Personal Finance
Allowances are for kids — not your spouse
Simpleimages | Moment | Getty Images
You don’t have to scroll far to find the #tradwives and #SAHGs (stay-at-home girlfriends) of social media who glamorize the extremes of domesticity, or the wives in Dubai who film their extravagant errands, such as picking up a Cartier bracelet and stopping for a facial on the way home.
At all ends of the wealth spectrum, there’s a common thread tying these women together: permission. Someone, usually a man, is giving it to them.
The term “allowance” should make you think of money a parent gives to a child. Yet, it arises in the financial arrangements of these partnerships, too. The allusion is right in our faces, infantilizing women by placing their freedom to spend under the thumb of their partner’s permission.
Most financial experts and professionals cringe at the concept, and it should come as no surprise that the topic has been covered far and wide.
But there’s also the fact that social media’s going to social media — so much is put on for show. The most extreme content often receives the most attention, leaving open the question of how real and commonplace “allowances” actually are among couples.
Do people really operate like this?
Until recently, we thought, no. But turns out, we were wrong.
While interviewing couples for our forthcoming book on love and money, a few have used that word. Typically, the dynamic involves a male partner who earns an income and a female who cares for their children at home.
Hearing it via Zoom during real conversations about real people’s money felt worse than the sensationalized snippets on TikTok. The sense of permission took on a broader meaning with dual negative implications: These women need permission from their partners to spend money, and they have permission to not engage around the important decisions in their financial lives as a couple.
It’s disappointing, for sure, but we think there’s something to salvage beneath the surface.
Why ‘allowance’ is a problematic term
Most people who adopt this antiquated terminology don’t really intend to create a disparate weight of power and control in their relationship — at least that’s what we’ve observed.
What they actually want is to feel safe knowing that guardrails exist.
They are not trying to remove anyone’s sense of agency. They just want to know their partner is not heading to Cartier for a bracelet and stopping for a facial on the way home (figuratively speaking, of course). However, they might also be a bit lazy for embracing the easiest word, one already familiar to them from their own lives and the lives we observe online.
Just because it’s easy doesn’t make it right. There’s harm in “allowances,” which perpetuate gender-based stereotypes and widen the wealth gap and knowledge gap around personal finance.
What’s worse, they diminish the work being done at home. We do a terrible job as a society of assigning value to a spouse’s nonmonetary contributions, and they are just as crucial to maintaining household stability as the income flowing in.
Not to mention, restricting funds for the person who likely purchases most of the household’s needs adds a whole other layer of strain when their partner has a different viewpoint of what’s considered a “want” versus a “need.” This is a setup for constant conflict and a relationship dynamic that’s just plain unfair.
There’s an element of trust at play, too. Creating one-sided restrictions around spending can easily lead to lies. The leading method of financial infidelity among couples, 30%, is spending more than your partner would be okay with, according to a Bankrate survey.
Set a ‘check-in number’ instead
Mtstock Studio | E+ | Getty Images
A better way to build trust while establishing reasonable guardrails around spending isn’t through permission, but through communication. Couples can set a check-in number, which is a dollar amount they are both comfortable with each other spending before discussing it together.
There’s no one right number. We’ve spoken to couples who’ve picked $100 and couples who’ve chosen $1,000 based on their personal circumstances and comfort levels.
Consider carefully what the number should be, though. Selecting a number that’s too high could risk running afoul of your budget, which would defeat the purpose. But choosing a number that’s too low could lessen your partner’s agency to spend, which might not reflect the reality of costs to effectively perform his or her responsibilities of everyday life.
For example, setting a check-in number at $50 when your spouse purchases all the home goods, school supplies and clothing for your growing children probably doesn’t make sense. She might even grow resentful if she feels her judgment carries no weight, which, based on the data, can clearly erode trust over time.
But most importantly, the check-in number should be the same for both partners, irrespective of who earns more income.
Our idea of contribution shouldn’t be affixed to a salary and shouldn’t dictate who has more financial freedom. We all contribute in our own ways, and every contribution matters. Your husband shouldn’t be able to buy $2,000 golf clubs while you’ve got to check in for a $110 pair of sneakers. These are inequities that metastasize. They don’t just go away.
Remember, setting a check-in number isn’t an “allowance” by another name. It’s an amount up to which you and your partner are free to spend without having a conversation every time. It replaces permission with communication. It builds a team playing by the same set of rules and fostering an environment of mutual respect.
— By Douglas and Heather Boneparth of The Joint Account, a money newsletter for couples. Douglas is a certified financial planner and the president of Bone Fide Wealth in New York City. Heather, an attorney, is the firm’s director of business and legal affairs. Douglas is also a member of the CNBC Financial Advisor Council.
