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   ARTICLE   |   From Scotsman Guide Residential Edition   |   December 2016

Don’t Fight Over Money, Honey

Helping young couples resolve financial differences is good for business

Don’t Fight Over Money, Honey

With 88 percent of young millennial couples stating financial decisions are a source of tension for their relationship, and 51 percent of all couples arguing frequently or occasionally about money, according to two recent studies, it’s no surprise that conflicts about finances are a key predictor for divorce.

The latest research suggests that millennials are now the largest generation in the housing market. Yet despite 40 percent of young couples believing that prior to marriage they should buy a home together, this group tends to argue more about money than baby boomers.

Perhaps understandably, the financial services industry has steered clear of the thorny area of couples and money. The reality is that with their intimate knowledge of a couple’s income, assets, liabilities and spending habits, however, banks and mortgage companies are effectively the third party in most partnerships.

Given the unique perspective these institutions have on a couple’s financial arrangements, Smart Design carried out a research study called the Money Honey project to uncover the financial challenges that couples face today and what banks and mortgage companies can do to help these couples bridge their financial differences.

The study focused on couples ages 18-35, because despite being the largest generation since the baby boomers, millennials have a notoriously tricky relationship with conventional financial institutions. For example, 18 percent switched their primary bank within the past year, compared to 3 percent of people who are 55 or older, and one in four millennials don’t trust anyone for monetary advice.

Based on in-depth research with couples at varying stages of life, the Money Honey project resulted in five key insights about how banks and mortgage companies can support young couples in improving their relationships around money.

The big picture

Although young couples have ambitious goals and dreams at the beginning of a relationship, they often have a hard time making their financial aspirations tangible and realistic. Buying a home is a key goal for this group, so banks and mortgage companies can play a proactive role by creating products and services that guide them through the different steps that lead to achieving their long-term goals and helping them monitor and celebrate their progress. This includes providing young couples with easy ways to picture their financial future, set realistic goals, and take the burden out of making progress.

Despite being the largest generation since the baby boomers, millenials
have a notoriously tricky relationship with conventional financial institutions.

Providing the big picture and the steps to achieve goals can be a challenging balancing act, but digital capabilities make it more possible than ever before. Leveraging this philosophy, online investment companies like Betterment and Wealthfront have disrupted the wealth-management industry by helping ordinary people reach their financial goals through investment. Digit, an innovative online money-management startup, is taking a similar approach to automating savings.

Financial confidence

The couples in the Money Honey project felt empowered by understanding their finances, but they often lacked the confidence to get started. Complex terminology, hidden fees, and conflicting advice exacerbate the situation.

As a result, the challenge for banks and mortgage companies when engaging young couples is to educate them about finances in an authentic way so they feel prepared and assured that they can successfully manage their money. Rather than expecting millennial couples to learn on their own, the financial sector needs to proactively reduce friction, ditch the financial jargon and talk to them in their own language at a time and place that is convenient for them.

Having come of age during the Great Recession and its financial scandals, millennials are especially suspicious of traditional institutions, so banks and mortgage companies need to focus on trustworthiness and speaking in simple terms. Companies that are already doing this include health insurance provider Oscar, which uses an easy-to-navigate mobile and web service with simple, ordinary language. Similarly, Bank of America joined forces with Khan Academy, an online-learning platform, to create a series of five-minute educational videos about personal finance.

Unique needs

Very few offerings cater appropriately to a couple’s specific needs, so managing finances often becomes a complex chore that requires couples to create their own systems and tools. There is a big gap in the financial-services market for products and services that address an individual couple’s particular habits and behaviors as they transition through their lives.

To come up with products and services that are meaningful for young couples, organizations must acknowledge that every situation is unique and think of solutions that adapt to the different stages of a couple’s relationship. The needs of couples who have just moved in together, for example, will be quite different from those who are married with kids. Even the most basic activities, like reimbursing each other, change context at different periods of life.

Services like Venmo, which allows users to send money and make purchases easily, and Splitwise, which helps people split expenses, enable effortless peer-payment experiences between individuals. The unique nature of paying and reimbursing a significant other raises unique emotional considerations that are not well addressed by the current experience.

Common ground

Every person comes into a relationship with different “financial baggage,” including spending behaviors, orientation toward risk and the amount of existing debt. The process of adapting to an opposing money personality or combining different finance situations is a primary source of tension among these couples.

The first six months after a couple opens a join account are key to
determining whether those couples adopt good or bad financial behaviors.

As a result, institutions need to design products, services and experiences that help couples find common financial ground in their relationships. This allows couples to draw on each other’s strengths rather than letting their differences create a divide between them.

Banks and mortgage companies must recognize and adapt to different financial archetypes, help couples equalize their levels of financial literacy and alleviate tensions by enabling easy communication about finances. Injecting an element of fun into the process is potentially a nice touch. Imagine if mortgage originators got together with relationship counselors to develop an online quiz that helped couples work out their different financial personalities?

One good example of a service that helps couples collaborate on finances is Qapital. This unique app automates saving money for specific goals and provides effortless solutions to help couples save together.

Support relationships

Couples opening a bank account together for the first time are unlikely to seek a mortgage immediately, so banks need to think about long-term relationships with new joint-account customers. How amazing it would be if, when a couple opened a joint account, banks made their ATM cards beautiful and celebratory. After all, for many couples, a joint account and the associated cards are often a precursor to actual wedding rings.

More importantly, the Money Honey project found that the first six months after a couple opens a joint account are key to determining whether those couples adopt good or bad financial behaviors going forward. Currently, there is very little support for couples after they open a joint bank account.

Banks and credit unions could send owners of newly opened joint accounts a quick-start guide with easy steps to follow to help them start in the right financial direction as a couple. Banks also could host introductory periods on financial resources like financial planners and weekly money advice to help couples learn to embrace healthy money habits and have regular conversations about money. This advice can, in turn, help couples during big life changes like buying a house or having children.

This program could look like the Royal Bank of Canada’s Newcomer Advantage program, which gives people who have just moved to Canada everything they need to start out financially. The program includes a no-monthly-fee bank account, a credit card requiring no credit history, and even a mortgage that requires no credit history.

Take a chance on love?

Although mobile payments and e-wallets are an important focus in the financial-services sector, Smart Design’s Money Honey project has shown that couples and money represent an equally crucial area that is ripe for innovation. With the rise of smart technology and the growth of sophisticated financial-planning tools, there has never been a better time for banks and mortgage companies to provide couples with clever ways of managing their joint relationship with money.

What’s more, there is a clear business case for doing so. When couples split, joint accounts, including mortgages, are often closed and assets under management decrease, resulting in lost business. As a result, forward-thinking banks and credit unions that treat joint accounts as a service-innovation opportunity — rather than just another product to sell — can drive stronger brand differentiation, increase customer loyalty and, in the long term, create a lasting route to selling bigger products like mortgages.


 


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