Saving & Investing
Why ignoring your finances can be a critical mistake
November 20, 2013
Rebecca Katz: This one is from Gary, who I assume is not a woman. Gary says, "How do you get traditional women to engage in these discussions? I'm trying to address this topic, but my spouse leaves it all to me. I need help."
So, Karin, you said you work with both male and female clients in Advice Services. What do you do to try to get the women involved who might be a little bit reticent to do so?
Karin Risi: Yeah, first I would say, it's such a common concern. So Gary's spouse is really fortunate that he cares enough to want to get her involved. And I sense from the question, the way the question is worded, that his spouse has no interest, right? Some women, you know, we're generalizing, this isn't all women, but some women would rather have a trip to the dentist than to manage their finances or even have a discussion about it. And, unfortunately, the data would say you don't really have a choice. Nine out of ten women—90% of us—at some point in our lifetime, will be the sole financial decision-maker.
And oftentimes reluctantly, by a death or divorce, primarily, or choosing to stay single. So you don't really have the option of putting your head in the sand, and I think Gary's recognizing that and wanting to engage his wife.
And I think there's a couple of things you can do. So what can Gary do? I think the first step is communicating, right, opening lines of communication, explaining to his spouse why it's so critically important. Having a discussion about shared financial goals. If Gary has been the primary financial decision-maker for an extended period, it may be that the first step is a good discussion between the two to say, "Do we actually share the same goals and wishes?" Once Gary is gone, what happens, and have they had that discussion and that communication?
Something called the "financial inventory" is also really helpful, and thinking about how to start that, we have resources on our website, on vanguard.com. You can search personal financial inventory, I think it is, in the search bar, and we'll give you a template. But it's so important that Gary and his spouse both know all of the accounts, where they're located, what the passwords are, the wills, the estate planning documents, the insurance policies—all of the things that make up your financial life. You know, there needs to be that information shared. It needs to be stored somewhere safe and easily accessible. It sounds like the basics, and that's where I would start. You start with the basics, and you make it approachable.
Gary could also think about talking to his spouse about things that are relatable—the household income and expenses—getting a good handle on that now. Perhaps his spouse doesn't do the budgeting for the household. Maybe she does, maybe she doesn't. But that's a good place to start. It's the first step, as Catherine said, the first step. But it's by no means an uncommon occurrence. We work with a lot of clients who struggle to really bring the spouse in.
You know, Catherine and I were talking a little earlier. I was startled to find that the average age of widowhood is 59 years old. That's much younger than I would have expected. So not everybody has the luxury of ignoring it.
Rebecca Katz: Our next one is from Mary in Mahwah, New Jersey, who says, "What should I do when my husband is no longer able to handle his accounts?" So this goes back to that early question about the spouse whose wife didn't want to get involved. Here is someone who, unfortunately, has to. Sarah, do you have any recommendations around this?
Sarah Hammer: Sure. This is another challenging question and yet a common question. It sounds like Mary's in a situation where's she's thinking about having to take over or be very involved with her husband's accounts, and that can actually be a similar situation if you're dealing with aging parents.
One thing that I would say that's extremely positive about her sending in the question is that it sounds like she's asking the question while he can still give her the information. And that is so critical. So she's taken the right first step, which is to ask what she should do.
And in that case, the first thing would be just to find out what your husband has. Find out what accounts he has. Find out what the account numbers are. Find out what the passwords are. If your husband has an advisor, find out who the advisor is, how can you contact the advisor. Get to know that person. Have that person get to know you. Those are kind of the first steps just to understand what does the picture look like.
And then the second thing, which is another, can be a challenge if you're getting to know what the different accounts are, is to learn how to read the statements because depending on where those investments are, reading statements can be a challenge. Catherine talked about looking for the expense ratio on the statements. But there are a lot of other parts of a statement that you'll want to try to understand when you're trying to figure out what's going on with the different holdings.
