In 2015, Fidelity Investments conducted a study to measure how women view and address their finances. Despite the fact that 92% of women said they want to learn more about financial planning, only 47% said they would be confident discussing money and investing with a financial professional on their own, and 80% said they had refrained from discussing their finances with those they are close to.
In my experience as a registered investment advisor, it seems that within married couples, typically one spouse is less interested in being part of the financial decision making process, and more often than not, it is the wife. While this article is slanted towards women, the advice given can be applied to men and women alike, both in and out of marriages and relationships.
There are a number of problems that can arise from not being financially aware.
In the scenario of a married couple, the most extreme issue arises when the spouse who takes care of all of the financial decisions dies or is incapacitated. The surviving spouse is “thrown into the deep end” trying to make sense of account information, expenses, investments, life insurance policies, and in some cases, business finances. This will add an incredible amount of stress to an already difficult time.
Another problem can develop when the spouse who is not involved financially has no “buy in” when it comes to the plan. There are a number of difficulties that can arise because of this. - First, it may be difficult for that spouse to understand what the couple owns within their investment portfolio and why they own it. If one spouse has a very low tolerance to the volatility of the market, it may cause him or her distress to see the market drop without having the understanding that the investments in those funds are long-term assets that can withstand the day-to-day fluctuation of the market.
- It may also be difficult for one spouse to understand and stick to a budget/plan if he or she has not been part of the financial planning process. It is easier for a couple to accomplish their financial goals together if they are on the same page as to what those goals are and how they will go about accomplishing them. There are also important decisions that need to be made at retirement that will affect both spouses.
- When making pension elections, the single life option always has a greater monthly benefit; however, once the owner of the pension dies, that benefit stops and the surviving spouse is left with a reduced monthly income. Combine this with the fact that the lower of the two social security benefits will also terminate and you can see how this may have a dramatic effect on the surviving spouse’s ability to support themselves.
- Social security planning can have an impact on the surviving spouse’s income as well. Overall, women live longer than men and it is important that we plan for both spouses when deciding when and how to claim social security benefits. Married and single individuals alike can experience problems if they are invested in the wrong types of funds or don’t understand the expenses being charged. Many men and women don’t know anything about the funds they hold within their 401k or IRA accounts, and are unaware of the expenses they are paying within these accounts.
The most important thing you can do is to get involved. Engage yourself in the process. Attend meetings with your financial advisor. Learn more about the areas you do not understand. Ask questions.
Engage. If you are single or married, male or female, and are not already doing so, start tracking where your money is going. Create a budget, meet with a financial planner to discuss what you will need during retirement, and create estate-planning documents like a will, living will, and power of attorney. This is a good start to becoming more involved. If you are married and your spouse takes care of the finances, learn where the income is coming from, what your monthly expenses are, what investments you hold, and why you hold them. Find out if you have life insurance – how much and whom those policies are with — and make sure your estate planning documents are up to date and that you have access to those documents in the case of an emergency. If you have a financial advisor, attend meetings with your spouse.
A study conducted by the Life Insurance and Market Research Association (LIMRA) suggests that men focus on the revenue while women focus on expenses. Teamwork between a husband and wife oftentimes makes financial planning better by using the complementary skills of both spouses.
Educate yourself. If you are like me, you tend to tune out or disengage in topics that you don’t understand. The solution to this is gaining a better understanding of the topic. There are books you can read, online courses, and even community classes offered by our local universities.
For a general understanding of investing, our firm recommends “The Investment Answer” by Daniel Goldie and Gordon Murray. The advice in this book is simple, easy-to-follow, and effective, and can lead to a more profitable portfolio for every investor.
Ask questions. If you don’t understand why you hold a particular fund within your portfolio, ask your advisor. Ask about the expenses you are paying on the funds you own. Ask how your advisor is compensated. If you don’t understand your options on your 401k, go to your human resource director and ask for help. Talk to your spouse about pension options. Talk about social security planning. There is no such thing as a stupid question when it comes to financial planning.
It is important for men and women to be cognizant of their financial world, at the very least, and ideally, be actively involved in planning for their financial future. Your chances of not running out of money before you run out of life increase substantially by actively participating and having a voice in the financial planning process.
Lyndsay Goody is a financial advisor with Onyx Financial Advisors, LLC, an independent fee-only registered investment advisory firm located in Idaho Falls, Idaho. She can be reached at (208)522-6400 or at www.OnyxFinancial.com.