The father believed that saving early was important and wanted to manage his son’s money. The son did not agree to give such control. They lived together with their spouses in one household and decided to discuss before making big decisions, which only made things worse. The differences became sharply visible and consensus was impossible. Resentment ensued. The father felt that the son must buy a house, but the son refused to buy immovable assets so early in his life. The father disliked stocks, while the son enjoyed day trading.
We have discussed stories where husband and wife find it tough to reach a consensus on money matters. One likes to spend, the other likes to save. One wants to focus on career and income, the other wants work-life balance with lesser income. One saves and lets it lie, the other wants to periodically use the savings. Such arguments usually don’t end well.
I met an elderly woman and her daughter-inlaw, who live with the latter’s two young children. The daughter-in-law lost her husband, the only son of the widowed elderly woman, a few years ago. They were living together, with the elderly woman managing the house and the daughter-in-law going out to work. They disagreed on every aspect of managing money for the household and often quarrelled over it.
Are there rules for these situations? Instead of having to discuss every situation, it helps to invest time in creating a broad set of principles so that everyday actions can be referred to these. There is no substitute for open communication. Talking about what matters to one, negotiating for one’s needs, and being open about one’s beliefs helps the other to be more empathetic. Being vulnerable about one’s fears and suspicions, insecurities and doubts is critical to getting support from the other. These are the toughest hurdles to cross in any close relationship.
Set the ground rules
First, agree on the broad rules. If one member won’t work to contribute to the household income, the other must accept it without holding a grudge. The household has set limits on its income willingly for the benefits brought to the family by its stay-at-home member. Every major aspect of personal finance must follow this. The financial personality of a household is an identity to be accepted by all members. It cannot be modified as per personal preferences.
Spending within means without borrowing; saving mandatorily before spending; choosing investments that enable growth and income as needed; allowing investments to grow over the long term; and capping charity to levels everyone is comfortable with, are some examples of broad rules. These principles are the touchstones that will test and confirm the financial decisions that the household members make from time to time.
Second, accept transparency as mandatory to building trust and smoothen the decision-making process. Many households suffer when money is used as a source of power. Earning members seek discretion with financial decisions, or actively bend the agreed upon rules according to their personal beliefs and whims. The daughter-in-law would not disclose the income to her mother-in-law. She would simply give the latter a monthly allowance. The mother-in-law would begrudge every decision because she suspected there was more money to spend. It would be better if both know that there is more money set aside by the younger woman for specific purposes.
Spending & saving
Third, budget and record common expenses, but provide allowance for personal expenses. No one likes being questioned about every decision. However, a household needs transparent transactions that show everyone how money is being spent. Having a common spending pool and setting aside funds as agreed upon, for individuals to spend as they wish, is both fair and convenient to execute. A wife or husband should be able to support their parents with a portion of their income, after contributing to the common pool. The mother-in-law needs a monthly allowance, allocated as she wishes, that won’t be questioned.
Fourth, how money is saved and invested must be determined by financial goals, not individual whims and preferences. A child’s education is a vital goal for the mother and the grandmother. It is easier to set up an SIP and agree to save first for that goal, before allocating to any other expense. Currently, both women quarrel over too little being left at the end of each month to save for the child. This causes insecurity in the mind of the young mother, who wants to secretly save without disclosing her increment and bonus.
Budgeting & technical decisions
Fifth, allocate money to spending decisions and agree to a limit. Exceptions make for the most arguments in a household. Annual holidays or birthday celebrations should have allocated budgets. Don’t work with the assumption that such expenses will always run out of hand. They are just poorly estimated and budgeted, or manipulated to exceed budgets. Many of us use money to serve our need for attention, love, approval and authority. Letting go of the budget is a tactic to cover up for guilt, regret or shame. Identify and avoid these conflicts, and be prepared to become unpopular for sticking to the budget.
Sixth, if a financial decision is technical, spend time to understand how it will affect future financial goals and the household’s ability to save, invest and use funds. In a home loan, the choices of fixed versus floating, 15-year versus 30-year term, prepayment versus keeping the loan, are all technical decisions. Ask an expert how it will impact the household. Don’t waste time trying to take a call on the markets and macros. Put down the details of what may happen under each scenario. Hasty decisions end in regret.
It is not always easy to arrive at a consensus, but household finances need it. Building it with fair and equitable principles is not tough. It just needs work and discipline.
The Author is CHAIRPERSON, CENTRE FOR INVESTMENT EDUCATION AND LEARNING