https://soundcloud.com/ithought-advisory/kairos-should-couples-manage-money-jointly-or-separately
Podcast Transcript:
Hi – thank you for joining us on Kairos, ithought’s podcast on financial planning. It’s wedding season again and we all know that marriage is a life changing decision. This is Samyuktha and today I’m in conversation with Jayalakshmi and Namratha from our financial planning desk. I thought we could take this opportunity to discuss the challenges and opportunities that couples face when it comes to managing their finances.
Now, the first thing that comes to my mind is that each person has their own personality and values. Now when you bring this into a marriage there could be a lot of friction and unpleasantness especially in areas where the differences are stark. So, should couples keep the peace and choose to work independently rather than together?
As much as it is important to keep the peace, it is important to work on it together rather than doing it independently. When two people are involved, there can be differences in emotional or other aspects with their finances like money values. The good news is that such diversity isn’t inherently a problem. In fact it’s actually an opportunity to discuss different perspectives before arriving at a decision.
So, Partners needs to be on the same team and work on their finances together.
It is important to know how one’s belief about money impacts the decisions, which in turn might affect the relationship. Your approach to money is often strongly influenced by your parents or a lifetime of experiences that moulded you. One of you might be the saver and the other is more inclined to spend. It is necessary to make it a point to understand your motivations as well as those of your partner. More than just the money values the emotional differences must be addressed to maintain the family’s financial well-being.
Whenever there is a financial decision to be taken as a family, it is important for both partners to participate by giving feedback, criticism and support.
When it comes to managing finances, the risk attitudes can also differ. One person might want to play it safe while the other seeks risk. Working together will result in a far more balanced approach than what each partner would have achieved on their own. Working together is essential to effective decision-making.
Okay, so that’s really helpful. So, my key takeaway here is that working together is important even when if it’s not going to be easy. So, Namratha, now people change over time right. When it comes to this whole personal finance aspect does the approach to making financial decisions change through the years of marriage? Or is it possible to find one approach and sort of follow that throughout?
To answer this question- Marriage is about bonding with your partner and growing through change together. This is a long-term commitment, involving emotional aspects with social and financial responsibilities. Once a couple is married, there is a sense of financial accountability and responsibility to each other. In the initial stages of marriage, it is not easy to trust someone and when it comes to something as sensitive as financial decisions, it becomes even more difficult.
From my observation, newlywed couples manage their finances very differently when compared to couples who have been married for many years. The young couples don’t have the experience of working together. The trust and comfort factor is built over the years as they experience life together. This same principle applies when we talk about managing finance. Through the years, they learn to handle and divide financial responsibilities together.
Whether you’re a double-income or single-income couple, being on the same page as your spouse with how you spend and save your money is essential. The financial responsibilities increase after marriage and managing them smartly is the solution one must find.
Married couples have different approaches and attitudes toward money. They tend to have different money values from their spouses. Reconciling these differences is necessary. Finding a balance between different approaches takes time but once they are reconciled it becomes easy to manage finances. So, clearly there is no one solution that fits for married couples.
So now I’d like to get back to that point that you talked about – which is that they’re going to be living together and that they’re going to be experiencing life together. Now, parenting, as well as seeing the world, or even settling down into a house of their own are some of the most significant experiences one person could have with their partner. To me, a lot of these are more emotional decisions, but there is clearly a financial angle involved. So, Jayalakshmi do you think it’s insensitive to talk about the financial aspects?
You were right about saying that these decisions can be emotional but has a financial impact. And I don’t think it is insensitive to talk about it but it’s for sure the practical thing to do. In fact not talking about it can make it even more worse. Because partners need to know what they are getting into because they will be working on their finances together. But, it’s equally important to respect the emotional aspect as well. I’m sure all of us can imagine what happens when one dismisses their partner’s emotional needs. It is not definitely a pleasant one.
If we notice that, the Newlyweds may be under a lot of pressure from themselves, friends, and family to conform to certain things. But there is no hard and fast rule stating couples must buy a home immediately, start a family within few years, or go on a trip to Paris during their first year of marriage.
So, Like how Namratha had mentioned earlier – when two different personalities are involved, each has their own priorities and different emotions attached to it. One might feel buying a house as a priority while the other one might want to have children or go on travelling. Perspectives and preferences differ.
