How much do you know about finances?
Believe it or not, if you’re in a relationship, the answer directly relates to the role you play in that relationship. If you’re the person who is the bill payer in the family, you’ll have more knowledge of how finances work — and not just your own — than the person who doesn’t deal with the bills.
Adrian Ward, an assistant professor at McCombs School of Business at the University of Texas, recently published a study called “On a Need-to-Know Basis: How the Distribution of Responsibility Between Couples Shapes Financial Literacy and Financial Outcomes” in the Journal of Consumer Research.
He and his co-author gave questionnaires about finances to 272 people. The researchers also looked at how the participants decided who would be in charge of the finances, if they ever switched roles and how long they had been together. Some of the people were married, some were engaged, and the rest were in long-term relationships or cohabitating.
Ward learned that people don’t naturally come into a relationship with one expert and one nonexpert, he says. “Who gets the job (of the finances) determines the expertise,” he says.
What Ward also learned is that the more and more someone takes on that role, the better their financial knowledge becomes. The opposite is also true: The more and more a person gets away from that role, the less they know. He noticed it especially with people who had been married or in a relationship for a long time.
Actual financial literacy or credit score doesn’t seem to matter, he says, when it comes to deciding who will be the bill payer. “What does is who is spending less time in other shared tasks or who is spending less time at work,” he says.
Did gender matter when it came to selecting the bill payer? It did slightly more in older study participants — men tended to be more likely to have that role — than in younger participants.
Sometimes those roles changed over time, but less than 5 percent of the couples he studied switched roles. When they did, it was because of big things like the birth of a child or a change in employment — or the person who was in charge of the finances got the couple into debt.
One thing Ward says he worries about: If one member of the couple has always done the finances, the other person’s financial knowledge diminishes.
“As long as you stay in love forever and no one ever dies, it’s fine,” Ward says.
What happens when the person in charge of finances becomes incapacitated or dies or there’s a divorce?
Research shows that people can increase their financial literacy to match what their partner knew, but that might take about 10 years.
He invites couples to rethink the idea that one person is taking care of the other when only one takes care of the finances. In fact, the other person is becoming “more and more vulnerable.”
“We really do rely on each other,” he says. “If and when you are no longer together, you don’t only lose a partner, you lose a part of their intelligence.”
He did note that “most people don’t want to know too much about money.” That could be because of another fun fact: “The more you know about money, the less satisfied you are about money,” he says.
People also fight about money a lot; “that might be why they want to avoid knowing stuff — for psychological reasons,” he says.
Ward has been studying how people acquire financial knowledge. “The problem is that financial literacy is very low, not just in the U.S., but worldwide,” he says.
Specifically, he’s been looking at the role kindergarten through high school education can play in increasing financial literacy. “Money keeps getting poured into financial education, but research shows it’s not a good way to spend money,” he says.
Through his research, especially these studies, it appears that you know what you need to know. If you take an economics class in high school and learn about mortgages, you probably won’t retain that information 10 or 20 years later when you finally have a mortgage.
“You’re not buying a house,” he says of that high-schooler in economics class. “It doesn’t matter for you.”
We learn by doing, he says. A financial education is about giving an education to the right people at the right time.