In the past a family would have one checking account (and often the family would have one income). All of the money earned, usually by the husband, would go into that account. The bills for the household would then be paid, groceries bought, gas put into the car, and so on. The couple might agree that any expenses below a certain amount could just be bought without consultation, where bigger expenses would be discussed and planned. For example, the wife or husband might be able to buy anything less than $500 without a discussion. Of course, most purchases would be for the family.
A certain amount each month would be allocated (or just allowed) for personal expenses for the husband or wife. For example, the husband might play golf each week and the wife might get her hair done. The husband might buy some clothes and the wife might stop somewhere for lunch. The amount would be a negotiation based on income levels and net worth. There would also be a certain amount of cash the husband and wife each would get each month to spend however they wanted – blow money.
This system worked well for many families. Modern families, with dual-incomes and added expenses like childcare, have complicated things. Many people have chosen to have separate accounts and then decide how to split expenses like roommates would. This system causes issues. In this article we’ll discuss that why today, even with dual incomes, having a main joint account generally works best.
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Why Marriage and Families Should be Communist
In capitalism, individuals choose the work that they will do and trade what they make with others for what they want and need. A farmer might grow corn and trade some to a mill to turn some into corn meal. He might trade some to a distiller in exchange for some moonshine. An employee might trade his time to a shop owner in exchange for cash which he then uses at another store to trade for clothes. (Note that all money does is make it easier to trade since you don’t need to find someone who has what you want who wants what you are selling.) The advantage of capitalism versus just doing things yourself is that people can become specialists in things, allowing them to buy tools to become more efficient, plus simply become more skillful than they would be if they did a wide variety of things for themselves.
In communism, what each person produces is thrown into a community pot. People then take what they need from the pot. Like capitalism, communism allows for specialization, where some people may be farmers and others make clothing and still others take care of children. Everyone owns everything, so you might have homes available for whoever needs them (or, more commonly. a large, communal building that is shared). You might have cars that people could use when needed, boats, fishing gear, or whatever the community decided was needed. Communism normally needs centralized direction where what each person makes is decided so that enough of everything gets made rather than having too much of one good or service and not enough of another. Control is also needed to ensure goods are distributed where needed and not hoarded.
An issue with communism for a large group is that it encourages people to be selfish. You “win” when you take out less than you put into the pot. In a large group there is no really loyalty or affection, so many people try to game the system. Central planning also doesn’t tend to work well because it is difficult for a few people to figure out what is needed by a large group of people and pooling a lot of resources and giving a few people power over them tends to lead to corruption.
In a family, however, there are only somewhere between 2 and maybe 12 people. There is affection among the family where the members care about the others. There is also a desire to be seen in a good light by the other members of the family since you value their opinion. As a result, family members tend to put in a good amount of effort and just take what is needed. Because not all members of a family will be able to produce as much as others, and some members may need more resources than others, a communist system works well for a family. If every one is contributing “100%” and taking just what they need, the load is essentially equal and the sharing fair even though everyone will not be providing and taking the same amount of things.
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Joint Accounts
Some of the things that a family contributes will be direct and non-monetary. A mother may watch the kids. A brother may make a meal. A father may drive the kids to soccer practice. These efforts are just “thrown into the pot” and consumed by the family as needed. In other cases contributions will be monetary because labor outside of the household is traded for money. Money can also come from investments such as stocks or rental properties.
Traditionally, in a single-earner household, this money would have been contributed into a family checking account and the spent by members of the family (mainly the parents) as needed to get resources for the family and meet needs. Some of the money may have also been invested for the future needs of the family. This would be for things like retirement, college, or maybe new cars or a home. Most of the money would be consumed by things the entire family used, such as the mortgage, utilities, food, insurance, and gasoline for the family car. Some of the money would also be spent on personal needs and wants, such as clothing, hobbies, and personal care. Often the husband and wife would get a certain amount of latitude to buy things for personal wants, as would the children and other members of the family. Because it is seen as family money, this would tend to be minimized.
Because it is placed in a joint account, the money is seen as the family’s money. Primarily the money would be spent on needs for the full family such as shelter because it belonged to all, not individuals. This also means each member of the family has a right to a fair share of the money for their personal needs.
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Dual Income, Dual Accounts
Since many families have become dual income, the use of separate personal accounts has become more common. Here, each person working a job will place the income from that job into their personal account. Then, expenses will be paid through agreement of the spouses by each adult. For example, the dad may pay the mortgage and utilities and the mom may pay for the groceries and daycare. Some expenses may also be split. Often the decision on who should pay and how much is determined by the income level of the individual in a pseudo-communist arrangement. If the dad makes twice what the mom makes, he usually would take on more of the expenses.
This arrangement clearly shows who made the money and maintains ownership of money left over by the spouse who earned the money by working the job. Usually, money left over is left up to the spouse who owns the account to do with what he or she wishes. There are a lot of things bad about this arrangement. These include:
- The arrangement creates a (usually false) sense of contribution.
- It encourages waste and spending.
- It makes it difficult to save and invest.
