For Better or Worse: Financial Decision-Making Behavior of Married Couples?

NFI Working Paper No. 2007-WP-14

39 Pages Posted: 13 May 2007

See all articles by Angela C. Lyons

Angela C. Lyons

University of Illinois at Urbana-Champaign

Urvi Neelakantan

Federal Reserve Banks - Federal Reserve Bank of Richmond

Ana Fava

University of Illinois at Urbana-Champaign

Erik Scherpf

University of Illinois at Urbana-Champaign

Date Written: April 2007

Abstract

This study constructs a theoretical model of household bargaining to explain the financial decision-making behavior of married couples. We empirically test our model using data from the 2000 Health and Retirement Study (HRS). The HRS is unique among national data sets in that it identifies the primary decision-maker and the more financially knowledgeable spouse. It also includes detailed information on the individual retirement accounts (IRAs) of both the husband and the wife. Using this information, we estimate a series of regression models to investigate how decision making and bargaining power affect whether a couple owns an IRA, how much they invest in it, and whether they allocate it to mostly stocks. In general, the results show that, when the husband has more decision-making power than the wife or the decision-making power is about equal, the couple is more likely to own an IRA and to have a larger amount invested in an IRA. Furthermore, the account is more likely to be allocated to mostly stocks when the husband is the financially knowledgeable spouse. Traditional measures of bargaining power also were significant in all of our models, even after we controlled for decision making. The findings have important implications for educators and financial practitioners and provide insight into the importance of having both the husband and wife actively involved in making financial decisions.

Suggested Citation

Lyons, Angela C. and Neelakantan, Urvi and Fava, Ana and Scherpf, Erik, For Better or Worse: Financial Decision-Making Behavior of Married Couples? (April 2007). Available at SSRN: https://ssrn.com/abstract=985894 or http://dx.doi.org/10.2139/ssrn.985894

Angela C. Lyons (Contact Author)

University of Illinois at Urbana-Champaign ( email )

421 Mumford Hall, 1301 W Greogry Dr
Urbana, IL 61801
United States
217-244-2612 (Phone)
217-333-5538 (Fax)

Urvi Neelakantan

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Ana Fava

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL 61820
United States

Erik Scherpf

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL 61820
United States

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