I started writing this lesson addressing women readers and why they must take control of their personal finance decisions instead of leaving it to the men to do it all.
But then, after a very sensible advice from my wife (and I’m saying ‘sensible’ without any pressure to say so ;-)), I changed the content of this lesson to address the men…
…and what they should know about “women and investing”.
So here I am writing some of my thoughts on “women and financial planning”, and why all you men must take note of it.
Please not that I’m not trying to be gender-specific here. For a man reading this lesson, the ideas discussed below are of utmost importance to his personal and financial well-being. And for a woman reading this, she must share it with the man in her life.
Women and finances: What men must know
“The masters of the universe have turned out to be masters of disaster,” wrote noted investment writer Jason Zweig in a thoughtful 2009 Wall Street Journal column. “No matter which aspect of the financial crisis you consider, there is a man behind it. So, it is worth pointing out, how different things might be if the financial world were female.”
Here is how Zweig explains his rationale for giving the reigns of the financial world in women’s hands…
In the testosterone-poisoned sandbox of the male investor, the most important thing is beating the other guy; the second most important: bragging about it. The long term is somebody else’s problem, and asking for advice is an admission of inferiority. Worrying about risk is for sissies. Leverage is good, since it raises returns — while the market goes up. Is it any wonder the male-dominated world of Wall Street has boomed and busted every few years for more than two centuries?
Women, by contrast, put safety first. Even after controlling for age, income and marital status, women are more inclined than men to wear seat belts, avoid cigarette smoking, floss and brush their teeth and get their blood pressure checked. They even have been shown to be 40% less prone than men to run yellow traffic lights.
Women are less afflicted than men by overconfidence, or the delusion that they know more than they really do. And they’re more likely than men to attribute success to factors outside themselves, like luck or fate.
What Zweig has written is of paramount importance for men who have ever doubted that the financial matters are best left to them alone, and that women are better off concentrating on their homes, children, or jobs.
In all, what Zweig tells us is that women possess some inherent qualities that make them better equipped to handle the emotional subject of money…
- Women are more risk averse than men, and don’t go all out for the “kill” (and you know that it’s the “kill” that has caused all the past financial crises);
- Women are better at self-control and are less overconfident (great advantages that any investor must have);
- Women are calm, have a higher degree of acceptance, and are generally more satisfied (all great qualities of a successful investor).
The bottomline is…
See, as much as it may sound, the core idea of this lesson is not to prove why women are better than men at handling money.
The idea here is that your household’s financial plan will be less risky and more well-constructed if your wife helps manage it.
After all, if she will benefit from what comes out of that plan 10-20 years down the line, why not let her share her ideas in what goes into creating the plan?
To start with, let her clearly know about all your financial plans and how you’re working to achieve them.
Then, ask for her views and suggestions on how she would have gone about doing it. After that, together work on a financial plan based on your combined thoughts.
I’m sure you’ll be amazed at how your financial life will look simpler when you work on it together.
I also sincerely believe that her financial ideas and emotions (of playing it safe) will complement yours (willingness to take high risks)…and you will both end up wealthier in the long term.
5 financial mistakes couples make
After having made a case for both the husband and wife making joint financial decisions, let’s talk a bit about the mistakes couples make while planning their financial lives.
If you and your spouse are like most couples, chances are, you fight about money.
Numerous studies have shown that money is the one of the biggest reasons why couples argue – and even untie the knot.
While anyone will tell you that talking about money is the first step in resolving problems, talk alone won’t do the trick.
So what’s the solution? You see, most of us don’t know to talk about money. And when we talk, we tend to be emotional and reactive about money, not strategic.
When emotions run high, people tend to make financial mistakes.
Here are the 5 most common mistakes couples make when handling money issues, along with one suggestion each on how to correct them.
Afraid to talk money with your spouse?
Well, here are 6 tips for getting the money discussion started with your spouse – and making sure that it doesn’t devolve into an emotional battle, and ends in tears.
- Start off talking about goals: Ask – “When do you want to retire and what do you want to do after retirement? What are your dreams?”
- Admit your own mistakes: Admit – “I’m sorry for making that blunder of borrowing a personal loan to buy that laptop!” Admit – “I admit to spending too much on books and on eating out, both of which are seriously draining our finances.”
- Look your spouse right in the eye, and hold their hand: Sit next to your spouse, looked right at him/her, place your hand on his/her shoulders, and say, “You made a mistake, but that won’t ever compromise my love for you! Don’t worry…we’ll get over the mess together.”
- Create goals you both agree on: Suggest – “Here are some of my short and long term goals. Share yours’ and let’s find the ones that mesh together and let’s agree to work towards them.”
- Create plans to reach those goals: Discuss – “How do we reach our goals? Do I need to cut down on my regular visits to the coffee shop? Do you need to spend less cash on handicrafts? Let’s together make some sort of sacrifice to reach our goals, and since I’m initiating this, let me start by giving up my regular visits to t the coffee shop.”
- Agree to talk about it regularly: I am a big fan of a monthly family meeting about money issues. This should include the children as early as possible. This way, all parties can stay on the ball and everyone can have a say in any planning decisions.
You see, talking about money with your spouse can ease a lot of tensions between you. I’m saying from experience, as it’s helped me and my wife a lot. We’re on the same page a lot more often. We’re both paying more attention to the kinds of details that used to cost us a lot in mistakes or careless spending. Now we feel like a real team, and we’re actually saving money.
What about you?
P.S.: Got here via a link from a friend, or a forwarded email? This is the fifth lesson of the free email course on the essential pillars of managing your finances – Financial Planning for Smart People – that will help you learn the very simple rules that have made scores of ‘financially worried’ people ‘financially free’. Click here to sign up for the course.