April 3, 2012
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When I was a teenager, the girls had a phrase they used often to describe certain members of the opposite sex: “typically boyish and socially irresponsible.” Sadly, the two were often synonymous. Sadder still, the same can apply to married men and their finances, particularly as they age.
Advisors who work directly with individual clients know that women generally take many fewer financial risks than men, at all ages and across all ethnicities. They are simply much more risk-averse. Thus, women’s investment portfolios tend to be much more conservative, both in general and with respect to their retirement funds. Interestingly, couples take on much more risk (at a level close to that of single males) than single women in similar circumstances.
Such risky behavior by couples can be explained by the fact that husbands disproportionately make household financial decisions. Fully 55% of husbands say they make the financial decisions, and 45% say that such decisions are made jointly with their wives, while only 4% of wives say that they make the money choices, according to one representative study. This disparity is particularly pronounced among older generations and among the more affluent.
To make matters worse, the disparity increases when stress is involved. Research shows that men under stress are more likely to engage in risky behavior while women under stress tend to moderate their behavior.
Women are far more likely to protect themselves with long-term care insurance and annuities (which provide guaranteed income for life). Yet despite their attractiveness, these products are by no means hot commodities, and it isn’t hard to see why. Nearly every experienced financial advisor can recall multiple instances of nervous and worried wives going along with their husbands’ aggressive investment plans despite serious misgivings. (One such story is offered by Wharton Professor David Babbel here).
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