I fell that making the perfect or “right” decision isn’t going to be easy. But, choices can actually be confusing. one trick to make better decisions is to choose options that don’t back you into a corner. It is the responsibility of each partner to convince the other in case of conflict in decisions, as to have financial harmony in the relationship. Couples in healthy marriages are most likely to discuss money dreams and deal with their finances together. It is therefore important to analyse and discuss together what is feasible and what is not before letting emotions take over the decision.
That actually makes a lot of sense. I’m going to take away the fact that it’s important to always have options and be able to discuss this openly with your partner and I guess that’s the purpose behind being married to someone. In family’s where there’s a single breadwinner there’s clarity on what needs to be done with the money. But, when it comes to double income couples, it can become a little more confusing, because there’s my money and your money. From whatever I’ve read online and discussed with other people, some suggest that expenses should be divided equally regardless of what each person is actually earning. Whereas other people say that it’s better to split the income proportionately based on the earning capacity. What do you think is the best way to split double incomes?
I think that having your income split equally or proportionately based on your earning capacity is a very western approach. In India, generally, the husband’s income is seen as the family income even if the woman is earning equally. But today, women are joining the corporate ladder and their lives are not restricted to the kitchen alone. In situations where both husband and wife are working, there is hardly any time to take care of their finances. In marriage, nothing is ever going to be split exactly 50/50. There will be fluctuations in earnings, due to things like job loss, changing fields, having children, or just differences in earning power based on your chosen fields
Changing your money mindset from a single person to a married one, means remembering that things will not always be even. Don’t keep score. Instead, work together to achieve your financial goals. At the end of the day, it’s essential to remember that you’re on the same team.
Most couples don’t have the mindset of treating money as “his/her money” separately but they treat it as “our money”. So, this is the best way to approach and it works for most of the couples.
That’s really interesting – to not treat money as “my money” or “my partner’s money”, and to treat it as collective income for the family. Now, to my last question for today’s podcast. So, we’re all from the financial planning desk. How does financial planning actually help couples?
I would like to answer this question – Planning is helpful to anyone, not just couples. For instance, consulting a financial planner would give clarity and direction towards investments. When there is a goal to achieve, people are likely to be motivated and stay consistent to achieve it. A financial planner can not only help you with investments but also with risk management. Creating an emergency reserve and assessing your insurance needs is a crucial part of financial planning.
Jayalakshmi already spoke on what kind of financial pressure young couples face – Now, let’s take an example of a young couple, who have been married for 6 months. They have lavishly spent on their wedding and on a holiday in Paris. They have recently moved in a new house and are also planning another holiday. Having spent already on wedding and honeymoon, they might sooner slip into financial stress. Certainly, financial planning can help them by giving clarity on what are the things which can be prioritized and worked on, as well as put off things which can be postponed for later. So, Financial planning for a couple can put them on the road to enduring financial freedom.
Jayalakshmi: I would like to add on to what Namratha said,
If every couple embarking upon marriage would take some time to discuss their financial habits and expectations with each other can significantly reduce the conflicts that arise due to finances. There are couples where one person takes care of the primary financial responsibilities and the other doesn’t participate much. Practically, Imagine the hurdles a couple will face if one of the partners lack even the most basic financial literacy because it is put as the other partner’s responsibility. Financial decisions will have an equal impact on both as a couple, regardless of who makes the initial choices. Also, if the worst should happen, the silent partner will be left wondering what accounts they had or where their money is. This can be overwhelming in an already stressful period of one’s life. Financial literacy isn’t something that happens overnight. It’s a continuous exercise. Even if one partner isn’t keen on being involved, they should be well-informed. There is a need to ensure that both stay on the same page with respect to their finances.
A financial plan will document the future needs and put priorities in place. It can help a couple consider their collective interest as a family to structure their finances in a better way. Irrespective of how much a partner contributes financially the participation in decision making is very important.
Not being honest about the cost of large financial purchases or keeping debts hidden is considered financial infidelity by many people. Having these difficult conversations is easier when both parties participate and are transparent in their financial dealings. Financial planning can be the ice breaker – because it creates the space for couples to openly discuss their financial fears, aspirations, and needs. And on a lighter note, whatever you’re reluctant to tell your partner regarding your finances, you could rely on your financial planner to say!