- It fosters competition between spouses rather than coorperation.
Let’s go into each of these points individually.
Keeping Score on Contributions
Because each spouse pays certain expenses or pays different amounts, the contributions of each spouse are highlighted. If the husband is paying $6000 each month among the mortgage, utilities, and two car payments, while the wife is only paying $1500 for groceries and household items, it highlights that the husband is contributing a lot more than the wife. This would make him reluctant to split household and childcare duties even where they work about the same number of hours at a job. It would also make him feel that the wife’s job was less important, leading to friction when there was a work conflict that required one of them to take off. It could also cause resentment where the husband didn’t feel that the wife was contributing enough to the budget and/or the wife didn’t feel the husband was contributing enough to the household chores.
With a single-earner household, both are obviously giving 100%, so even if one is able to earn a lot more money that the other, the other makes up for it by doing things that allow the earner to work and earn more. The working spouse doesn’t need to worry about school pick-ups, sick kids, getting groceries, preparing meals, meeting the plumber, and so on. He (or she) can focus on the job and make that a top priority. He or she can work extra, go on work trips, or come in on a Saturday where needed because he has the spouse to take care of other things.
With dual income one spouse (usually the woman) puts the kids as a priority. (The house and meals usually get neglected entirely.) This sacrifice of focus on her (his) career is usually forgotten and all that is seen is a disparity on income. The higher earning spouse feels it is his/her money and that he/she is contributing more. This is compounded by the money going into his/her bank account before being dispersed for things.
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Encouraging Wasteful Spending
Having separate accounts encourages both spouses to spend. After they have paid for their assigned duties, they see anything left over as “their money” to spend as they wish. There is also a competition. He goes golfing, so she feels justified to go to a spa frequently. She gets her mails done, so he feels justified to go to the bars after work and have a few. Because it’s “each spouse’s money,” each spouse feels justified and even obligated to match the spending of the other spouse.
With a joint account, all of the money is the family’s money. The couple can then agree on a certain amount of spending that is appropriate for personal wants. Many family’s choose to give each spouse a certain amount of cash each month to spend as they wish. Others accept that either can spend money from the joint account as desired for certain luxuries, knowing that everything needed is covered and maybe there is some money going into savings and investing.
It Makes It Difficult to Save and Invest
Related to the propensity to spend with individual accounts is the reluctance to save for the future. Once each spouse has covered their responsibilities, he/she is reluctant to put money away for future expenses like replacing a car or the home AC system. It might be that contributions from both spouses would be necessary to save adequately and there is nowhere to put that money with the two accounts. It can also just be that neither thinks of these needs. Investing to increase passive income and cashflow for the family is also not usually considered. This is in part because if you’re generating more income you’ll just end up paying for more of the expenses.
Having a joint account lets the couple see just how much free cashflow is available to do things like save and invest. If one spouse has $1000 left over and the other has $500 for a total of $1500 in a joint account, putting $500 into investing and $600 to save up for a new car each month doesn’t seem so daunting. With separate accounts, each just sees his/her portion. This might just be blown on junk because it “isn’t enough to make a difference.”
Also, if one spouse is saving and investing and the other isn’t, it creates weird dynamics. What if the wife put money away for retirement and the husband spent everything as he went? At retirement time, the wife has $2M and the husband has nothing. Is the wife going to retire and travel alone while he keeps working, or will she now need to cover her husband who got to spend a lot of money she didn’t through their working years? By having a joint bank account, and then joint investment accounts, it means they both will be investing for things like retirement together and be at the same place when the time comes.
or a new payment might be added because “it’s my money to do with as I please.” (If you’d like to learn more about how to decide how much you should put in different types of assets, Sample Mutual Fund Portfolios gives lots of information and examples of how to make allocations for all sorts of different goals, including retirement.)
Competition between Spouses
When each spouse has a different role, such as provider and homemaker, they are likely to work together. The homemaker will take care of things like errands and school pick-ups so the provider can work harder and make more money. It is in both of their best interests. She/he will even do things like make sure clothes are ironed or help with sales pitches to help the provider perform better.
Likewise, the provider will make sure the homemaker will have all the money she/he needs to properly run the home and take care of the kids so that she/he can concentrate on doing the things she does. He/she will strive to move up at work to make more money and maybe take a second job where needed. Today, because household chores are less demanding thanks to appliances and the internet has made sales easy, homemakers might also take on a work-from-home business or remote work if it is flexible enough for her/him to do the important tasks that cannot be delayed. The provider will likely help to fund the start of the business and buy the tools needed to make this possible.
With separate accounts, it becomes more competitive since there is now “he” and “she” money. Instead of working together, it becomes more about making a compromise that lets each spouse do better at work. The wife may pick up the kids from school some days and the husband on the others. This makes both spouses worse workers and gives them less of the flexibility they need to maximize earnings.
Having joint accounts where all resources go into this account is a better way to manage your finances in a marriage. Obviously there may be special circumstances like addiction or spendthrifts that require one spouse be restricted from this joint account, but it is still a better way to manage finances.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.
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