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.
Forget investment decisions, some families do not involve women even in the investment process. This is the most basic mistake which families make. For some reason, if an investor wants to redeem his singly held mutual fund investment but he is physically not present to execute the transaction, either because he is travelling or incapacitated due to illness, his family has to wait till his return before they are able to draw the money. It is always prudent to execute mutual fund investment transactions jointly with your spouse, in the “either or survivor” mode, so that, at least one member of the family can execute redemptions in the absence of the other.
If wives are not involved in their husband’s investments, they may not even be aware of all the investments their husbands have made. In most cases, there is not a single report that summarizes all the investments made by a family. In the event of an untimely deathof the husband in situations like these, the investor’s family cannot claim monies and face financial difficulties. Even if your wife is aware of all the investments that you have made, but if she is not KYC compliant (e.g. no PAN card), she will first have to fulfil the KYC requirements before claiming the money. This is of course contingent on you naming your wife as your nominee or as guardian of minor children nominees. If you do not have any nominees in your mutual fund investments, then your family has to go through a slightly complex time consuming legal procedure (which may include visiting the court).
We have discussed some of the most basic problems, if you do not involve your spouse in investment process. Hopefully, most of our readers have not made these mistakes and, if they have, they should rectify it at the earliest, in order to avoid hassles to their families in difficult situations. Apart from the basic problems that we have discussed so far, there are a number of benefits of including your spouse in your investment decisions. Men and women have complementary strengths with regards to investment attitudes, temperament and risk taking attributes, which can lead to superior decision making as far as investments are concerned.
Some behavioural finance studies have shown thatwomen 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 (I clearly do not have enough evidence to suggest either), what I have observed is, 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.
A large percentage of women in our country are financially dependent on their husbands and fathers. Obviously the financial risks faced by these women are higher if something were to happen to the principal earning member of the family. Even working women have a more cautious approach towards risks, especially if they are single mothers, because working women on an average tend to earn less than men in similar jobs. Men on the other hand can take more risks, because even if something goes wrong with their investment, they have income from their profession or business to fall back on.
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.
Studies in the United States 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.
Men tend to be more erratic than women in their investment behaviour. Men tend to churn their stocks and mutual fund portfolios more often. Women, on the other hand, are more disciplined in investing. They tend to be more patient and churn their portfolios less. Excessive portfolio churning, more often than not, leads to sub-optimal performance.
I have observed that, men exhibit herd mentality more than women in cultural, political and financial opinions. Men are more likely to be influenced by friends and co-workers in investment decision making compared to women. Women are more focused on their individual and families’ interests. Investment decisions made by women are based on their individual and families’ needs rather than the “in thing” or the latest trend in the market. Investment decisions made by financially educated women are better researched compared to those made by their male counterparts.
Men are more interested in financial markets and products compared to women. This may be due to lack of investment awareness in women and their exclusion from financial decision making. However, I have seen even highly educated and professionally successful women displaying lack of interest in financial markets and products compared to men in the work-place.
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.
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.
Based on my experience, financial advisors tend to work with the principal investor (usually a male) of the family. They tend to exclude their client’s spouses in investment discussion. While some financial advisors may think that this is more efficient, it is not necessarily the right thing to do. By including client’s spouses, you will be able to better understand the financial needs of the family and make your advice more effective. I have also seen that, when spouses are not included in the client / advisor relationship, trust is not built between the advisor and client’s spouse; as a result, on the death of the principal client, the spouse severs relationship with the financial advisor. If you build a good working relationship with your client’s spouse, she will not only continue the relationship even after the death of her husband, but also help you build relationships with her children who can be your prospective clients.
In this post, we have discussed why it is intelligent to include your spouse in investment decisions. Men and women have complementary investment attitudes and qualities; by working together as a team you will be able to achieve more investment success. Women should take more interest in financial matters and men should try to facilitate their spouse’s financial education. Last but not the least; women are also mothers and financially intelligent women who will be able to impart that intelligence to their children.
Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.
An alumnus of IIM Ahmedabad, Dwaipayan is a Finance and Consulting professional, with 13 years of management experience, mostly in MNCs like American Express and Ameriprise Financial, both in India and the US. In his last role, he was the Chief Financial Officer of American Express Global Business Services in India. His key interests are building best in class organizations, corporate governance and talent development
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