The Warning Signs Of Financial Abuse
Financial abuse can exist through the course of a relationship that the victim fails to see due to a lack of financial literacy.
A high net-worth client, who was being advised by a well-known bank in India, insisted a Government of India tax-free bond was giving an 8 percent return at a time when the 10-year government security yield was 6.50-6.75 percent.
Bewildered, I asked, “How is that even possible?”
The client, who was talking to the relationship manager of the bank, handed over the phone to me; when I started asking a few relevant questions, the relationship manager refused to budge.
As I dug deeper, I realised, he was referring to the par value that would provide such yields if an investor would have purchased it at Rs 10, not at the price at which the client was buying it.
I deliberately choose not to illustrate ‘financial abuse’ with an example set in more intimate surroundings. An oppressive breach of trust, especially a financial breach, does not always involve your closest relative or friend, it can also come from someone you choose to transact with. You are financially abused even when you are mis-sold a misrepresented product.
When we use the word ‘abuse’, it’s often associated with relationships that have turned nasty on the physical and emotional front. You can be subjected to financial abuse in many ways. Its effect is not limited to financial well-being; but can impact one’s social, physical and mental health. Unfortunately, awareness around it is much lower than other forms of abuse. As per a study by Allstate Foundation, only three percent of Americans feel financial abuse would likely cause long-term effects compared to emotional (43 percent) and physical abuse (22 percent).
Identifying Instances Of Financial Abuse
Taking control of the partner’s financial activities: Financial abuse is one of the most powerful tactics to keep someone trapped in a relationship. A report suggests, 99 percent of domestic violence cases involve financial abuse. In fact, it is often the first sign of a toxic relationship.
The form of abuse might be subtle with the perpetrator taking control of finances. Or, it can be as direct and abusive as someone interfering with his/her partner’s career choice and even asking him/her to stop working.
In many cases, financial abuse can exist through the course of a relationship, that the victim fails to realise due to a lack of financial literacy.
Suppose an earning member of a family is up to the neck in debt and does not share the concern with other family members. In case of any unfortunate event, the family might end up in deep trouble. On the surface, it may seem that he/she tried to protect them from the trouble he/she was going through, but if you try to analyse further, this is a case of financial abuse.
Indiscriminate use of credit cards: The partner goes on a shopping spree, and then delays payment leading to bad credit score of the credit card holder. This can affect one’s ability to obtain loans when the need is more important – like applying for a home loan or a student loan.
Intestate succession: Absence of a properly drafted will can create a lot of confusion among the inheritors. Unclear division of assets, improper segregation of financial and real estate assets has led to scrambling for a higher share among siblings leaving the rightful owner (sometimes the wife) with nothing.
Mis-selling: From insurance to investment options, time and again we have been fraudulently sold products which are not suitable for us. At the end of the investment tenure, we realise we ended up paying more than we could avail of its benefits.
Defaults: In the recent past, many NBFCs have been downgraded from AAA to A- or D in a matter of a week. Investors who invested in these securities have to “make-do” with a lower valuation of assets in the hope of repayment by the wilful defaulters. Corporate governance has arguably reached a new low in India and some of the best companies have fallen prey to greed and unethical management.
Fraud: By trickery, legal and financial documents can be forged under your name. So always carefully read legal papers before signing on them.
Creating Awareness
Building a healthy relationship with money is the first step towards creating awareness around financial abuse. This process should start at home.
Talk about money: Discussing money matters is quite a taboo in traditional households, however, if you want to fix your financial situation, talking about it is necessary.
Try to include the children in such conversations. It will help them understand the complex psychology around money from a very early age.
A transparent financial environment at home can provide an immediate respite in case of an unfortunate event.
Know what you are buying: Don’t randomly buy an investment product just because others are buying it too. Try to analyse why you need it or why it is good for your portfolio. Seek help of an expert.
Budgeting: Understand the fact that resource is limited, this helps to make smart purchases and investment decisions.
Inculcate proper spending habits: Indulging on luxury is not a bad habit, but, it is equally important to learn where to stop. Discuss the outcomes of wrong money decisions with your partner and children.
Increasing financial literacy level: Considering that the financial literacy level in India is 24 percent, as per a study by S&P Global, money management skills should be included in school and college curriculum. Schedule some time for financial literacy every day.
Talk to someone: If you feel you are being financially abused, try talking to someone or seek legal help.
Dilshad Billimoria is a SEBI-registered investment advisor and director of Dilzer Consultants Pvt Ltd.
The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.