Who Makes the Financial Decisions? Intra-household Evidence from Panel Data

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This study tests whether a household bargaining or household production model better explains decision-making allocations. We use unique longitudinal data that tracks couples for eight years and asks each partner annually about who is responsible for making major financial decisions. An important focus is on the role that non-economic dimensions have in determining the allocation of financial decision making, in particular, the physical and mental health of each partner, as well as their cognitive ability and personality traits. We find that household bargaining better captures intra-household financial decision making than household production and specialisation, and that non-economic characteristics of couples are important predictors of who ‘holds the purse strings’. We also find that the within-couple panel data estimates are sensitive to whether we use male or female reports on who is the decision maker. *

Providing empirical insights into how households make major financial decisions is an important task for further research. The issue is particularly important given the lessons about poor financial decision making gained in the wake of the global financial crisis (GFC), and the subsequent focus of policy makers on improving household decision making. Central to this understanding is being able to observe how decision-making responsibility is allocated within couples, and investigating how this allocation may shift in response to household shocks and changes in the economic position of each partner.

This paper sheds new light on the allocation of financial decision making, using eight waves of Australian survey data (using the Household, Income and Labour Dynamics in Australia (HILDA) Survey) which identifies who, within a couple, makes the financial decisions. We also believe that this is the first paper to explore the role of personality in explaining the intra-household allocation of financial decision making.

The cross-sectional results suggest:

  • Whether we adopt male or female-based reports on who is the main financial decision maker is important for the magnitude of the estimated relationships, but also in some cases the sign and statistical significance. Therefore studies that only have information from one partner may miss important aspects of intra-household decision making.
  • The cross-sectional models provide strong and consistent support for the household bargaining model, where we find that the relative age, education, employment and wages of male and female partners are significant determinants of who ‘holds the purse strings’. In particular, more highly educated females, employed females, and females with higher wages are significantly less likely to be in a relationship where the male is the main decision maker.
  • Mental health is more important than physical health in explaining the allocation of financial decision making.
  • Cognitive ability is a significant predictor, with high ability associated with a high probability of decision-making responsibility, though male cognitive ability is significantly more important than female cognitive ability.
  • Personality is a highly significant predictor of who is the decision maker. In particular, large effects are found for agreeableness and conscientiousness.
  • While our focus is on financial decision making with respect to ‘savings, investment and borrowing’, we find that the results also generally hold for the allocation of decision making with respect to ‘large household purchases’.

We find that the results from the within-couple fixed-effects model of household decision making are highly sensitive to whether we use the male or female reports on who is the decision maker. Using the female reports, the estimates tend to provide additional support in favour of the household bargaining model, with increases in female labour supply and wages positively and significantly increasing female decision-making power. The importance of female employment is also confirmed when we consider decision making relating to large household purchases.

Finally, using detailed information on household wealth, we find that households in which the female is the main financial decision maker are significantly less likely to hold financial assets and more likely to hold their wealth in real estate. Again, the results are sensitive to whether we use the male or female reports of who is the decision maker, but they are generally consistent with previous findings that females are more risk adverse.

In combination with our results on household bargaining, these findings highlight important linkages between the relative economic and non-economic attributes of males and females, the allocation of decision making in the household, and real choices about investments and asset holdings.

* This paper uses unit record data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey. The HILDA Project was initiated and is funded by the Australian Government Department of Social Services (DSS) and is managed by the Melbourne Institute of Applied Economic and Social Research (Melbourne Institute).The findings and views reported in this paper, however, are those of the authors and should not be attributed to either DSS or the Melbourne Institute.


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This Working Paper was produced by the CSIRO-Monash Superannuation Research Cluster a collaboration between the CSIRO and Monash University, the University of Western Australia, Griffith University and the University of Warwick in the United Kingdom. In addition, the Cluster engages on an ongoing basis with a range of industry supporters, government agencies and industry peak bodies who assist in providing guidance and feedback to researchers, providing data, and in disseminating outcomes. The purpose of the Super Research Cluster is to examine issues pertaining to the future of Australia’s superannuation and retirement systems.