Financially Mismatched Couples at Risk

Financial planners say it happens all the time: couples who don’t see eye to eye on money matters often break up or divorce.

One reason they run into trouble is that a financial mismatch makes it more difficult for them to achieve important goals, said financial adviser Bonnie Sewell of Leesburg, Virginia.

“They’re working against the tide. People who pick like-minded partners get there faster,” said Sewell, who’s written a book about money and divorce.

Her contention is backed up by the preliminary results of a study of more than 30,000 married and cohabiting couples between 1999 and 2012 by Federal Reserve Board researchers Jane Dokko and Geng Li. Their study compared the partners’ individual credit scores to gauge their financial compatibility and found that the larger the disparity between the two of them, the higher the incidence of break-ups.

The authors said credit scores are a proxy for financial behavior and also can measure trustworthiness. The link between poor financial matches and household dissolution, they wrote in their paper, was “quite strong.”

To prevent unhappy endings, Sewell, the financial planner, has three suggestions for new couples:

• Cards on the table. To identify potential problems, each partner must know how much the other one earns and what they spend their money on – whether it’s her penchant for $800 shoes or his mortgage that’s chewing up half of his income. This should be a “no-penalty conversation” free of acrimony or blame, she said.
• Shared mental accounting. Couples too often act as if they’re still single – not as one household. Consider a couple with $100 in the bank. He goes to the hardware store and spends $100, and she goes to garden store and spends $100. They’ve just spent more than they have. “This happens a lot,” Sewell said.
• Shared bookkeeping. The best way to understand how and where money is being spent is to pore over the bills, the checking account, or the mortgage and investment statements. Sewell recommends that partners take turns handling the household finances.

This chore “usually gets hung on one person,” she said. “There’s no rocket science or anything beyond six-grade math involved in household finance. Everyone should be able to do it.”

To read a blog post about a mismatched couple, click here.  Two couples who are good financial matches were also profiled: click here.