Marriage can be both a wonderful and tricky undertaking, as theoretically -- two people morph into one and try to bring everything from their single lives over to their married lives in a seamless transition.
Whether it’s the combining of each other’s furniture or putting together each person’s collection of music, books and art, part of the excitement of starting a new life with someone is bringing parts of yourself from your unmarried life over to your new union.
But let’s face it, issues over sharing things like the book and art collection probably hasn’t broken too many couples up, but when it comes to having access to each other’s income, all kinds of conflicts can arise.
In fact, many relationship experts have said the big three when it comes to what couples argue about is sex, communication and of course the household finances.
Let’s face it — sometimes it can be hard trying to manage your own finances on a day-to-day basis, and when you throw another person’s income into the marital fray, it requires even a higher level of money management and more responsibility on each person’s part to make sure the household finances run smoothly.
But should couples always combine their incomes into one account? Couldn’t the household finances still be managed if each person overseas their own money?
No need to choose
We spoke to financial expert Dr. Gizem Saka, who teaches economics at the Wharton School of Business at the University of Pennsylvania, about how couples should handle their finances when first getting together. She says that couples shouldn’t really choose between having joint or separate accounts, as both should be used.
Most of the money should be in a joint account,” says Dr. Saka. “But individuals should keep separate accounts for personal expenditures that the partner wouldn’t need or understand. Research shows an interesting fact about couples: Everyone believes that they’re doing more than their share. When married couples are asked about what percent of the household chores that they complete, the wife and the husband’s answer consistently add up to more than 100 percent.”
“When explained to the participating couples that it is impossible for the total to exceed 100 percent (and that it’s possible for one party to undertake more of the burden, for example, the wife undertaking 75 percent and the husband undertaking 25 percent would work fine, but only if both parties gave the same answer), the answers don’t change,” she said.
“This suggests that individuals in relationships will always think they’re doing more of the work, and since saving can be considered work (it takes self-control), over time, everyone would see themselves as the one doing more of the saving, even when it’s not the case.”
Dr. Saka also explained the benefits of having separate accounts and says that many times each person in a relationship sees the finances and expenditures very differently, thus creating the strong possibility for arguments to begin over too much money being spent.
And no matter how each person in the union tries their hardest to keep a level of peace in the home when it comes to finances, there will always be areas when it comes to money that many couples will never agree on.
“It’s a good idea to keep a separate account for personal expenditures,” says Dr. Saka. Research shows that we don’t have as much empathy for each other as we believe we do. We have several self-serving biases and one that would be relevant in this domain is the Actor-Observer bias in attribution. People are more likely to attribute their own behavior to environment or situation factors; but they view other people’s actions as products of their personality.”
“For instance, a man would think of his own expenditure in football tickets as a form of entertainment spending ("my friends were going and the situation demanded me to buy tickets"), he might think of his wife’s spending on ballet tickets differently ("she’s a spender"). At any relationship there will come a point where two people won’t see eye to eye; for those moments it’s good to have a personal account,” advises Dr. Saka.
One of the common complaints from at least one person in some marriages, is they miss the old days of financial freedom -- when they didn’t have to let their spouse know where every dollar is being spent.
Once you get married do you have to reveal all of your daily and monthly expenditures? I mean, is it wrong for a person in a marriage to keep some of their spending ways personal?
“Being personal doesn’t have to mean being secretive,” said Dr. Saka. “It’s a way to draw a border, but what’s behind the border could still be visible. If you’re putting 10 percent in a personal account every month and spending it, it doesn’t have to mean ‘I won’t show you what I bought,’ it only means, ‘I used my personal discretion to buy these golf clubs and I didn’t have to ask you.’
“This will work because we all engage in mental accounting,” she added. “For instance, we view $15 saved on a cheaper item as more valuable than $15 saved on a more expensive item, even though the dollars don’t know what item they were saved on. This compartmentalization, even though not perfectly rational, helps us make quicker decisions in our everyday lives without feeling guilty or responsible. Everyone needs to spend some money without having to account for it to someone else. What’s more important is to impose sensible limits to the spending behavior, whether personal or joint,” Dr. Saka explained.
And for couples who reside together but aren’t legally married, Dr. Saka says although there are no benefits from a tax perspective, there are still certain things non-married couples can do to manage the household finances properly.
No tax breaks
“There are no tax advantages if you’re not legally married, so the government wouldn’t financially help unmarried couples,” she says. “On the other hand, some companies do recognize partners in benefits programs. When it comes to the household finances, I don’t think anything should change: Couples should encourage each other to participate in IRAs, whether their companies match their contributions or not.”
As far as the best ways for couples to save money, Dr. Saka says Automatic Enrollment Plans are the way to go, as counting on yourself to extract the same amount of money from your paycheck each cycle for your savings, is a difficult undertaking, especially for those on a tight budget.
“Research shows that people like to stick with the status quo; they don’t like change, but most importantly they don’t like to be the initiators of change,” she said.
"Even with an important decision, such as whether to become an organ donor or not, the deciding factor is the question on the application sheet: If the default condition says you’re a donor, but you can opt out anytime you want, people wouldn’t opt out. If the default condition says you’re not a donor, but you can opt in, no one would opt in."
“Using this insight towards retirement savings, policy-makers have come up with the Automatic Enrollment Plans. I’d suggest that couples establish a default savings condition as soon as possible. A good benchmark is 10 percent of the gross income to be saved every month. If that’s established early on, you’d have to explain to your partner why you need it changed; but you won’t have to come up with the arguments as to why you should continue saving. You’ll automatically save as a couple,” said Dr. Saka.