Another thing that's really important would be that she should fill out and send in what's called an Agent Authorization form. And this can be found on vanguard.com, and all it is is, a document that allows you to access the accounts and to make transactions, and that will give her the power to make choices about those accounts, and it's so critical.
I guess the last thing would be, outside of the accounts and the holdings and understanding what her husband has, if she's in a situation where potentially her husband has a medical situation, just thinking about insurance and kind of what the big picture is—medical insurance, life insurance—you know, those are part of the whole picture of the financial life and definitely something to think about as well.
Rebecca Katz: So our next question is from Twitter, and I love this one. This is from M. Lisberns who says, "What is the best financial decision a woman should make once she gets married?" And, boy, there are so many questions I wished I had asked once I got married.
Karin Risi: Can I take that one?
Rebecca Katz: Go for that.
Karin Risi: So I had written a blog post on vanguard.com, last year, and it's called, "I love you, now let's talk money." And there was a lot of response to it all across the spectrum. And I think the best thing that you can do—and it sounds simple, but you'd be amazed at how many people don't do it and some of the comments in the post indicated that—is before getting married, preferably, have that open dialogue. Have the sit-down discussion to say, yes, how much money do you make? How much money do I make? What do you have saved? What do I have saved? What are our shared financial goals? Is it more important to us to save for a house? Do we want to relocate? Do we want to relocate abroad? If something happens to one of us, how will we handle a medical crisis, or a financial crisis of any kind, if one of us gets laid off?
You know, there has to be an implicit understanding—or an explicit understanding, I'll say—through communication and, I mean, it sounds ridiculously simple, but it's amazing—and there's actually research that would show many, I think it's in the blog post—there's some high percentage of married couples who did not have anything approaching a financial conversation before getting married. And it can obviously lead to some downside surprise after the fact. You find your goals aren't aligned, etc.
Catherine Gordon: And I would just add that my advice would be: Don't cede knowledge of your family's financial situation. If one of the partners is more apt to manage the finances, whether it's investments or paying the bills, okay, that's great. Don't wake up five years from now, and say I really sort of stepped away from that.
Karin Risi: Or 20 years from now, that's worse.
Catherine Gordon: Or 20 years from now because it was easy. Because he liked it, she liked it, and I had other things. So I would say stay close to sort of knowing your financial situation so that you’re not waking up 20 years from now, where are the accounts? Where is this being invested?
All investments are subject to risk, including the possible loss of the money you invest.
For more information about Vanguard funds, visit vanguard.com or call 877-662-7447 to obtain a prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.
Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the work force. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in target date funds is not guaranteed at any time, including on or after the target date.
Vanguard Asset Management Services are provided by Vanguard National Trust Company, which is a federally chartered, limited-purpose trust company operated under the supervision of the Office of the Comptroller of the Currency.
Advice services are provided by Vanguard Advisers, Inc., a federally registered investment advisor. Eligibility restrictions may apply.
This webcast is for educational purposes only. We recommend that you consult a tax or financial advisor about your individual situation.
© 2013 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor.
Both parties should be involved in financial decisions
Many couples divide responsibilities to get more accomplished, but when it comes to investing, that approach can carry some risks. Karin Risi explains why it’s important for both spouses to be involved in managing their finances.
Other excerpts from this webcast:
- Balancing multiple goals and needs
- Starting over and overwhelmed
- Becoming financially well-informed should be a priority
- All investments are subject to risk, including the possible loss of the money you invest.
- For more information about Vanguard funds, visit vanguard.com or call 877-662-7447 to obtain a prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.
- Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the work force. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in target date funds is not guaranteed at any time, including on or after the target date.
- Vanguard Asset Management Services are provided by Vanguard National Trust Company, which is a federally chartered, limited-purpose trust company operated under the supervision of the Office of the Comptroller of the Currency.
- Advice services are provided by Vanguard Advisers, Inc., a federally registered investment advisor. Eligibility restrictions may apply.
- This webcast is for educational purposes only. We recommend that you consult a tax or financial advisor about your individual situation.
© 2013 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor.