Who Should Hold the Family Purse?
Efren Ll. Cruz, RFP®
(This article was featured in Filipino Unlimited magazine.)

It seems there is no clear answer on who should take the driver’s seat as far as the family’s budget is concerned. Should it be the wife or husband, the breadwinner or the homemaker? To be sure, the delineation of roles between husband and wife has been blurred over the years. It is not uncommon to see both husband and wife running off to work early in the morning and coming home late at night to prepare the family dinner and tutor the kids. In fact, many-a-financial planner would even say that a two-income family is better than one as there is diversification of sources of income.

Yet people still wonder who would be better positioned to handle the family’s finances? Does gender play a hand in this? Or is it just left to that spouse who has more spare time, whoever that may be?

Handling household finances is very similar to handling a company’s finances. This is why financial planning rules that apply to companies apply to households as well. In my talks, I describe financial planning in simple terms. Financial planning is nothing but a wholesome family activity, which involves ALL family members – both father and mother and the children. Having many people in the activity requires some order so that the family moves in one direction. To have that order, family members must mimic what they do in the armed forces; that is, follow a chain of command. And who, pray tell is the commander-in-chief in the Filipino family? It is the wife, of course.

There is a saying in Pilipino, “Ang mga ina ang ilaw ng tahanan.” (Mothers are the guiding light of the home.) However, the husbands should not be quick to despair because they also play an important role. “Kung ang mga Ina ang ilaw ng tahanan, ang mga Ama naman ang taga-bayad ng kuryente.” (If the Mothers are the light of the home, the Fathers take care of the electric bill.)

Kidding aside, the first rule in doing household finance is to always to have a goal. Households will have many financial goals throughout the life of the household. It could begin with renting or buying a house and progress to providing for childbirth, to sending children to school, to preparing for retirement and up to preserving and passing on wealth. In financial planning, these are called life events. Household members must be made to understand, own and rally behind the financial goals tied to these life events. Otherwise, the household will turn into a directionless entity, living only for today.

The next step is to match these financial goals with the limited resources of the household and then to prioritize them. A household must establish the optimum mix of assets and debt given its unique socio-economic situation to achieve the highest attainable living standard. Please take note no two households are alike and as such, living standards will vary. Still, happiness and financial freedom can still be found in a household if family members know and embrace the entire picture of goals and current living standards amidst the household’s limited resources.

A side question is that should husband and wife each maintain a portion of the family wealth for their personal spending. Why not! For as long as the family budget will allow it, members of the household should be allowed some amount of discretionary spending. But just like with companies, there must be a system of checks and balances so that this discretionary spending doesn’t go overboard. Consider it similar to an intelligence fund, the individual items of which are not subject to audit. What is subject to audit is the total amount.

In our household, we work hard at abiding by our financial goals. At this stage, our goals have been whittled down to providing for our children’s college education, our retirement and estate planning. In addition, we also have intelligence funds, the total amount of which we keep to a certain level. What is funny though is that from time to time, I would notice my wife wearing new jeans or carrying a new handbag. I gently remind her of her limited intelligence fund budget by asking her if an item is new. Invariably, she would reply no. Then when I would probe deeper and ask her when she bought it. She would then coolly reply, “oh, last week.”

Smart alecky as she may sound, she is technically correct because the item is not exactly new. She not only has an “intelligence fund” for her discretionary spending, she also uses intelligence in answering me. Perhaps I better use some intelligence myself and ask more precise questions the next time.

So who then should hold the family purse? It should be the person in the household who could best articulate the family’s goals, prioritize them according to the household’s limited resources and encourage every member to “toe the line”. But every member should do his or her share. As the French essayist and moralist Joseph Joubert put it, “Genius begins great works, labor alone finishes them.”

Efren Ll. Cruz is a registered financial planner with the RFPI USA. He is author of the bestselling books, “Pwede Na! The Complete Pinoy Guide to Personal Finance” and “Pwede Na! The Complete Pinoy Guide to Retirement & Estate Planning.” He is Chairman and CEO of Personal Finance Advisers Philippines Corporation. This article does not constitute nor forms part of any offer or solicitation of an offer to buy or sell any securities. The opinion and views expressed herein are solely those of the author’s and do not necessarily reflect those of the Personal Finance Advisers Philippines Corporation.