, couples draw their responsibilities across areas which they believe is a very practical approach but when coming to financial management it could turn into a bane and this is particularly true during retirement planning, when one of the members outlive the other or even in divorce. To also eliminate the point of not-my-cup-of-tea attitude as I do not possess the skills of managing finances has been busted by a study.

A research by Dr Ward of McCombs School of Business at the University of Texas and John Lynch of Leeds School of Business at University of Colorado have found that people who took on more of these (financial) tasks acquired greater knowledge over time than their uninvolved partner. In a study involving 86 participants, the researchers first assessed each individual’s aptitude for financial and health care topics.

Then assigned partners and asked each participant to read and remember as much information as they could during a five-minute period spent on the topics of finance (stocks, financing, life insurance and credit cards) and health care (heart health, endocrine system, cancer and mental illness).

After a three-minute break, the researchers measured each partner’s ability to remember details they had learned from their fine-minute crash course to complete as many partial statements as possible. The results showed a tendency for partners to divide tasks according to who they believed had greater skills and even those who started out with less knowledge acquired more when assigned the role of the ‘money person’- the person responsible to manage the finances.

It just proves that once people assume their roles, they are better off at understanding these earlier puzzling things. Another study conducted in April last year by Fidelity investments in the US tracked partners’ confidence in handling financial tasks where they were more or less involved. The company surveyed 1,662 couples across the country, with an average age of 52, who were either married or in a long-term committed relationship and living together with an annual household income of $75,000 or a minimum of $100,000 in assets to invest.

The findings have shown that couples who worked together had greater confidence about their financial future. When they were asked their ability to assume full responsibility for their retirement finances and strategy, almost all i.e. 93 per cent of those who said they had primary responsibility and 87 per cent with joint responsibility said they felt confident in doing so.

In contrast, only 52 per cent of the less involved partners expressed confidence in taking over the financial role. Remarkably, 41 per cent of the less involved respondents were concerned when asked about ‘not being prepared financially in my significant other passes away first’ while only 10 per cent of those who said they had primary financial responsibility and 18 per cent who said they handled tasks jointly. Making choices alone in future is quiet daunting even when a couple had prepared it together but overall, an enlightened couple are better off than a single responsible family.

Some of the easier steps for the couples to talk about money without irritating their partners is to try creating a clear picture of long-term wishes of each partner. These could be about living at a place, owing certain things and what corpus to be created, etc. Then one could list out the short-term goals like what could be done in next one year. They could possibly even classify them into categories depending upon the agreed necessity or intention. Swap the lists and study to find out what together could be done to achieve them.

Especially if both are earning members then take stock of their networth separately and couples’ networth. Assess how they had fared in the past year and estimate for changes to be made for year ahead. This is the long-term goal definition exercise and couples should spend about half hour to one hour a month exclusively on their journey for these goals.

Involve children and elders (if compatible) to invite comments and ideas to achieve the goals. Moreover, these discussions allow the family to prioritise and desist from making certain unwanted costs. Most of all, commit together to the plan and review it with the help of a financial planner.
(The author is a co-founder of “Wealocity”, a wealth management firm and could be reached
at knk@wealocity.com)

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