Why your married clients should be making financial decisions together

New research reveals that financial literacy early in the relationship says little about how the responsibility is split

Why your married clients should be making financial decisions together

A lot has been said about the limited role women have in making financial decisions. A recent survey commissioned by the FPSC found 16% of Canadian women in relationships let their partner manage the household finances, and 35% were likely to admit that they know little about issues concerning finance and investment.

It’s unclear whether women are actually less financially literate than men, but the survey results raise questions about how couples should divide the responsibility. On paper, letting the more financially literate person take care of things makes sense. But new research from the University of Texas at Austin and University of Colorado-Boulder suggests that other factors play a role.

“[F]inancial literacy early in a relationship was not a significant predictor of how households shared financial decision-making responsibility,” said Conscious Capital founder Derek Tharp, who cited the study in a piece for the Wall Street Journal. “[R]elative demands on one’s time outside of the household and relative contributions to nonfinancial tasks were important predictors of financial responsibility (along with age, gender, relative preference for making financial decisions, and confidence in one’s ability to find financial information).”

Tharp noted that having one person take more than half of the work may make sense in the early accumulation stages. But couples also have to consider that divorce, death, disability, or cognitive decline could impair a spouse’s ability to serve their role as a financial decision-maker.

Furthermore, the researchers found that one’s financial knowledge appeared to change over time depending on their level of responsibility. A designated decision-maker tends to become more literate, while a spouse who delegates responsibility actually becomes less knowledgeable, which puts them at risk of making poor choices if and when they need to step in.

“[H]ouseholds can vary in level of specialization throughout the lifecycle,” Tharp said. “For strong marriages that are unlikely to dissolve due to divorce, the risk of being thrust into the role of financial decision maker unexpectedly is much lower in the accumulation stage … than it is in the decumulation stage.”

Aside from slowly transitioning from specialized to shared financial decision-making as they retire, couples could also consider annuitization of their wealth or delegating the responsibility to a trusted third party to “reduce the need for either spouse to make certain financial decisions in retirement,” he said.