In the past, sharing finances was straightforward. Two people got married (usually young) and combined their money into a joint bank account.
Millennial couples are different. They move in together sooner and marry later. They also carry record levels of student debt and typically earn dual incomes. So by the time they get married, both partners are used to managing money on their own and have different spending and saving habits. As a result, about two-thirds of Millennial couples keep their finances partially or completely separate. Only 34% of Millennial couples completely combine finances, compared to 51% of couples overall.
Money has long been the leading cause of divorce, but the shifting trends with Millennial couples only makes it harder for them to collaborate on money. The vast majority of Millennial couples (88%) say that finances are a source of tension in their relationship. Over a quarter fight about money weekly and over half fight about it monthly.
When it comes to managing shared finances, Millennial couples have several options: combine everything, keep everything separate, or combine some but not all.
Option 1 - Combine everything
About 34% of Millennial couples combine everything. My wife and I (a Millennial couple) went this route when we moved in together about six years ago – three years before we got married. We chose to merge everything because it’s how our parents did things and, frankly, neither of us cared that much. We had student loans and not many assets, so why not? This approach has its perks, but it’s far from perfect.
Fairly simple, but a big step
Combining everything tends to be the easiest system to set up. Both partners move their money into a joint checking account and pay for everything from that account. No need to figure out how to split all of the bills or decide which account to use for which purchase.
Having all of your money in one place makes it easier to quickly understand your financial situation, and eliminates the need to track spending and balances across many accounts. And, if something happens to your partner, you don’t have to worry about being able to access your funds.
However, a joint account is a big step – especially if you and your partner are not married yet. You’re both on the hook for mistakes with the account (e.g., overdrafts), and if someone sues your partner, they may be able to go after the money in the joint account.
More transparent, but maybe TMI
Merging all of your finances promotes transparency in spending, since you and your partner have access to each other’s transactions. That can lead to greater accountability and smarter decisions. For example, combining accounts with my wife definitely curbed my impulse-buys on Amazon, since I knew she could now see the $50 pour-over coffee maker I bought for those occasions when Mr. Coffee just doesn’t cut it.
But allowing your partner to see every one of your transactions can feel like an invasion of privacy. For me and my wife, it became TMI. We were both staying within our budget, but she couldn’t understand my addiction to coffee appliances, and I couldn’t understand her love for spin classes. Rather than help us, this level of transparency actually created tension about money. That’s why we eventually moved from using only joint accounts to also using separate accounts for certain purchases.
Joint accounts can also create a feeling that Big Brother is watching, which can lead to financial secrets. According to a recent poll, about one in four Millennials have hidden purchases from their partner, which is significantly higher than other generations.
More teamwork…or not
Another potential benefit is that merging finances can push you and your partner to get in sync about money. When my wife and I combined our finances, we decided to talk to a financial advisor. He asked us a few simple questions. What are your biggest goals for the next five years? When would you like to pay off your student loans? When do you want to retire? As dumb as it might sound, we hadn’t seriously discussed these topics before. In that way, combining accounts encouraged us to talk about money.
That’s a good thing. Research suggests that more communication about money makes for happier couples. In a recent study by TD Bank, couples who discussed money at least once a week reported being happy more often (78% of the time) than those who discussed money less frequently (50%).
However, combining finances doesn’t necessarily mean you will talk more about finances in the long term. After our initial discussion with our financial advisor, my wife and I communicated about our finances less and less, and I took the lead on managing our money— making the budget, tracking our spending, and making sure the bills got paid. Soon enough, we were fighting about money again. When we finally talked it through, we realized that by combining our money into a single account, we made it easy for one person to handle everything and the other person to largely ignore it.
Option 2: Keep everything separate
The second option for managing money as a couple is to keep everything separate. About 30% of Millennial couples take this approach. It’s a bit more complicated, but for some, the extra effort is worthwhile.
More independence, but less teamwork
Independence can be very healthy. The reality is that you and your partner are two different people with two different perspectives on money. By keeping your finances separate, it’s easier to resist the urge to scrutinize – and judge – your partner’s spending. My wife and I have definitely felt that urge at times, particularly when we could see every transaction the other person made. I don’t think we’re unique. In a 2014 study, for example, 42% of respondents identified themselves as practical when it comes to money, while only 28% said the same for their spouses.
