I see it all the time: A client couple in which one partner takes care of all the family finances and the other knows nothing about them.
Usually, it’s the husband who takes control and just wants to take care of the wife, or the wife isn’t interested in learning because of other responsibilities supporting the family.
And then the husband dies.
Or worse, he has a stroke and must enter a nursing home. And (possibly) for the first time in her life, the woman is forced to wrestle with financial decisions she is ill-equipped to make.
It’s easy to blame one side or the other for this deficiency, but from my 18 years of experience, both partners share the guilt.
For the man
If you really want to take care of your spouse, you’ll educate her about the family finances (e.g. household bills, access to bank/investment accounts, income sources, location of insurance policies, etc.).
You’ll realize that some day, you may not be here (on average, women live 6.7 years longer than men in the U.S.) and the biggest gift you can give her now is some financial education so she can fend for herself without you if necessary.
If you aren’t willing to teach her – or she doesn’t want to learn – then hire a financial planner now so they can fully understand your financial picture and be prepared to help her if something happens to you.
For the woman
Wake up! Women usually are already disadvantaged compared to men by earning less in their careers and working fewer years in total. Why compound those problems by not understanding what it takes to financially maintain the household, or more importantly, how secure your financial future is?
Ask – no, demand – that your partner give you a full understanding of household finances and where all the important paperwork is.
If you lack confidence in this area, hire a financial planner now to help you.
As early as possible in their careers or marriage, women should build a strong foundation of personal financial understanding or responsibility.
Steps they should take include:
Track spending: Delineate between fixed costs (mortgage, rent, utilities, phone) and discretionary costs (lifestyle spending) by month/year. To balance spending with income, cut discretionary costs when necessary, and set aside savings regularly, if possible.
Examine current/future cash flow: What’s your income now, and what will future income look like (e.g. Social Security and/or pensions)?
Create an inventory of assets and liabilities: A net worth statement will help you understand your financial picture and/or where the gaps are. A good financial planner can help you build this.
Check your credit report annually: Go to annualcreditreport.com (it’s free). Look for suspicious inquiries from companies you don’t recognize or accounts listed that aren’t yours. Established credit in your own name – not just on joint accounts.
Invest carefully: Your financial planner should educate you on the right portfolio design for your current stage of life. This considers your cash flow needs, time horizon and risk tolerance. Don’t let them talk over your head. Ask for clear explanations, and if they can’t provide them, find another financial planner.
Protect assets: With your financial planner, evaluate risks that could occur, such as premature death, disability, incapacity or liability and develop action steps to mitigate them.
Establish an estate plan: Make sure you have a current will and specify/update beneficiaries on IRAs, life insurance and bank/investment accounts (via transfer on death titling). More importantly, specify in writing who should make legal or health care decisions for you if you’re incapacitated (remember the husband with the stroke?). This is done via health care directives and powers of attorney documents.
Get organized: Gather together the aforementioned information (including account/policy numbers) into a binder/file and tell your loved ones where to find it if something happens to you. More in that in the coming weeks.
The aforementioned list applies to everyone – not just women. However, women often suffer the most without such plans in place.
Don’t wait until a life-changing event creates a financial crisis for you. It’s a financial mistake women can’t afford to make.