Young Americans are embracing financial independence, even if it means keeping money separate from their spouse or partner.
New research from Fidelity shows that a larger share of Gen Z and Millennials are holding onto their personal bank accounts than Gen X and Baby Boomers. The survey of more than 3,000 married or partnered couples who have been together for three or more years found that 34% of Gen Z and 26% of Millennial couples keep their money in completely separate accounts, while 19% of Gen
The mixed approach also seems to be growing in popularity. About 42% of Millennial couples are storing money in both individual and joint accounts, compared to about one in three of Gen X and Boomer couples.
Financial experts are wary of this trend, believing that separate accounts open the door to confusion, extended timelines to reach shared goals, and financial infidelity.
Why are more and more young couples not combining finances?
One reason may be that more women are working today than in the 1960s and 70s when many of the Boomers came together. Before the Equal Credit Opportunity Act of 1974, women routinely required a male co-signer before opening an account. The survey found that even today, 46% of women say they feel financially dependent, compared to 16% of men.
People are also marrying later in life, which means they have more time to build their net worth before tying the knot.
“At the end of the day, what we’re all facing is the emotional hurdle of, ‘What if this person turns out not to be who I thought they were?'” Jed Warshaw, a financial coach and co-host of “The Ramsey Show,” said as couples marry later in life, they’ve likely watched people around them get divorced, and started “preparing for the worst instead of hoping for the best.”
The increase in student loans has made combining finances more complicated, as some partners want to tackle their debt alone. Jason Fannon, a certified financial planner and senior partner at Cornerstone Financial Services, said he’s seen a couple hold off on combining finances because one partner would not otherwise qualify for student loan forgiveness.
Fanon said the “Great Wealth Transfer,” whereby trillions of dollars that now belong to older Americans are expected to move into the hands of their children over the next two decades, may also be a reason younger couples choose to handle finances separately.
“If someone is bringing $500,000 to a relationship and they’re in their 20s, and maybe the other person doesn’t have much, I can see how it becomes a big issue,” said Fannon, 49. Whereas, among older generations, “a lot of people I know married their high school girlfriends, boyfriends, what have you, and nobody had any money. There weren’t a lot of prenups that I was aware of.”
But today, prenups are on the rise. Of all those surveyed by Fidelity, 13% said they have a formal or informal prenuptial agreement with their spouse, compared to 29% of Gen Z.
Why are couples avoiding conversation?
Another factor contributing to couples keeping their accounts separate may be more simple: Talking about finances isn’t always fun.
Of the respondents, 44% said they avoid talking about money because they worry it will start an argument, 31% said they don’t want to worry their partner, and 21% said they are afraid of being judged or lectured.
Not talking can cause problems. Nearly one-quarter of respondents admitted to keeping financial secrets from their partner, and 68% said they didn’t have a full understanding of their partners’ finances until they moved in together.
Warshaw advises couples to talk about money as early as possible.
“They’re not always the most pleasant, but you don’t have to open up about everything in one conversation,” Warshaw said. “You need to have these so you know who this person is financially and how they view you, because everyone has their own gender roles, the way they were raised, what they expect.”
Risks of separate accounts
Fannon said that although in some circumstances it may be logical for couples to choose to maintain separate accounts, he would not generally recommend it.
She said if couples have difficulty keeping track of separate accounts, it can lead to late payments or defaults, especially if both people are unable to hold each other accountable. Missed payments can lower a credit score and make it more difficult to borrow money in the future.
Similarly, he said, managing money separately can also make it harder for a couple to achieve financial goals like buying a home or paying off debt, especially if they don’t know the other partner’s saving and spending habits.
“There’s no escaping that,” Warshaw said. “As long as both income people are mentally on the same page, you will move forward light years faster, so you should not only ask for help from your spouse but expect help from your spouse.”
If a couple insists on keeping separate accounts, Fannon recommends they make sure to list the other as the beneficiary. Otherwise, he said, if one partner becomes disabled or dies, the other may not be able to access the funds. That’s when lawyers and probate enter the picture, which can be costly and emotionally overwhelming at a time when someone is grieving.
Beware of financial infidelity
Keeping separate accounts also increases the likelihood of financial infidelity — when one partner doesn’t share where the money is going, Fannon said. Sometimes, this may be done intentionally. He said one woman in the couple he advises should have a separate account for money she wants to spend on her hair and nails, and she likes it.
“The lady was like, ‘I’m so happy because I don’t want her to know how much I spent on that stuff.’ So, there is this kind of compromise,” Fanon said, adding that this is a light-hearted example but financial infidelity is often a way of hiding expenditure on vices. “It’s a matter of getting things done, but I’ve also seen it go by the wayside.”
To avoid worst-case scenarios, Fanon advises couples to establish monthly amounts that go into each individual spending account, generally agree on where that money will go and not deviate from the plan.
“It’s just extra,” Fannon said, adding that retirement contributions and bill payments should ideally be made from a joint account rather than individual accounts. “We’re not really relying on any one person for the success of the long-term plan.”