How cash-compatible are you?
It's a simple proposition for financial planner and author Liz Koh: strike the right compromises about money in your marriage or relationship, and you'll end up wealthier, and probably shout at each other a whole lot less.
Of course, money compatibility isn't just a matter of whether your marriage turns out to be a wealthy one, she says.
It has a bearing on how long it lasts as well.
It's not hard to find research showing that divorcees cite financial worries as a major cause of relationship breakdown.
While in some failing marriages financial troubles may be a symptom rather than a cause, it is hard to escape the conclusion that those who don't hammer out a middle ground on which to conduct their financial lives face a tougher time staying together.
Koh is an experienced Wellington certified financial planner whose new book, Your Money Personality, offers readers an insight into their own financial traits and how to use that knowledge to advantage.
But while your money personality is a singular item, every couple contains a double dose, and rarely do the two halves come from the same mould.
Koh identifies four money personalities:
Hoarders: Are risk-averse and have a low desire to accumulate wealth. They are careful with what they have, and will only amass great wealth if they earn a lot. They keep spending under tight control and know how much money they have and where it goes. They are averse to debt, and steer clear of high-risk investments in favour of bank accounts. That can mean missing growth opportunities.
Achievers: Are relatively conservative, but driven to achieve in life and to get rich. They are usually well-educated and well-read, and have highly paid professional jobs or ambitious career plans. They are status-conscious and spend money on the trappings of success like fast cars, nice houses and private school education. But while spending is high, it is usually on goods which have a high and long-lasting value. Risk getting caught by the image-trap and spending too much to impress others.
Entrepreneurs: Creators of wealth, who are prepared to takes risks to end up wealthy, and do not feel restricted by a lack of money. Saving in the traditional sense is a no-go, so entrepreneurs risk piling up debts and neglect budgeting.
Thrill-seekers: Life's gamblers, these are the big spenders and debtors of society, who prefer seeking new thrills, instant gratification and lifestyle over building up wealth. Their motto is "easy come, easy go".
Koh said it was usual for partners to have different money personalities. "Like attracts is not the norm in relationships and that is what creates the tension."
That's not always bad, providing couples are willing to compromise.
In fact, said Koh, it is probably much better that money attitudes differ. Couples whose money personalities were the same risked having no checks and balances on their extreme views, such as habitual hoarders living unnecessarily frugal lives of self-denial or missing out on investment opportunities as a result of being too cautious, or thrill-seekers ending up in penury in old age with nothing but memories of a wild ride to keep them warm.
"Different personality types can bring out the strengths in each other, and minimise the weaknesses," she said. "Compromise is not as difficult as you might think. It really comes back to what your shared goals are. That's the area of common ground that needs to be agreed."
Once shared goals are agreed, a couple can make reasonable plans to achieve them, which can in most cases include enough space to both spend and save.
Koh gives the example of one couple whose marital money personality was dominated by the husband's extreme hoarding towards retirement. It was not until it was demonstrated to him that he was well on his way to a comfortable retirement that he would agree to let his wife buy a new (and desperately needed) kitchen.
But a marriage of money egos can be a battlefield. Some couples admit openly when they walk into her office that they need a mediator, Koh said.
Those who fail to get that mediation can end up in divorce, she said.
Koh cites the example of one client who had built up a business with her husband and then sold it for a tidy sum. While she wanted to invest and safeguard the cash, exhibiting hoarding behaviour, her husband wanted to spend up. "His view was `Spend this lot, and then set up another business and make another fortune'. That was what motivated him," Koh said.
The couple split, and the husband blew his share of the cash, while his wife became a client of Koh's.
In another case, she saw a marriage dissolve when the husband decided to leave to pursue a career in property investment, something his wife did not have the stomach for.
In a hard piece of advice for couples in such deadlock, Koh says that ending a relationship may be better done sooner, rather than later, for it is clear that divorce and relationship breakdown is itself a cause of money troubles, and the earlier it is done, the longer each party has to make a full financial recovery.
Just as research proves a causal link between financial problems and divorce break-ups, there's a provable link between divorce and financial distress. A recent marriage break-up is recognised as a leading cause of poverty in New Zealand superannuitants, and relationship breakdown is cited as a factor in people going bankrupt. British debt counsellors reported last year that divorce was a causal factor behind spiralling debt distress.
Koh said partners should respect each other's position and realise that theirs is not the only way to do things.
"There's no right or wrong money personality. No one has the right to say you should be an entrepreneur, or a hoarder," says Koh. "Not everyone wants or needs to be a millionaire. Nine people out of 10 are in that camp. All they want is to be able to lead a comfortable life, to go out for dinner whenever they want, replace the fridge when it breaks down and raise their children. Just have a normal existence."
Money personalities are not frozen in time either, but change with people's risk aversion and wealth ambitions altering as they age.
Koh describes herself as an entrepreneur, though with a penchant for saving, and having been brought up by parents who were hoarders, influenced to a large degree by World War II and the Great Depression.
GIVEAWAY The Sunday Star-Times has 10 copies of Your Money Personality by Liz Koh to give away to readers. Simply log on to www.goodreturns.co.nz/winbooks and enter your details before 5pm on Friday, March 14, to be in with a chance to win.
Sunday Star Times