Part of the work I'm privileged to do is to support organisations when they want a little more insight on psychological topics...notably in the area of wellbeing. Recently I've been collaborating with Vanquis to explore financial compatibility.
So - How might we define “Financial compatibility?”
- Do you feel the need to hide your purchases?
- Are you uncomfortable (or made to feel uncomfortable) over how much you/your partner earns?
- Do you often argue over money – including what the future looks like financially (pensions, health fund, long term goals)?
If the answer is “yes” to any of the above, then you may not be financially compatible.
The term “compatibility” may be defined as the ability of two elements to co-exist without conflict or problems…and as applied to relationships, while one would certainly not say that a compatible relationship was one without any “conflict” or “problem” – if one area in life is causing ongoing problems, then it might be an indication of a lack of compatibility in that area. This doesn’t mean there are consequences for the relationship as a whole…but financial incompatibility may not sit within a relationship as easily as, perhaps, an incompatibility with food preferences.
Financial compatibility (or at least for your financial situation to cause minimal to no strain in your relationship) is an important factor in healthy relationships…or at least financial incompatibility is a key factor in divorce. Britt (2013) in a survey of over 4000 couples in the US, found that “arguments about money are the greatest predictor of divorce”. In the UK (where admittedly, the data is quite sparse in this field!) a survey by Scottish Widows found that 60% of people believe that financial compatibility is a key element of a successful relationship.
And an informal survey conducted by Business Insider amongst experts in the field discovered:
- Not only can one’s financial situation cause stress, but it can be a catalyst for divorce with common reasons cited being:
o Differing attitudes and priorities towards money
o Credit card debt, and worse – secret debt (which may also have been from gambling or other activities not just overspending)
o Overextended budgets – which, although sometimes done together and in agreement, may have happened because financial management was faulty – and this can be exacerbated if one partner earns significantly more than the other.
Even without taking a partner into account, finances have a huge effect on our wellbeing – which in turn could have a knock on effect on the quality of our relationships. Research by the Joseph Rowntree Foundation found that
- Lower income could be linked with poorer mental health as well as poorer outcomes in terms of career opportunity, as well as physical health
How important is “Financial Compatibility” within relationships?
If the research is to be believed, then financial compatibility is potentially one of the key factors in relationship health – alongside religious compatibility as well as compatibility over the desire to have children, and ideal for the course of a relationship in general (eg. commitment versus a fling). Further, Experian (2013) found that 96% of women and 91% of men stated “financial responsibility” was a key trait in a chosen partner, and the National Foundation for Credit Counselling found that 37% would refuse to walk down the aisle with someone in debt until their debt was repaid.
While studies have been criticised for their focus on mostly married white middle-class couples, the findings cannot be ignored.
Manisha Thakor in her book “Get Financially Naked: How to talk money with your honey” explains that “financial compatibility is whether or not money is going to cause tension in your relationship.” As well as this, she notes that other factors in financially healthy relationships include:
- Compatibility around financial risk taking
- Compatibility around financial stewardship (that is – awareness, interest and behaviour as it pertains to money – which isn’t simply about budgeting but things such as estate planning and pensions.)
The reality is, even without a joint account, or even joint purchases (and then one may question how far a relationship without a joint home or other legal commitments will flourish), your finances will affect those around you. Whether this is your spending behaviours (ie. That you will whimsically purchase a gadget over groceries), that you gambled the family car away, or that you are secretly £20k in debt…sooner or later, the innocent party to a family’s poor financial management may be held accountable, or have their life disrupted by the actions of the other.
As unattractive as it may feel being open, and intimate, with your finances can help both of you make a decision as to whether the other is really “the one” long term.
MONEY TALK: How might we approach the topic of finances with loved ones?
While we are still more likely to know about our friends' sex lives than their bank balance, conversations about money are important, and can broadly fall within 4 categories:
a)Your financial behaviours and beliefs
- What were your parents like about money?
- Do you have any regrets over money?
- Are your parents paying off any of your bills? (This question can give a huge insight into that person’s own sense of responsibility and capability…not just financially.)
- Do you track your money?
- What do you consider “expensive”?
b)Your financial status
This can include questions such as
- Do you have student loan debt?
- Are you comfortable with credit cards debt/Do you have credit card debt?
