Ask any husband-and-wife
team if they share in the financial decisions of their family business and
they’ll probably say yes. But dig a little deeper, and you’ll find that their
definition of ‘financial decisions’ varies greatly.
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| Special Article By Jacoline Loewen, Toronto, Canada |
Men often view financial decisions
as those pertaining to long-term planning, sale of business and insurance.
Women, on the other hand, consider financial decisions as the management of
daily expenses, accounts payable, employee benefits and payroll.
They also tend to differ
when it comes to investing: risk tolerance, expected results from investing and
financial priorities, which means emotions run high when money is discussed. In
turn, these differences have a tendency to flow through to the family business.
As counsellors will attest,
money can be a divisive issue in marriage; from the early days, over who is
going to do the actual paying of bills, right through to decision making over
investing and retirement planning. The pressure can magnify if the couple runs
a business together.
Couples should make a point
of having a ‘money conversation’ early on, and should explicitly communicate
their financial hopes and expectations. In any relationship, making assumptions
can lead to misunderstanding. Openly discussing risk tolerance and possible
outcomes depending on the scenario will bring a better balance to the business
too.
There are four main
patterns of most financial decision making, which – for the family business
couple especially – are important to recognize:
1. The man decides. Women gravitate
towards predictable results, which may mean sacrificing higher rates of return.
Men, on the other hand, tend to want to beat the market, despite the increased
risk necessary to get heightened results.
When the man makes the
decisions, he will often take the riskier decision with the hope of higher
outcomes. This can stress the woman but she will not want to argue her
position, which is why she will opt out of shared decision making. Female
business owners, at the end of their family business career, often discuss how
they would not have taken the higher risk investments made by their partner.
Looking back, if there is success, it is easier to say the risk worked.
2. The woman decides. Financial decisions
made exclusively by women make up a small percentage of couples. In these
cases, the woman tends to be the primary bread winner. Interestingly enough,
they pick up the men’s risk profile by liking more aggressive investments. They
may be unhappy about having to lead the financial planning at the time, but on
the plus side, they’re far less worried about running out of money once
retired. These women also tend to turn to their financial expert to manage
their finances and help make decisions about their investments.
3. Decisions are
independent. LGBT
couples are more likely than heterosexual couples to separate their financial
planning and investment because of that important factor: differing risk
tolerance. Despite being the same gender with the similar risk and outcome
profiles, they see themselves as independent as compared to family business
couples. The trick is to make sure to use a financial expert as a sounding
board in order to balance the risk appetite.
4. Decisions are shared. There are advantages
having both parties to voice their concerns on a matter, but this might mean
the ultimate decision results in a compromise of two conflicting opinions,
which may not ultimately be the right one. There’s also the potential for more
arguments if both parties need to be involved in every financial decision and
do not understand the different risk profiles they each prefer.
Determine which partner is
better at making particular types of financial decisions and then step back and
get out of the way. This shouldn’t necessarily mean that the breadwinner makes
all the decisions, and it doesn’t mean any one spouse makes all the decisions.
It means that sometimes it’s better for the man or the woman to make a decision
individually, sometimes it’s better for them to make shared decisions, and
sometimes it’s better to make separate and independent decisions.