With separate finances you’re also less likely to feel the need to justify every purchase to your spouse. A layer of separation can be especially valuable when your perspectives on money are very different – for example, if you are a spender and your partner is a saver.
At the same time, if your finances are always separate, you might not be pushed to have healthy conversations about your money and financial goals. You might miss out on the support and accountability of having a partner to lean on. After all, you’re much more likely to achieve fitness goals with your spouse than alone. Why wouldn’t the same be true with financial goals?
More financially literate, but more work
With separate accounts, you and your partner handle your own day-to-day finances. That’s potentially a good thing because – at least in in theory – you’re both forced to develop knowledge and skills for managing finances effectively. In other words, you’re both more likely to become financially literate.
That’s important. If something happens to your partner or your relationship goes south, you need to be able to manage money on your own and avoid major financial mistakes. Unfortunately, we Millennials are not super financially literate. According to some studies, only 24% of Millennials can demonstrate basic financially literacy.
On the other hand, separate finances means more work. Two balances to check, not one. Two credit card statements to review, not one. Two late fees to avoid, not one. You get the idea.
Separate finances also has some practical benefits that you might not realize. For example, if your partner has significant debt, the money in your joint account – including yours – can be garnished by creditors. Keeping separate accounts avoids that issue (assuming it’s not joint debt).
Likewise, it’s less awkward to give your partner a gift with separate accounts. Or, if you want to treat for dinner, it may feel more meaningful when the money comes from your own account.
Option 3: Combine some, not all
The third option is a hybrid approach. Combine some but not all finances. Roughly 37% of Millennial couples choose this route, including me and my wife.
There are basically two hybrid systems. In the first, you and your partner pay for recurring shared expenses, like rent and utilities, from a joint account and cover your other expenses with separate accounts. Each of you contributes the same amount of money or the same portion of your income – say 50% – into the joint account each month. The second system – the one that my wife and I eventually chose – uses an “allowance.” You put all of your income into a joint account and use that for most expenses. But you give yourselves “allowances” each month by moving a set amount of money from your joint account into your individual accounts. Your “allowance” money can be used for anything your little heart desires. In my case, that’s more coffee paraphernalia.
A balanced approach, but more effort
For many couples, including me and my wife, a hybrid approach strikes a better balance. By keeping joint and separate finances, some couples find it easier to balance transparency with independence, and teamwork with individual accountability. But these hybrid systems aren’t simple. They require planning and periodic tweaking.
The bottom line – collaborate with your partner
Whatever approach you take, the important part is that you’re collaborating with your partner on money. Collaboration doesn’t require a joint bank account. But it does require both partners to be involved in the process and to regularly communicate about money.
No system is right for everyone. You just need to find the one that feels right based on your personalities and preferences. That will take time and experimentation. For me and my wife, it took a couple of years of trial and error to find the best balance for us. We started by completely combining our money, but eventually, we settled on a hybrid system where we each get a small allowance every month. For us, keeping individual accounts gave us healthy breathing room.
The tools available
Even though many people struggle with household finances, the tools available for couples have been limited, to say the least. As a result, most couples track spending, budget, and save together by using spreadsheets or sharing the same account for financial apps like Mint or YNAB. My wife and I tried both for a while. But spreadsheets were a pain to maintain and the apps we tried didn’t help much because they were built for individuals, not couples.
Eventually, I got so fed up with the tools available that I decided to take matters in my own hands, and with two friends, I built Honeyfi – an app that helps couples collaborate on money. We designed Honeyfi so that you can link your accounts to the app, decide what to share with your partner, and then see all of your finances – organized and categorized – in one place. Honeyfi does a lot of the heavy lifting by automatically suggesting a household budget, identifying recurring bills, and providing categorized, searchable transactions. The app also makes it easy to collaborate by letting you comment on transactions, tag transactions to a person, and share financial insights with your partner. If you’re interested, check it out in the App Store or Google Play Store.