Lately, it seems there are a lot of couples telling me that they can’t agree how to spend their money. I actually see this as a conversation about ways to save money, because the only reason to control spending is to make sure you’re saving enough, right? This is pretty typical; in romance, it seems that you are attracted to someone who is different than you are, so the saver is often attracted to the spendthrift. And when you are looking for ways to save money, it can get very frustrating.
The Truth About Relationships??
In most articles, they urge you to always keep communication open in your relationship, but research indicates that may be unrealistic marriage advice. A book called Spousonomics, by Paula Szuchman and Jenny Anderson, offers a hilarious and valid twist to standard marriage advice by showing how economics—yes, economics—is the key to a happy marriage. What it also showed me is that married people aren’t 100% honest with each other, especially not about money.
In what they call their Exhaustive, Groundbreaking and Very Expensive Marriage Survey, Szuchman and Anderson discovered that based on economics, there are actually incentives for spouses to lie to one other. One such principle is Asymmetrical Information. This means that if you’re totally honest about a topic you might be penalized, so consequently, you withhold information. For example, you might fudge on how long it takes to complete a task that you’re asked to perform by your spouse because you want to build in some goof-off time before you actually do it. So you lie about it instead of being nagged by your spouse or assigned additional tasks. By withholding information, you get what you want from the transaction.
Another principle is Moral Hazard, the idea that if there are no perceived consequences to an action, we slack off. We all need “skin in the game” to perform at our best. For example, if we didn’t have deductibles and coinsurance amounts associated with our homeowner’s insurance, we might leave lit cigarettes hanging around, because the total cost of home replacement would be on the insurance company. The insurance company knows this, so they created a way to ensure a consistent level of responsibility and participation.
In their survey, Szuchman and Anderson found that communication changed over the years; 42% of respondents regretted being too honest more than not being honest enough (35% regretted not being more honest). The reasons 42% withheld important info:
- 89% – so as to not upset their spouses
- 72% – to avoid a (perceived) disproportionate reaction
- 67% – to avoid a lengthy discussion
- 48% – to avoid embarrassment
- 43% – to avoid having to compromise
Spousonomics isn’t focusing specifically on money conversations, but I can’t help thinking that if the survey DID focus solely on money and marriages, the results might be even more disturbing. Does this mean that total money transparency is unrealistic? Maybe it is, 42% of the time.
Ways To Save Money In Spite of Spousonomics
What does this mean for couples? When I talk about ways to save money, it starts with spending money. I believe that each individual needs to control a certain level of discretionary spending. Simplistically, this means that each spouse somehow has their own stash of money that they are allowed to spend however they please.
The problem comes up when one spouse wants to exceed an agreed-upon spending level. For example, if Adam usually takes $40 out per week for work-day lunches, but starts to take out $80 weekly, this is a moral hazard. Eve can’t actually stop him from doing this without some agreed upon consequences. They both have to agree that there is a specific negative result of spending in the short-term that acts as a disincentive for overspending.
Spouses need to maintain the mindset that they are on the same team; otherwise consequences just turn into angry retaliations. But if they can maintain the “we’re-all-in-this-together” attitude, couples can take five steps to navigate the hazards they encounter and find more ways to save money:
Identify incentives to behave. In the book, if one spouse doesn’t hold up their end of the bargain, then the consequence is that the other spouse doesn’t have to do something either. In Spousonomics, regular sex was a powerful incentive for men to behave in many examples!! While I don’t condone withholding sex, I have found that the awareness of knowing that the spending will be reviewed on a regular basis as a good motivation for people to stick to their spending plans. It’s just like weighing yourself; if you know you have to get on the scale tomorrow morning, you’re likely to eat more healthfully.
Set limits. If spending in any area is perceived to be a problem by either spouse, then both spouses have to talk about it. If one spouse is spending money on something without regard, then there needs to be a conversation about that item’s perceived value, and agreement about how to limit, balance or offset that expense somewhere else in the overall spending plan. Again, clarity is huge—I have seen many, MANY people rein in their own spending when confronted with the Mint Trends report.
Identify and prioritize perceived values. For Adam, lunch out every day with colleagues might be his most valued discretionary expense. For Eve, Pilates sessions might be the most important. This means that even if the monetary values are different, the intrinsic value is the same. Understanding how your spouse perceives the importance of spending in different areas will also help you negotiate with each other how to best use every dollar that is spent.
Forgive mistakes and don’t hold grudges. What if someone just goes completely nuts, spending? Unfortunately, anticipation of the spouse’s yelling, nit-picking, grudge-holding or silent treatment won’t incent them to come clean about their mistakes. Therefore, there has to be an agreement that honesty is only awarded by calm, open conversation. The other spouse might have to take some time alone to work through the issue prior to having this discussion, or speak to someone (who can be productive, not negative) to help them sort it through.
Negotiate quarterly. Even if the spending bargains are working perfectly, couples still need to review them 3-4 times per year to make sure that relative values for certain items have not changed. For example, if Eve becomes pregnant, Pilates might cease to be a priority for her and might feel justified in overspending on baby stuff; but if Adam and she have never talked about values and priorities associated with baby stuff, Adam is going to be frustrated because there is no spending agreement.
It would be great if we didn’t need a system of checks and balances to negotiate our money relationships with our loved ones, but economic theory says we’re not. Spousonomics gave me an understanding of how to negotiate conflict in relationships and apply it to money conversations, and I highly recommend it to anyone who wants to improve their conflict resolution, married or single.
Actions This Week
- Clarity is always the first step. In any money talk, you must shift the conversation away from your worry and perception about what is happening, to the actual numbers. One question many people want to know from a financial planner is how is my current situation affecting my future?
- Understanding. Your spouse might be engaging in a behavior they have trouble controlling, so before judging them or becoming frustrated, seek to understand how they feel about your current money situation, and how they see things ideally working out. If you approach it from the vision instead of the problem, you may find your ideas aren’t so different—then you simply need to agree on the path to get there.
- Small steps. Couples who identify punitive consequences for overspending often end up having it backfire. I recommend going slowly and seeing how far simple clarity can change behavior. And if you really feel like you need a third party to help with relationship agreements, you might need to contact a couples’ counselor (before the planner!).