The 3 biggest money mistakes couples make
The star of 'Shark Tank,' the author of a new book on money and the sexes, offers some insights on how men and women approach finances.
This post comes from Maureen Mackey at partner site The Fiscal Times.
Just get Kevin O'Leary talking about money -- and the silly and stupid mistakes a lot of us make when it comes to our finances.
A business entrepreneur who has founded, funded and sold numerous companies, O’Leary today runs O'Leary Funds, an investment company headquartered in Montreal. He’s probably best known to most of America, though, as the straight-shooting co-star of ABC's Shark Tank, the popular reality show in which aspiring entrepreneurs pitch their products to a panel of potential investors (O'Leary is one).
He teaches money management to audiences old and young, backing up no-nonsense principles with years of experience. We could be saving ourselves from so much grief, frustration and stress if we only did a few key things differently, he said in an interview.
Here are three of the biggest financial mistakes O'Leary, author of the new book "The Cold Hard Truth on Men, Women & Money," says we're making -- and how we can fix them:
We’re not acknowledging gender differences with money
"Women tend to be better investors than men, period," said O'Leary. He knows this point may be controversial – but he’s seen it in action.
"As chairman of a $1 billion mutual fund company, I meet men and women every day in the industry, traders, strategists, portfolio managers, analysts. And I can say that generally speaking, women are ore pragmatic than men about money and get better outcomes with their investments. They tend to take less risk, understand the difference between risk and reward, and bring diversification into most investment strategies -- they never put all their eggs in one basket."
Forget stereotypes, says O'Leary. "Most women don't get emotionally involved with money. They tend to take an arm's length view. I ask men to take a lesson from it. I tell them, 'Whatever these women are doing, do the same thing. The results are better.'"
The truth is that "most men tend to make big financial bets and get their emotions involved. They get behind an idea and say, 'I'm gonna make a big bet.' You just don’t find most women making that mistake. The London whale who blows up JPMorgan -- it's never a woman. That doesn't happen."
We forget marriage isn't about love alone
Marriage makes no economic sense at all "if you’re not having children," O'Leary said.
If couples are planning a family, "understand you're starting a business unit -- that you're building something together over a long period of time. Women get this more than men – they understand the pragmatic side of marriage. They have a more enlightened, expanded view of it."
Keep finances separate, urges O'Leary. "There is no reason to merge your financial accounts when you marry. Instead, set up a third account. If you're just starting out, you might each put $10,000 into it and then deploy capital based on your income as you see fit. But keep your investments independent. Keep your own financial identity and credit history in case things don’t work out."
Doesn't this fly in the face of romantic notions of two lives joined as one, yada, yada, yada? O'Leary: "You show loyalty to the union by setting up a third account and financing it in a way you both agree on. This dialogue should happen before marriage -- it's part of due diligence. Good relationships are based not only on love but on good financial goals -- buying a home, saving, spending, whatever – that you meet together."
Most marriages fail, maintains O'Leary, "not because of infidelity but because of financial stress." O'Leary draws the business parallel: "Would you ever merge your company with another without understanding the business plan? Same here. When you get married, you’re merging your stocks."
We're not educating kids about money
"Most parents today teach their children morals, give them a religious foundation, talk to them about relating to others, and send them off to school to learn about history, geography, science, health," said O'Leary. "But there’s never any teaching about money. Why? Huge mistake."
The concept of what money is "should be developed early. It should be taught to children at home starting at about age 5 in very basic terms," he said. "It’s an asset we can't live without, so kids should know where it comes from -- what it's for, why it's important, how it helps the family.
"My reasoning: People who have tremendous problems with money later in life usually developed an improper relationship with it starting at early age. You learn money can be your most powerful ally -- or your worst enemy."
Once children have developed respect for money, O'Leary counsels, "By age 9, 10, 11, 12, that's when you start putting discipline into how money’s managed. I advise taking 10 percent of a child's allowance or gifts from relatives and putting that into a trust that becomes the child's later. It provides a sounder footing for what’s going to happen to kids as they get older. You'll get a much better financial outcome with this strategy."
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"Set up a third account. If you are just starting out, you might each put $10,000 into it."
What couple just starting out has 10 grand each to put into an account?
Been married 25+ years. One checking account and one savings account. However separate accounts for investments and retirement such as Roth IRA's and some mutual funds. Plus her work pension fund and my 401k. 2 cars, one in her name one in mine. Has worked just fine.
