HOW YOUNG COUPLES CAN RESOLVE HOUSEHOLD MONEY ISSUES

She sounded so anxious and spoke so rapidly that I could not fully comprehend the problem. After calming her down, it became apparent that she was worried about her two-year-old child’s future. The husband was overtly enabling his family, funnelling most of their savings there. “How can I secure our future if he does not prioritise me and our child over others?” she asked.

This is not a new or rare personal finance problem. Every couple argues about how the income should be allocated. For every use, there is an alternative that the spouse thinks is more important. It is very rare, even after many years of being together, for couples to agree about how much to earn, where to spend, how much to save, and how to invest. We all remain distinct in our attitude and preference and this impacts joint decisions at work or home. It takes a combination of negotiation and compromise to keep going.

In the early days of earning, there is mostly not enough money to go around. Young couples are still individual contributors at work and are at the lower rings of their career ladder. The distinction between mandatory and discretionary expenses is thin. Eating out, travelling, entertaining friends, shopping and movies over the weekend all seem like normal routine expenses that cannot be compromised, and cutting back feels very painful. To find that running the household requires many expenses can be tough. It takes a while and some serious joint discussion to settle down and prioritise expenses. The young mother above is yet to do this after four years of marriage.

Family’s expectations

In middle class families, the expectations from earning members can be high. To get the benefit of higher education, to pay through college and classes, and to get a stable job that pays a salary much higher than the household has been used to, is a milestone event. There’s a feeling that the income should be allocated to meet some of the expectations of parents and siblings. This does not change soon after the earning youngster is married. There are many versions of this tendency, from legitimate need to mindless exploitation.

On one of my flights from the Middle East, I met a young man, who had hardly spent a fortnight with his newly wedded wife before returning to work, leaving her behind to serve his parents. He was meeting her after a year because his parents believed the expense on his ticket could be saved for other uses. He got a bonus and decided to travel as a surprise. He was sending most of his earnings home, which were being used by his parents and siblings. He felt obliged to fund them, but was confident of bribing his wife back to the Middle East.

We also know of parents who repay the education loan, EMIs and insurance premiums of their grown-up children, living constantly under the impression that there are other important uses for the money that is earned by the child and spouse. One household being responsible for the finances of another household is not a story that ends too well. Disappointments and resentments, expressed or not, prevail.

Modern couples tend to allocate a portion of their incomes to the joint expenses of the household, managing their own expenses, savings and spends on their extended families. These arrangements are not always watertight. The young woman mentioned earlier quit her job to care for the child. She had begun to save her income for her career break, but the child arrived earlier than expected. The husband believes he holds the power to allocate funds as he is the sole earning member. That she resents and does not get along with her in-laws is an added source of bias. What could help this young household?

What’s the solution?

First, take a 10-year view. Everything looks risky and unstable when one focuses too much on one issue in isolation. A long-term view of income, expense, saving and investment is the first logical step. Is the husband’s job secure? Will he find another should the need arise? When does she plan to return to work? Where do they see their careers in 10 years? Do they have the qualification and competence to do better? Secure the income first. With a bigger income, things will look better anyway.

Second, do they both know how their income is allocated? Instead of dealing with accusations and arguments, write it down and get the accounts in order. Since they now have one income and a merged set of expenses, find out how about the spending under various heads. To see 10% of income going to his family, on an average, will calm her down; to know that he is allocating 30% to his extended family on one pretext or another is ground enough for a sensible conversation about setting limits.

Assess savings & expenses

Third, are there regular savings now? What percentage of income is being saved? Will it go up in the future? How? Why not? While he blames her for quitting the job, and she blames him for spending on his family, a simple math about the saving ratio can provide a point for discussion. A SIP in the child’s name might be enough to begin with. As incomes move up, so will the savings.

Fourth, what is the nature of the expense that is under dispute? Is it a recurring amount like an allowance for parents? Or is it an ad hoc expense like funding a family function? Is it a large chunky expense like buying a car or house? How it will impact the young household will depend on the nature of the expense. Instead of a non-negotiable position that asks for funding anything that is being asked, the couple can make reasonable rules about what they would fund, for how long, and how much.

The young couple must prioritise the household, but any allocation to the extended family need not be grudged. With time, incomes will grow, expenses will stabilise, savings will grow and investments will appreciate, and the couple may find themselves in a comfortable place. In early days, having a good control, information and understanding of how the money is being allocated is enough to be in charge. Working together on a long-term plan might be better than panicking.

The author is Chairperson, Centre for Investment Education and Learning.