Story

Intra-household dynamics

One of five Think Forward Summit projects

At the first Think Forward Summit last year, participants defined three areas where people experience challenges in their financial decision-making. These challenges gave birth to five projects, which participants were busy working on throughout the past year. This is an overview of the Intra-household dynamics-project, their research and the practical solution being developed based on the research.


Teamwork: Dutch couples make most financial decisions together

By Fred van Raaij and Lei Pan

Imagine that you and your partner want to buy a new house or work less hours. How many documents and numbers scattered on different websites or apps would you need to find to know if you can still go on a long holiday trip?

Popular joint deciscions

We conducted a survey with around 1,000 Dutch couples in the first stage of the Intra-household Dynamics project. The main conclusion we can draw from the research is that many decisions we make, from choosing clothes for our children to looking for a new job or buying a house, are joint decisions with our partners, children or other family members.

As high as 86 percent of husbands in our study claim that the purchase of durable goods is a joint decision. Even for personal items such as clothes, a substantial portion of respondents answered that the decision is taken jointly with their partner (Figure 1). 

Given that households are where most financial decisions are made, the research looks into the differences in the roles husbands and wives play in the decision-making process. Our results show that women have relatively strong bargaining power within their households, and men are more likely to overestimate their influence.

Around 14 percent of women claim that they are the decision-maker when it comes to shared accounts, and this is more or less confirmed by their partners’ answer, as 10 percent of men admit this as well. Only 5 percent of men claim that they are the decision-makers on shared accounts (see Figure 1). The situation is similar concerning decisions on savings. Around 16 percent of women claim that they are the decision-makers on savings and the corresponding number for men is only 9 percent.

Out of the 10 consumption items listed in Figure 1, men make all or most decisions regarding an average of 1.1 of them; while for women this number is 2.06.

What’s interesting is that when men claim that they are the main decision-maker, their wives only agree in 59 percent of the cases. When it’s vice versa, the percentage reaches 68 percent. Men seem to be more likely to overestimate their influence on expenditure decision-making in their households.

How to reduce financial problems as a couple?

We also investigated what couples do in order to reduce financial problems. Around 28 percent reported having financial problems over the past year, such as not having enough balance in their payment account.

We looked into mental budgeting as a way to reduce financial problems, i.e. budgeting in categories like ‘food shopping’ and ‘clothes’, usually monthly. If one spends too much in a given category, they spend less in that category for the remainder of the period.

Even though mental budgeting can help with overspending, our results show it doesn’t necessarily mean less financial problems. Mental budgeting is usually more common among relatively poor households, so we focused our analysis on households with a monthly net income under 3,000 euros. In these households, 44.7 percent of people who ‘always’ conduct mental budgeting encountered financial problems in the past year, compared with 11.8 percent of those who ‘never’ do. (Figure 2).

Our results call for information and services providers such as government and financial institutions to consider the features of joint decision-making within households. More information and services oriented towards couples are needed to provide a way for them to reduce financial problems and make sound financial decisions.

Solution: ending discussion by showing consequences

Our idea for an app integrates couples’ financial information to help them focus on the discussion about financial decisions, instead of wasting time on gathering information. The solution delivers a playful, easy-to-use environment in which partners can add both bank accounts and later add potential life events (such as buying a house, having a child) to the app timeline. Seeing the immediate effects on income and expenditures will showcase consequences directly and make sure the discussion is easy and objective.

Furthermore, more advanced features of such a tool may include interactive functions that take into consideration the roles of husband and wife. For example, a chatbot may be integrated into the tool to stimulate the discussion with nudges, recommendations and best practices.

Practical solution

The majority of financial decisions are made jointly by couples. The discussions between couples to make these decisions are often difficult because it is a struggle to get a quick and easy overview of the financial situation, which makes planning for life-time events a hassle. Financial management tools are used, but do not cater to couples for stimulating discussions in decision-making.

This practical solution is different because it delivers a playful environment in which the partners can add both bank accounts and add potential life events (such as buying a house, having a child) to the timeline, assess different “what if” scenarios and possible trade-offs. Seeing the immediate effect on income and expenditures will make sure the discussion is easy and more objective. Instead of spending all valuable time and energy on the hassle of understanding the financials, couples can focus the discussion on what is important for them.