Marriage is about a deep and abiding friendship, partnership and love. We haven't always agreed about money but we have always shared it. This writer has reduced the sacred blood oath of marriage to a business deal. While there are practical considerations, these are profoundly different than an ordinary "partnership". We sleep together, eat together, travel together. We help each other deal with loss, aging parents and the mercurial nature of life. I was very ill in my thirties and my husband took care of me. I have always been there for him always and under all circumstances. We do very few things apart and have recently retired, I am sorry that so many people give up on a bond which, if handled correctly leads to emotional and financial riches beyond imagination. Our power is exponential and can not be explained in a "business plan". For us, NOT being married makes "NO FINANCIAL SENSE". By pulling together, we have actually avoided mistakes by having two people working on the same problem. Children were never part of our plan. We saw the trouble caused by them in other peoples lives and decided not to procreate. If we had become pregnant, I am sure we would have navigated that too, but, we like our life as it is, I understand this writers premise but, resent the implications.
I'm surprised at all the hate for his comment about separate finances. My husband and I have been married for 2 years and have maintained separate accounts, with a third one we both contribute money to for common expenses (mortgage, insurance, house bills, etc). We also have 3 investment accounts, each with our own separate one, and one we both contribute to for our future children. We never fight about money, ever. He purchases things for himself with his money, I do the same. There's no "WHY DID YOU SPEND $50 ON THAT VIDEO GAME!?" or "$100 FOR MAKEUP? WHAT WERE YOU THINKING!?" It also keeps little surprises we buy for each other secret, making present giving that much more special :)
Personally, I think it's a mature decision in today's world, and we've set ourselves up for a nice future (we're both under 30).
We've already outlasted two marriages among our friends. Their biggest issue? Money.
So, about this article:
I disagree that women are more pragmatic than men in how they use money. What good is hundreds of articles of clothing if one cannot put food on the table? No, I am not saying every woman is like this, just pointing out one example of a number of women like this. Just because men are discovered in some of these situations and publicity follows does not mean that is always or generally the case. I think a number of CEO's who are women are doing just as much damage as some of the men. I agree that taking less risk is important, but I think this has little to do with being a man or a woman. (I lean towards less risk, and I am a man, so that is evidence to the contrary.) Diversification means nothing if all the smaller investments are just as bad as one bad, big investment.
As for marriage, well, I have no experience first-hand, but do believe marriage is about love and wanting to be with that person. "Good relationships are based not only on love but on good financial goals ... "? I don't understand, it is good to be on the same page, but that kind of objectivism is a very dangerous, mindset/mentality. Setting unrealistic goals is far from pragmatic; setting realistic goals aren't much of an accomplishment.
I do agree that children need more education, knowledge, and information about money. However, all that means very little if they don't have the experience in using money.
if you want to take the financial stress out of marriage, a checking account for just paying all the bills is a great idea. My husband and I have had this relationship for 15 years and there is one thing we never argue about - money. So based on our incomes, we each put an equivalent percent of our incomes in this joint account. Budgets help to determine the percentage. We have a joint credit card for groceries and gas that is paid using the joint account along with the mortgage and other household expenses.
The percent that is left over in our individual accounts is ours to spend as we wish. I have my own credit card and he has his. We pay our own credit cards with what's left over in our individual accounts. Hey, one advantage, I can't see what he buys me for Christmas and he can't see what I buy for him. Puts the surprise back in holidays. All I know is that this has worked great for us.
Women are not better investors than Men, maybe different, but hardly BETTER. Fact is, in a Bull Market, everyone's a stinking Genius. The proof in the Pudding is when the Markets trade extend periods sideways or an outright Bear Market. I bet you would then see a total different outcome concerning Women.
Parents teaching their kids about Finance, fact is, a ton of Parent don't trust their kids to teach about their finances. Apparently, too many are too dumb to figure out you don't have to reveal your exact Finances to teach someone about how to manage their money. So Kids have to learn on the fly, and usually that's a recipe for disaster.
There use to be a time when Women were treated as Property. Some folks way back when wouldn't even let Women inherit property, only Men could. Bottom line is things change overtime. Maybe they want to go back to the days of when a Woman cheated, she was the Guilty party but not the Man. How about when women couldn't vote. We live in a Modern Day World were we evolve to meet it's needs, some folks haven't figured that part out yet. Holding on to some traditions will be your undoing.
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