We All Need to Know Financial Control

In many aspects of our lives, we’ll find ourselves either pursuing areas of expertise or delegating to those who can better utilise their skills for an improved outcome. Alternatively, you can watch DIY Youtube videos for guidance.

Setting aside internet expertise, these are often what forms our jobs or careers. A specific skill that we’ve honed, or a set of skills we’ve specialised in, so we can perform a role and contribute in a way that’s valuable to a team. There’s no need to know everything because if your workplace is focused on a goal, you may find people around you with another set of skills, equally as valuable to the common cause. The person sitting next to you in the office or standing next to you at a work-site may not do what you do, but they’re equally complementary to the business.

This can play out in other areas of life where a group of people are in some form of team, group or committee. There may be defined roles in these groups or people may gravitate to where they and others believe they can best serve the common goal. If it’s a sporting team, players will often be recruited for positions and they will fill that specific role.

It also happens in our personal lives. While we don’t recruit partners based on their cooking or gardening skills (who knows, maybe that’s why Gordon Ramsey’s wife puts up with him), when in a relationship each partner may gravitate to areas they feel comfortable or where they feel have some expertise. Consequently, the other partner may pull back from the same area, feeling they have nothing to add. That can lead to one person having a greater amount of control over the finances.

It could be argued this is just another division of duties and one of the partners focusing on an area where they feel comfortable. However, there’s a slight difference between business, the sporting field or the community organisation and your personal life. If the person beside you in the office leaves, they can be replaced by a new employee, player or volunteer with those specific skills needed. Meaning there’s no requirement for you to step into their role.

Now consider this:

A divorce, a death, an illness or an injury may, remove one party from the relationship or render them instantly unable to continue with the financial undertakings. In the US 50% of first marriages end in divorce, while in 75% of marriages that end with a death, it’s the female partner left behind.

What if the partner left behind is the one who didn’t deal with the finances?

A 2015 study by US academics Adrian Ward & John Lynch Jr, titled ‘On a Need-to-Know Basis: How the Distribution of Responsibility Between Couples Shapes Financial Literacy and Financial Outcomes’ suggests this is a real problem. The partner who handles the household finances gets smarter and their money skills more valuable over time, while the spouse who defers on financial matters does not.

Clearly, anyone can quickly pick up cooking, laundry or start the hedge trimmer if needed, but finances can be daunting and difficult if there’s no familiarity there. And in contrast to an investment portfolio, which generally works better the less you touch it, general finances don’t do well when left alone. A lack of financial knowledge can be paralyzing if a person is suddenly confronted with financial demands.

This exposes vulnerabilities. Who does the person turn to initially if they are now in charge of finances? Maybe there’s a family member offering to help whose intentions are less than honorable. Maybe they won’t be able to decipher a scam or know who to trust if attempting to seek financial or investment advice. Maybe they later enter into another relationship and again allow the financial responsibilities to be taken by the other party.

The academics suggest that in a relationship, an individual is no longer an individual, but part of an interdependent system where each partner relies on the expertise of the other. Essentially there’s no need for them to know or understand a skill, they only need to know who knows it.

The pair also believes their research has implications for financial education in young adults. If a child or young adult is still in school, they’re still reliant on their parents, meaning they can defer or resist developing any sense about money. This may be the reason why students in school-based financial literacy programs are unlikely to gain benefits from them.

What can be done? Let’s go back to our earlier analogies. In the financial aspect, for either partner, it may be more appropriate to think of themselves, not in a team sport playing a role, but something more akin to a tennis player or a golfer who require a mastery of their sport to better compete because at some time they may be alone.

Relationships can often end unexpectedly, and financial literacy takes time. Not needing to know can change very quickly and Youtube’s unlikely to get someone up to speed on decades of financial inattention.

This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation, and individual needs. #investing #investments #retirement #retirement planning #smsf #wealth creation #martincossettini #bluediamondfinancial

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