Why Married People Are Richer
Married people are richer. If you read much personal finance literature, you'll have learned this by now. While it's an interesting observation, what's more interesting is why this is:
Speculation has involved a variety of topics:
1) Economies of Scale: In married households, there are economies of scale. Basically, its more efficient for two people to live together than for a single person alone.
2) Personality: Married people have personalities which are more conducive to building wealth. For example, if you're a looser, an idiot or flaky it's less likely that you'll both get married or build wealth. In other words, it might be that married people are richer simply because they have personalities more conducive to building wealth (e.g. they aren't losers). In this case, its a selection effect, that is people with personalities conducive to building wealth are also those who get married.
3) Expectations and Lifestyle Changes: Society values marriage. It might be that after people become married, they change their behavior to meet social expectations. As their behavior changes, they become more responsible, save for the future, etc. It may also be once married, couples receive more financial support from relatives, etc. Basically, social processes surrounding marriage make people get their act together.
If you're looking to seriously understand why marriage builds wealth, you might consider the following links:
The Case for Marriage
Marriage, Wealth and Housing
Wealth Effects Differ By Race
Personally, I think the reason why married results in greater wealth is probably due to some combination of the three topics.
Most recently, a study last year by Jay Zagorsky has drawn a lot of media and blog attention to this topic. I've read the Zagorsky article. While it's important, one should remember that it's not exactly a new finding. Sociologists have known that marriage builds wealth for years.
For news on Zagorsky's study:
Here
Blogland commentary regarding Zagorsky:
Free Money Finance
Young and Broke
Science Blog
In terms of my and Miel's situation, we got married last July out in Oregon. So far, wealth has increased by 26% this year - From $300,000 at the start of the year, to $380,000 when we added it up a couple of weeks ago.
Hope you enjoy!
-James
p.s. Those long time readers of our blog will note this posting is a re-run. Our apologies, I'm prepping for an exam and have a hot date at the library!
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17 comments:
This is a great post. I was actually considering the financial aspects of marriage today--including tax breaks!
Best of luck in the new year!
Shauna
http://shauna26.wordpress.com/
Thanks for including my post!
This post makes a lot of generalizations that are not logical
1 Economies of scale – this is only true if both parties work at equivalent paying jobs. Last time I checked dining out for two cost twice as much as one – the reality is that most people dine out. Two cars, two sets of clothes, even housing must be larger for two than one.
Personality - Losers typically marry losers. In fact, I know more losers that are married than are single.
Expectations – keeping up with the jones cost a lot of money. Singles don’t have near the peer pressure.
Now that I am married, this post makes perfect sense. It also helps to put into perspective of the many reasons we were drawn to each other.
When you say married people are richer than single people are you compare household assets or assets per person? It doesn't seem fair to compare household assets because two people need more money that one person. Maybe not twice as much since housing expenses aren't necessarily double (unless you add kids), but still more.
Ditto about peer pressure. Not much of it when you are single. Sometimes I look at a really fancy dress or a pair of diamond earrings and think "wow, I love it, but where would I wear it?". OK, I can go to a theater performance, but nobody knows me there. Besides, I'd be afraid to wear expensive jewelry going out alone. Travel is cheaper for a couple because double room costs only a little more than a single room, but singles often travel with friends, so they end up splitting costs.
A couple may go to a restaurant every once in a while. No fun at all for a single, much more comfortable at home. At least not for a single who can cook. Sure some people eat out because they don't cook, but a single is less likely to choose a fancy place - it's boring to sit and wait to be served alone.
This works when both people are earning around the same amount of money, but in cases where one person is earning way more than the other it holds less true. I make over $500k per year and my wife still works for pleasure but only makes around $60k per year. Before we were married 4 years ago I was "living the life" and saving a ton of money also, putting away over a million before I was 30. After getting married my wife, who was living within her means before, was spending money all over the place. I used to save well over half my salary and am now saving only around 20-25% of it. So my net worth is growing, but at a much slower pace. This is the same with most of my colleagues, many of whom earn seven-figures. If you make a lot of money, marriage can be a bad deal financially speaking.
If you're "looser" than what?
This seems like faulty logic to me.
In theory, having two incomes in one home seems to translate to more capital, but that neglects the obvious general truth about that home needing to be bigger, and generally nicer, better decorated, etc. Single people tend to live cheap and without frills.
I can offer a far more logical explanation for the conclusion you're drawing: married people are, generally speaking, OLDER than unmarried people. Essentially, they're more experienced, more tenured, and more responsible than their younger, unwed counterparts.
Or, let's spin it into a far more interesting direction: successful, financially sophisticated people don't stay single very long because potential mates compete for them. In other words, perhaps marriage status is an indicator of one highly desirable member of the couple having attracted the other... rather than a signal of the couple's combined potential being higher. I find this explanation far more believable.
In fact, I would dare suggest that marriage is an impediment that must be overcome, and that the success status of the married pair is often only a remnant of the good decisions made earlier by one member of the pair.
I can't say a fully agree with this post, but it might have been nice to acknowledge that gay couples can't get married in the US, unless you're in MA. Only 3 other states permit civil unions.
Perhaps "loser" status isn't the best way to classify someone who isn't married.
A "loser" because you don't get married?
What a horrible post. In fact, it is truly one of the most callous, most narcissistic, ignorant things I ever remember reading.
Life has a lot to teach you, friend.
"Married people have personalities which are more conducive to building wealth. For example, if you're a looser, an idiot or flaky"
HARSH! OK wise guy- first of all it's spelled "loser" (unless you're describing your values, particularly in regard to singles,) and second of all, with a skyrocketing divorce rate, wisely cautious might be a better word. Divorce is incredibly costly so if a marriage ultimately fails, staying single may have been proved the mroe financially savy option in the long run. And for the record, I'm 27, single, and have a respectable networth of $90k. I'm not rushing to the chapel anytime soon!
successful, financially sophisticated people don't stay single very long because potential mates compete for them.
I am not so sure about it. This may be true for males, but I am not so sure about females. One part is that even today many men aren't that happy with females who are more successful. Some men are fine with it, but many aren't. Once I saw an interview with several young women from Harvard Business School. The experience these women shared was how the moment they mention Harvard and MBA, the men lost interest.
Granted, it is only experience of three young women, but it's been mine as well (although I belong to "youngest of the baby boomers" generation).
Another reason, many successful single women spent a lot of time studying/building a career. When they finally decide to have a family, they find the supply of available bachelors drastically reduced with remaining ones looking for much younger girls. This is from personal experience.
Kitty - I certainly agree with your point about the limited selection pool. Not easy for women who focus on their career.
It makes me consider how lucky I am that we have a relationship where I can continue to pursue my career and the professional and personal benefits that brings. Many women in a similar situation might not pursue their dreams because of the consequence to marriage. I'm just lucky to have the best of both worlds.
Miel
It's my experience many married people are in fact losers (I'm a caterer -- I know these things).
It's also my experience that someone who can't even spell "loser" is too much of a loser to date, let alone marry. Your wife must be very proud.
Yes, I agree but only with the condition no kids (as already mentioned). How many couple do not want to have kids nowadays? If "dual income with kids", I will bet the single ones are richer. :)
I feel that I have all these benefits with my boyfriend, but we're not married. I'd say that committed couples are richer -- not married ones. Though marriage commonly suggests commitment, you do not need to be married to build a life together and better each other's financial status.
Complete rubbish, you can't make these crude generalisations. I happen to live in London and your aguments are irrelevent there.
True, marriage gives the 'impression' of greater weath as you benefit from the pooled resources of both parties but divide it by 2 and I suspect you won't find either party 'richer'
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