Media Briefings

HOUSEHOLD ‘CHIEF FINANCIAL OFFICER’: Strength of character as much as ability decides who makes the money decisions, especially for older people

  • Published Date: April 2017

We are more likely to be the household’s financial whizz if we are more conscientious and less agreeable, according to a study by Olga Goldfayn-Frank, to be presented at the Royal Economic Society's annual conference at the University of Bristol in April 2017. But these personal characteristics are less important among the younger generation, where decisions are more often taken jointly or by the spouse with stronger financial literacy.

The author analyses data from the US Health and Retirement Study to examine the cognitive skills and personality traits of the person in the family who makes financial decisions. The result: higher conscientiousness and lower agreeableness are the dominant qualifications for the family CFO, especially among retirees.

The suggests that financial education at school might not be the only decider when a couple chooses who will make financial decisions., even though younger families are more likely than seniors to choose decision-makers based on education and numeracy.

The author concludes: ‘My study provides evidences of two distinct types of household financial decision-making: one rooted in education and cognitive skills; and another based on personal character strengths.’


In a family, the choice of the ‘chief financial officer’ and the subsequent financial decisions may be based not necessarily on education, cognitive abilities and resources of the spouses, but on their personal characteristics, albeit this differs significantly depending on the age cohort.

Using the Health and Retirement Study, an American survey, which makes it possible to combine detailed information on both spouses, including indicators of cognition, personality traits and attitudes toward risk, I estimate the probability that one of the spouses is likely to handle the household finances.

I find that two personality traits – conscientiousness and agreeableness – play the major role. On average, a one standard deviation increase in conscientiousness raises the probability of being a financial decision-maker by almost 12%, while a one standard deviation increase in agreeableness decreases the probability by almost 7%.

This finding is intuitively logical: while conscientiousness signifies responsibility, organisation and discipline, agreeableness – or lack of it – suggests the ability to ‘pull decisions through’. Accounting for the characteristics of both spouses delivers results that could be interpreted as consistent with the bargaining process: the signs on the observed characteristics of the spouses are opposite, suggesting a ‘tag-and-pull’ effect behind the choice of the financial head of the household.

But splitting the sample by age into post-retirement and pre-retirement groups reveals significant differences: the biggest part of the effects of personality traits is driven by the older cohort. This difference becomes striking when considering financial choices involving risk, such as stock market investments.

For older households, the conscientiousness of the financial decision-maker is by far the strongest predictor of investments in stocks. In fact, a one standard deviation increase in conscientiousness raises the chances of the household holding stocks by 15%; this is net of cognitive abilities and risk aversion.

To compare, having a university degree raises the odds of stock market participation by 7% on average. Interestingly, the characteristics of the other spouse have little effect on the investment choice, which suggests that such decisions are made mostly by one person.

At the same time, it is quite a different picture for younger households, whose financial choices are better explained by cognitive abilities (numeracy), education and risk preferences of both spouses, while personality traits are mostly irrelevant.

A possible interpretation behind these findings is the age-related decline in mental agility and consequent diminishing role of analytical skills of in financial decision-making, while other abilities, such as being organised and dutiful (high conscientiousness), as well as being resolute (low agreeableness) allow older people to perform well in managing family finances.

Another interesting finding concerns the involvement of the spouse in the financial decisions of the household. While in the older group, spousal characteristics do not exhibit significant influence on the stock market-related decisions, suggesting a sole decision-maker, better numerical skills and tough-mindedness of the spouse in the younger population increase the odds of the household owning (more) stocks.

This influence of the spouse on household’s finances goes beyond contribution to wealth through labour income and savings and can be seen as generation-related cohort effect: as society shifts to greater gender equality, there are also more joint decisions in financial matters within households.

Thus, this study contributes to several important discussions. First, it underlines the economic value of human capital, both cognitive and non-cognitive abilities.

Second, it provides evidences of two distinct types of decision-making: one – specific to the younger population – is rooted in education and cognitive skills and more joint decisions within a household; and another, which seems to be based on personal character strengths.

As there is active discussion of the effects of education – primarily financial literacy – on household decision-making, it is worth considering personality traits being an important factor associated with the financial choices of households above and beyond education and analytical skills.