- Does anyone depend on you financially (you may know about children, but what about parents or relatives?)
And if one person is earning significantly more, can you come to any agreement as to how you might treat each other, or pay for items eg. while one person can afford luxuries, the other may not, so you may compromise by only having one big meal out per month at a restaurant that is affordable for you both.
c)Your financial goals
- This can also include – how are we, as a couple, planning on spending our money (see next category)
d)Are you combining your finances (which can also include raising the prospect of a pre-nup).
- What are our plans for buying a home?
- How do you see payments being made for joint/family needs? (Many couples now keep a joint account for joint expenses, but retain their own ones for work/spending/personal income)
- Am I on your pension…do you want to be on mine?
- Do we have a will? Or How are we writing our wills? (This question relates to estate planning and who you both wish to provide for…don’t forget it might turn out that while you may wish to leave an amount to children, your partner wishes to leave their share to charity.)
- Do we have a “safety net” for health needs?/Who is paying for our health insurance?
Therefore - you need to decide what matters most to YOU first! …in fact, I would actually ask myself those questions before asking my partner anything...and add these for good measure
1. Do I want to combine my finances with a partner/Do you want to combine finances? (other options can include having a joint bank account for joint outgoings while keeping one’s own finances separate – but research by Addo & Sassler (2010) with low income families found that separate bank accounts were associated with feelings of undesirability, a lack of intimacy and even sexual incompatibility for the female partner asked)…it may be important that you identify what a joint bank account means for you! This question is also important if you are lucky enough to have a lot of money, or less than enough money (by objective standards).
This question can lead onto a discussion about things like joint pensions or health insurance, especially if one partner has this provided for through their work, and the other doesn’t.
2. What are my/your life goals? (You may also want to consider healthcare or retirement plans) Life costs money, so broaden this question to consider your plans for the big expenses in life – your home, having children, and then possibly the type of wedding you want or maybe the car you want to drive as these will need to be budgeted for…and certainly, when it comes to sharing these with your partner, you may need to negotiate over perhaps a desire to travel and a desire for a big wedding, or even having children and a move to a different country. Do not forget that having dependants whether in the near future eg. when you start a family, or later on in life ie: perhaps you have to support aging parents need to be taken into consideration when you are creating that budget.
3. How long have you been paying all your own bills? This can actually be a fun question – presuming financial independence from parents, but revealing a lot in the process of the answer. This might reveal a partner’s attitude to receiving bills eg - Do they bury their head in the sand, or do they open the credit card statement and make a plan to sort out any issues? Do their parents pay off their bills…or do they have the option of a “golden parachute” if they need it?
This is an important question because it can speak to other elements of responsibility as well. The person who ignores a credit card bill might also ignore a warning about their work, or one about their health. Further, when a person who can – and perhaps does still – rely on parental help (if they have the luxury of doing so) – this may belie an immaturity or an inability to take full responsibility for their own actions, and in turn this might result in greater risk-taking behaviour or a lack of sincere commitment to other elements of the relationship. It might even betray a desire to be “taken care of” and a refusal to “grow up”! (Plus, how will you get on with a partner’s parents who are unconcerned with their grown up child’s dependence on them!?...What will their expectations be should you have children!?)
And be observant - money behaviours can speak to other behaviours
For example, someone who is very stingy with their money may be as much a red flag behaviour as being overly generous. In both cases it may be because of unresolved emotional needs where in the former case, perhaps having money makes them feel secure, and in the latter gifting it makes them feel loved – and they may need more than professional financial intervention to resolve.
- Not being able to stick to a budget (especially if it happens all the time, and worse still if they don’t have the ability to pay for it) – not only might this suggest a lack of responsibility, but also a lack of respect for your role in the relationship if they are expecting you to simply be their financier
- Being secretive over money – not that they are necessarily involved in anything nefarious, but keeping secrets in a relationship is not usually a healthy behaviour. It doesn’t mean you need to discuss your earnings every day, but if they refuse to tell you what they earn or where their money goes, then you can already be relatively sure that there are two big things in their life you are not completely privy to.
- Being controlling over your spending – this is a HUGE red flag – if they are trying to tell you what to spend your money on, or worse giving you a strict budget and checking your wallet and accounts – this can indicate deep trust issues that may need to be worked through with professional, but also controlling behaviour is not often just restricted to money.
