Financial infidelity is a growing problem that can negatively impact a couple’s long-term financial goals. Associate Retirement Director Marquette Payton discusses how advisors can help clients navigate the issue – or take steps to prevent it – by understanding inherent behaviors and encouraging couples to have candid conversations about finances.
New clients – a married couple – come to your office to meet with you. You start asking questions to gain an understanding of the various types of accounts and assets they own. One spouse needs to momentarily step out to take a phone call. During that time, the other spouse leans over and says, “My husband [or wife] doesn’t know this, but I have a secret bank account.” This spouse proceeds to tell you about these hidden assets and even some hidden debt.
Sound familiar? If it doesn’t yet, it likely will at some point, as the problem of financial infidelity appears to be getting worse. Survey data from the National Endowment for Financial Education shows that two in five people admit to hiding cash, bills and purchases from their significant other or have lied about how much they earn, have in debt or even about a gambling habit.1 While there may or may not be bad intentions involved, going down this path typically leads to a dissolution of trust and potentially even of the marriage itself. In fact, the National Council on Family Relations finds that the arguments that most strongly predict divorce are those involving financial disagreements.2
What exactly does financial infidelity entail? The definition we will be using here includes both engaging in financial behavior that is expected to elicit disapproval from one’s partner and intentionally failing to disclose that behavior because of the anticipated disapproval.3
Helping Clients Address Financial Infidelity
Financial infidelity is, at its core, a behavioral finance problem. The issue seems to arise most often when there are marked differences in how spouses view money. (For example, one spouse is a spender while the other is a saver.) As the planning industry has evolved to focus more on the psychological aspects of finance, advisors are in a unique position to help clients navigate through issues like financial infidelity or even help them take steps to prevent it.
Perhaps the most important aspect of helping clients address financial infidelity is getting them to understand why being transparent with money is essential to achieving their short- and long-term goals. And because the associated behaviors are often rooted in a desire for control, advisors should also be able to explain how clients can exhibit this transparency without sacrificing their autonomy or sense of independence.
As with any other behavioral finance issue, guidance around financial infidelity must focus on the fundamental differences in each partner’s attitudes, values and inherent biases as they relate to money. If one person is constantly worried about saving enough money while the other tends to be a carefree, spontaneous spender, one approach could be to establish individual accounts with a set amount – in addition to the couple’s joint account – so that each partner can choose to make discretionary purchases or save toward a goal using those designated funds. In this way, each person has access to money to do whatever he or she pleases without feeling like they have no control over money decisions. This arrangement can be particularly effective in the common situation where one partner takes on the role of chief financial officer (CFO) for the household.
Promote Transparency through Open Dialogue
One way to potentially help prevent financial infidelity from occurring in the first place is to make sure couples are having candid and ongoing conversations about money. These conversations should include not only reviewing basic household needs and spending habits but also talking openly and honestly about debt and short- and long-term goals. For example, couples may want to consider scheduling a monthly check-in (think “Monday Money Night”) to review the prior month’s finances and level set on their spending and saving goals for the month ahead.
While financial infidelity may seem better suited for couples counseling, keep in mind that this is a serious issue that can quickly derail your clients’ financial goals. Part of your commitment to helping clients pursue those goals involves being aware of behavioral tendencies that may affect their ability to make sound financial decisions. Playing an active role in addressing or preventing financial infidelity not only can help improve trust between the couples you serve but also serve to build trust between you and your clients.
1“Celebrate Relationships, But Beware of Financial Infidelity.” National Endowment for Financial Education, February 2018.
2“Examining the Relationship Between Financial Issues and Divorce.” National Council on Family Relations, September 2012.
3“Love, Lies, and Money: Financial Infidelity in Romantic Relationships.” Journal of Consumer Research, October 2019.
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