Eureka Report: The advantages of financial co-management
It is usually accepted that there can be great benefits to working in a team, and that what can be achieved as a unit is often far greater than what can be achieved by the individual.
- Tapping into one another’s strengths;
- sharing ideas and problem solving, and;
- a greater sense of accountability ... all concepts that are readily applied in the workplace setting.
When it comes to management of the household finances, the approach should perhaps be no different. However, in my experience the prevailing norm seems to remain that one member of a couple primarily takes the reins. This isn’t necessarily the case out of disinterest. The potential demands of home, work, family life etc can make it seem much more efficient and a lot easier to allocate the bulk of the financial management and investment decision-making to one person.
Surely it’s simply more economical from a time management perspective? While that might seem the case, there can be downsides to this approach.
Sharing the fiscal load
A time investment by both parties of a couple can translate into considerable long-term advantages – for the individual, the unit, and even the broader economy.
Goal-setting, having some sense of a vision for the future, is usually at the core of how we think about our fiscal management. In thinking about retirement lifestyle, for example, couples typically have a shared vision and work together to achieve their specified goals. Financial management will inevitably be one of the means to that achievement, so it makes good sense that all stakeholders are fully engaged. Small incremental gains or consistent actions might be all that is required in the achievement of an objective.
But without taking a team approach, there can be less sense of accountability. And even seemingly minor deviations – positive or negative – can have a marked and compounding impact over time. As is the case with clearly defined goals, accountability for one's own role is an integral component and the driver of team performance. Bringing team thinking into your personal financial planning can make all the difference.
The gender gap
Behavioural finance studies tell us that women and men can in general possess different traits when it comes to investment and money management. LouAnn Lofton’s Warren Buffett Invests Like a Girl: And Why You Should, Too highlights that several of the characteristics that make Buffett a successful investor are traits which are temperamentally more feminine than masculine.
When it comes to decision making, a team will benefit from a rounded perspective and will be high performing when it is able to tap into the skill set and strengths of its members.
Losing a partner
Unfortunately death is an inevitability and that can mean that the sole survivor of the couple will be faced not only with the emotional stress but, perhaps, also the sudden burden of learning and becoming the money manager all at once.
In speaking to many clients over the years, the prospect of this can be incredibly daunting, even with the support of a strong professional network. Being engaged and making an investment of time when it comes to the financial co-management, can dissolve a great deal of that fear and create a considerably better sense of confidence and comfort in all.
Engaging the young
According to the May 2015 ANZ Survey of Adult Financial Literacy in Australia, financial literacy is defined as “the ability to make informed judgements and to take effective decisions regarding the use and management of money”. There is no doubt that fostering healthy relationships with money in young people is crucial to good financial management in adulthood.
A 2012 report from Girls Scout Research Institute says “preliminary data suggests that children are most likely to go to their parents for information on money and finances, but parents often fail to communicate with and teach them about these issues".
It further reveals that while girls display great optimism in their future lives and attitude, they lack financial decision making confidence. With parents the primary example (girls looking mostly to their mothers), this highlights the strong influence and importance that both parents have in fostering and supporting financially confident young adults, which in turn supports a stronger economy.
While life’s demands can pull us in many different directions at once, there is great benefit to be had where household finances are effectively co-managed, tapping into successful team thinking.
While it does not come without an investment of time, the advantages can be far reaching from increasing prospects of achieving financial independence to setting a great example for young people.
The tremendous opportunity and influence of financially confident mums and dads can indeed go beyond the individual and ultimately contributes to the functioning of a strong and competitive economy into the future.
9 December 2016, by Affinity Private's Carol Tawfik.