Less obvious red flags may include:
- Not having any assets over the age of, say 40 – although I raise this one mindfully because the pandemic has caused a huge disruption with lifestyle, as did the housing bubble bursting in 2009…and the age 40 is a number I have picked arbitrarily.
- Related to the above though, and probably more important, is not having held a steady income over their lifetime. While this can result in people being very good at budgeting, there is a huge difference between the self-employed saver who has to adapt to constant market forces, and drifting because they “don’t like that job”.
- The “Magpie effect” when it comes to investments or “stuff” – they hear a tip and they have to have it – this lack of impulse control can also be present in other areas of life – and while spontaneity may have been delightful when you were dating, in a long term partnership, this behaviour can be exhausting.
- Hoarding behaviour or Cluttering – this can indicate purchase that are made without any thought to how they will be used, and if the issue is causing problems in your day-to-day living it is important to seek professional help.
- Always wanting “buy now pay later” – again, this is much more revealing of impulse control before you even get to the fact that many people who do this end up in greater debt because they do not have a secure plan to pay it off including the interest.
Some healthy spending behaviours include:
- Paying yourself first – notably if you are self employed, but it’s also a great practice if you are saving for something – when you get paid, save a certain amount separately first.
- Spending on things that are loved – if you and your loved one are really making the most of the things that you own, you’re also likely to be spending less on more things in any case. Another example of this may be with buying clothes – if you have a policy of “one in one out” – you are always purchasing mindfully, and hopefully wearing everything you have bought rather than storing things with the labels still on that no longer even fit.
- Tracking spending and keeping an eye on bank statements is something that I’ve already mentioned as a healthy habit to get into.
- Being aware of interest on loans, mortgages and credit cards – and if you can afford to do it, sometimes it is cheaper to pay a lump sum up front rather than in instalments.
- Practicing gratitude for what you have is also a really nice way to really appreciate (again) everything you own, and doing this regularly may mean you see it in a different light and might even love it even more.
Ultimately though: When it comes to asking any questions, however, please be prepared to share the same amount of information in return…in fact it can be easier if you volunteer your information in the first instance!
As ever, your choice in a relationship depends on:
- Your understanding of your values or your deal breakers in a partnership
- What the financial incompatibility issue actually is
- Whether you feel you have exhausted what you are willing to offer in order to support the other person
It is worth remembering that your time and your energy can be as finite as your current income, so spend those wisely too.
What should you do if you discover that your partner is in debt?
Unfortunately this can often be a huge point of conflict, not necessarily just because of the debt, but the fact that it was kept secret.
Recognise that debt takes a huge toll on someone’s mental health – and again, be as compassionate as possible, perhaps acknowledging that things must really be bad for them to speak up.
Also, be mindful that the debt may be a symptom of whatever else your partner has been going through – a job change, a change of family circumstance, demands from an ex and so on.
Communication is the key, and practicalities would suggest that you look at the following and listen to what they say:
- Find out what the debt is for (a student loan is very different to gambling debts)
- What the extent of the debt is
- Become aware if you are affected in any way
Then it might be best to seek outside support from debt charities such as Step Change.
However, while that is practical, debt is hugely emotional as well, and secretive debt is often worse – so where possible it is important to have these information seeking discussions with as much calm as you can. Instead of asking “why” or “how” – perhaps ask them to bring you all the bills or all the evidence of the debt, that way you can build up a picture of the situation (with dates), but it also gets both of you focused on something external rather than building up an inner spiral of anxiety.
Once you have sought external help and the debt is manageable, then together you might be able to plan a budget, and see what changes to your lifestyle need to be made to avoid either of you facing that situation again.
I should also add that again you might need to think carefully about paying off a partner’s debt, even if you are able to (especially if it doesn’t affect you – it is different if it does), because while it will make the uncomfortable feelings go away in the short term, it may not be teaching anything valuable in the long run.
Dr Audrey Tang is a chartered psychologist and author with a specialty in the "how to take action", rather than just giving explanation and advice. Listen to her podcast Retrain Your Brain here; and catch her practical masterclasses Psych Back to Basics on DisruptiveTV & Energy Top Up for resilience. For self development tools based within positive psychology: click Her YouTube Channel . Twitter/IG @draudreyt
