Applying Spousonomics To Money Problems

Always telling the truth about money is something to aspire to, but it may be unrealistic marriage advice. A couple of weeks ago, I mentioned in a blog post that it is absolutely essential that couples are 100% transparent about their money, or else the relationship probably won’t survive. How silly I am.

Spousonomics shows that this just isn’t true! The book, by Paula Szuchman and Jenny Anderson, offers a hilarious and valid twist to standard marriage advice by showing how economics—yes, economics—is the key to a happy marriage. What it also showed me is that married people aren’t 100% honest with each other, especially not about money.

In what the call their Exhaustive, Groundbreaking and Very Expensive Marriage Survey, Szuchman and Anderson discovered that based on economics, there are actually incentives for spouses to lie to one other. One such principle is Asymmetrical Information. This means that if you’re totally honest about a topic you might be penalized, so consequently, you withhold information when communicating. For example, you might fudge on the amount of time it takes you to complete a task you were asked to perform by your spouse because you want to build in enough time to goof off before you actually do it. So you lie about it instead of being nagged by your spouse or assigned additional tasks. By withholding information, you get what you want from the spousal transaction.

This also starts to get into another principle: Moral Hazard, the idea that if there are no perceived consequences to an action, we slack off. We all need “skin in the game” to perform at our best. For example, if we didn’t have deductibles and coinsurance amounts associated with our homeowner’s insurance, we might leave lit cigarettes hanging around, because the total cost of home replacement would be on the insurance company. The insurance company knows this, so they created a way to ensure a consistent level of responsibility and participation.

In their survey, Szuchman and Anderson found that communication changed over the years; 42% of respondents regretted being too honest more than not being honest enough (35% regretted not being more honest). The reasons 42% withheld important info:

• 89% - so as to not upset their spouses
• 72% - to avoid a disproportionate reaction
• 67% - to avoid a lengthy discussion
• 48% - to avoid embarrassment
• 43% - to avoid having to compromise

Spousonomics isn’t focusing specifically on money conversations, but I can’t help thinking that if the survey DID focus solely on money and marriages, the results might be even more disturbing. Does this mean that total money transparency is unrealistic? Maybe it is.

When I talk to couples about money, I believe that each individual needs to control a certain level of discretionary spending. Simplistically, this means that each spouse somehow has their own stash of money that they are allowed to spend however they please. How this gets divided and decided is too much for this post; but the result is that if Eve wants to spend $40 on a manicure, Adam doesn’t have a whole lot to say about it. And honestly, may never even notice.

The problem comes up when one spouse wants to exceed an agreed-upon spending level, or if spending is pooled, starts to spend more than the agreed-upon amount. For example, if Adam usually takes $40 out per week for work-day lunches, but starts to take out $80 weekly, this is a moral hazard. Eve can’t actually stop him from doing this without some agreed upon consequences.

Spouses need to maintain the mindset that they are on the same team; otherwise consequences just turn into angry retaliations and war tactics. But if they can maintain the “we’re-all-in-this-together” attitude, couples can take five steps to navigate the hazards they encounter:

1. Identify incentives to behave. If one spouse doesn’t hold up their end of the bargain, then the consequence is that the other spouse doesn’t have to do something either. In Spousonomics, regular sex was a powerful incentive for men to behave in many examples. Another incentive might be if Eve spends too much at Amazon, Adam gets to eliminate their eating out budget for a month, but redirect the balance of it for his personal spending.
2. Set limits. If spending in any area is perceived to be a problem by either spouse, then both spouses have to talk about it. If one spouse is spending money on something without regard to what the other spouse is spending, then there needs to be a conversation about that item’s perceived value, and agreement about how to limit, balance or offset that expense somewhere else in the overall spending.
3. Identify perceived values. For Adam, lunch out every day with colleagues might be his most valued discretionary expense. For Eve, Pilates sessions might be the most important. This means that even if the monetary values are different, the intrinsic value is the same. Understanding how your spouse perceives the importance of spending in different areas will also help you negotiate with each other how to best use every dollar that is spent.
4. Forgive mistakes and don’t hold grudges. A cooperative bargain identifies in advance the incentives associated with certain expenses and situations, but what if someone just goes completely nuts, spending on something not covered by prior conversations? Unfortunately, their anticipation of their spouse’s yelling, nit-picking, grudge-holding or silent treatment won’t incent them to come clean about their mistake. Therefore, there has to be an agreement that honesty is only awarded by calm, open conversation. The other spouse might have to take some time alone to work through the issue prior to having this discussion, or speak to someone (who can be productive, not negative) to help them sort it through.
5. Negotiate quarterly. Even if the spending bargains are working perfectly, couples still need to review them 3-4 times per year to make sure that relative values for certain items have not changed. For example, if Eve becomes pregnant, Pilates might cease to be an incentive for her. If she’s overspending on baby stuff and Adam and she have never talked about values and consequences, Adam is going to be frustrated because there is no incentive to help her focus.

It would be great if we were all mature enough to not need a system of checks and balances to negotiate our money relationships with our loved ones, but economic theory says we’re not. Spousonomics gave me an understanding of how to negotiate conflict in relationships and apply it to money conversations, and I highly recommend it to anyone who wants to improve their conflict resolution, married or single.