Sunday, December 09, 2007

Personal Finance Part 6 - Family Finances

There was a very interesting article in the Sunday Times today, which wrote about how couples shared their finances and how they went about maintaining separate or joint accounts. Basically, it discussed about the language of money between couples, and how some spouses insist on maintaining separate accounts while others have purely joint accounts. The "middle-ground" or hybrid couple actually had a mixture of separate and joint accounts. While the article did give some detail on how couples segregated their bank accounts, expenses and decision-making on money, it did not really go in-depth into how investment decisions were made in each case. A few real-life examples of couples were quoted, with the most prominent one being a certain Ms. Tan who works in the IT line and who earns "several thousand" a month. I think a better way to approach this topic will be to segregate it into the 3 distinct categories as defined by the Sunday Times (while commenting on each) and then to give my own personal spousal financial arrangement and to opine on why it works well for me.

One Extreme - Separate Bank Accounts

The case of Ms. Tan was that she and her husband kept their own salaries confidential as well, and did not reveal how much was in their respective bank accounts. So I guess it was sort of a marriage without revealing any financial details, and it had lasted for quite a number of years, till Ms. Tan got into S$80,000 in debt due to her mother's medical expenses and was forced to go to CCS to settle her debts. Another jet-setting couple (Ben and Pam) also kept completely separate bank accounts as they travelled frequently and both had their own separate residences as well in different parts of the world. Thus, each had his/her own independent earning (and spending) power and so did not need to interfere or know about the others. In these 2 cases, I would assume there is an implicit trust between husband and wife that each will not over-splurge on items and blow their bank account. The pros as mentioned are that it cultivates and promotes independence as each spouse will be able to exercise total freedom on how he or she spends. But I feel that in the long-term, this may not be the most healthy way to go about things as there will be little communication on important financial issues which require a joint decision, and there is also the question on how to properly apportion joint expenses (you can't just use 50:50 unless you know each other's salaries, as one may be earning way more than the other !).

Another Extreme - Joint Bank Accounts Only

The other extreme is for the couple to maintain strictly joint accounts, which means that either spouse can effect transactions with just one signatory (either, or). The example given in the paper featured Mr. Andrew Wan and Ms. Joy Teh who are getting married in Jan 2008, where they had already "ironed out the details for merging their finances". This means that each of them will not have a separate bank account anymore, but will lump sum dump their individual balances into the new joint account of which each will have access to and knowledge of. This promotes transparency between and couple and eliminates the concept of "my money" and it now becomes "our money". Of course, this may also lead to disputes especially if each person has different lifestyles or spending habits which the other objects to, since each is free to dip their hand into the till. Also, in the event of any financial or legal disputes, it may be difficult to separate out the assets belonging to each party, as the joint account was in operation all this time.

Middle-Ground ("Hybrid") - Joint and Separate Accounts

The hybrid situation will be where the couple maintains their own individual bank accounts, while at the same time opening a joint account for common expenses. This is the practice I have been personally following for the last 3 years I was married, and so far it has worked very well for me. My wife and I retained our own separate personal bank accounts even after ROM, and we also opened a joint account under UOB where either of us can sign for or withdraw monies. The joint account is for expenses relating to our HDB flat, which includes utility bills (SP Services), HDB conservancy charges and any other expenses. For expenses on big ticket items, we will apportion the amount according to a pre-determined ratio (e.g. 60% myself, 40% my wife) and we will pay our proportionate share. Our salaries and spending are fully known to each other as I am the principle cardholder for our credit cards and my wife is the supplementary cardholder. This allows us to review our combined expenses every month and we discuss on how to budget or cut down on areas where we feel we had spent too much.

As for investment decisions, my wife leaves it solely to me to make the decisions about the buying and selling of shares. All I need to do is to get her permission for funds transfers to be made from her personal bank account to pay for the shares; and for the sale of shares, I will similarly credit her bank account through internet banking for the sales proceeds (this works for dividend distributions as well). At the end of the month, I give her a summary of all transactions involving shares including an update of dividends, and I also prepare a summary of our financial situation for our mutual discussion.

It is my personal belief that such openness will engender more trust and communication for a couple, and enable them to properly plan for their financial future. In the Sunday Times, it was mentioned that 9 out of 10 couples split due to financial differences (that's a whopping 90%!), thus it is important to prioritize money matters before a couple ties the knot, in case it leads to a lot of marital problems later on.


la papillion said...

Hi MW,

When I was reading that article, I knew that you would belong to the hybrid type, haha :)

Actually i was a little shocked that couples would want to keep their salaries and spending a secret from each other - to me they had already failed when the foundation of a relationship - trust - is not there.

Communication is as impt to all relationships. Including directors and shareholders, hahahaha

MM said...

Hi MW,

I liked that article in the Straits Times cos it tells me a couple of things.

1. Many ppe. who hold separate accounts and don't even know how much their spouse make do not have trust in each other. They enter marriage like it is a contract of your share, my share.. It is no wonder now that the divorce rates is going up so quickly. When there is no complete trust in a relationship, it cannot grow over time.

2. Money problems as a leading cause of divorce is not new. It is a leading cause in America when I was living there. I guess one must understand that it is more a problem of money personality types clashes rather than the problem with the money itself. Spendthrift vs Misers vs Savers.. Our childhood influences is very important to shape our relationships with money. For a good read, I recommend the book "Secrets of the Millionairemind" by T. Harv Eker.

My wife and I have a joint account though I am the only one contributing. She only worked for a couple of years throughout of 9 years of marriage. She is as thrifty as I am so no worries there. We do enjoy good meals in nice restaurants a few times a week, nice vacations and occasional nice diamond jewellery for her.

I am in charge of bringing home the bacon and she gives me all the freedom I need in my investment choices.

I guess our current "ME ONLY" generation probably will need to learn to compromise and work with each other if they want their marriage to work. If not, they will probably end up as another statistics in the ROM under Divorce cases.


musicwhiz said...

Hi la papillion,

Yes, communication is of utmost importance to a relationship, and trust can be built when there is sharing of information. I also cannot imagine how some couples get by without disclosing details of their expenses or salaries. To me it is inconceivable that there are any secrets within a marriage, but then many marriages are different from mine probably.

Regards, Musicwhiz

musicwhiz said...

Hi MM,

Thanks for sharing your thoughts and personal experiences. It is indeed amazing that 9 out of 10 couples divorce because of money issues ! But as you said, different perceptions of wealth and spending can create vastly different lifestyles, which couples may not realize until they are living under the same roof. This creates problems and tensions as neither party may be willing to compromise their lifestyle for their spouse; which eventually leads to a bitter divorce. Sad but true.

Thanks for recommending the book. I will look out for it as I am also inclined to read about personal finance (other than investing).

Regards, Musicwhiz