CFPB cracks down on rewards tactics
About 90% of all credit card spending is on rewards cards. But according to the CFPB, an increasing number of consumers have reported that some rewards are hard to redeem or are not worth as much as they thought. In 2023 alone, complaints involving credit card rewards jumped 70% over pre-pandemic levels.
“Large credit card issuers too often play a shell game to lure people into high-cost cards, boosting their own profits while denying consumers the rewards they’ve earned,” CFPB Director Rohit Chopra said in a statement. “When credit card issuers promise cashback bonuses or free round-trip airfares, they should actually deliver them.”
According to the Consumer Bankers Association, only a small share of credit card users report problems with rewards: Complaints regarding rewards made up just 2% of all credit card complaints reported to the CFPB since January 2020.
“The only bait-and-switch that’s happening here is from the CFPB once again misrepresenting its own data,” CBA President and CEO Lindsey Johnson said in a statement.
“As the CFPB’s own research shows, credit cards are — by far — the best tool for the one-fifth of Americans that lack access to credit to begin building their financial lives,” Johnson said.
Consumer complaints about credit card rewards are exceedingly rare, the American Bankers Association also noted.
“Despite widespread evidence that credit card rewards programs are highly popular and deliver tremendous value to tens of millions of U.S. cardholders from all walks of life, Director Chopra has once again chosen not to let facts get in the way of his decision to tarnish a hugely popular consumer product,” Rob Nichols, the ABA’s president and CEO, said in a statement.
Consumers like reward cards
Even with credit card interest rates near an all-time high, when deciding on a new credit card, 83% of cardholders said their final decision comes down to perks, according to a separate report by CardRates.com.
The majority, or 58%, of credit card users polled by CardRates said they preferred cash back over miles or points. But still, not all cardholders used the credit card rewards available to them.
Travel rewards can be more lucrative but are notoriously harder to redeem, Bankrate also found. Only 11% of rewards cardholders redeemed for a free hotel stay, while just 10% redeemed for a free flight, according to Bankrate.
“Failing to redeem your rewards is a major missed opportunity,” said Bankrate’s senior industry analyst Ted Rossman. “While the best rewards can be subjective, the worst reward is getting nothing at all.”
How to make the most of rewards
In the best-case scenario, credit card rewards are “almost like free money,” said Bill Hardekopf, a credit card expert and CEO of BillSaver.com.
But that’s only if you pay your credit card off on time and in full every month. With credit card rates over 20%, on average, the benefits of cash back or other perks are quickly eroded if you carry a balance.
“If you miss a payment or are late on a payment, you get socked with a huge penalty — that interest rate will far outweigh the rewards you are going to get,” Hardekopf said.
When it comes to which reward card to choose, Hardekopf recommends a cash-back card with a low, or no, annual fee. “The best reward you can get is cash back because cash talks — it’s easy to understand and there’s no problem redeeming.”
Filadendron | E+ | Getty Images
High interest rates aren’t deterring many shoppers from store credit cards.
When asked to choose between a store card or a buy now, pay later plan, 58% of surveyed shoppers prefer store cards, according to a new report by LendingTree. The remaining 42% picked BNPL loans.
The site polled 2,040 U.S. adults in September.
That choice “speaks to the fact people may be looking for a little bit longer-term help with their financial situation,” said Matt Schulz, chief credit analyst at LendingTree.
In December, new cards offered by the top 100 retailers had an average annual percentage rate of 32.66%, up from 27.7% in 2022, according to the Consumer Financial Protection Bureau. Many short-term BNPLs do not charge interest, but longer-term loans do, and on the higher end, those rates can be comparable to a store card.
More from Personal Finance:
Here’s why some credit card APRs aren’t going down
Egg prices may soon ‘flirt with record highs,’ supplier says
Biden’s student loan forgiveness ‘Plan B’ is in its ‘last step,’ expert says
Younger shoppers have been early adopters of BNPL, and that shows in their payment preferences.
About 59% of Gen Zers and 51% of millennials prefer BNPL over retail store credit cards, Lending Tree found. To compare, 38% of Gen Xers and 22% of baby boomers prefer BNPL.
“Buy now, pay later really started off as a millennial, Gen Z phenomenon,” Schulz said. “Younger Americans really drove a lot of the growth.”
Whichever payment option you plan to use to finance holiday purchases this year, keep in mind the cost of carrying the debt, experts say.
How store cards and BNPL work
Retail store credit cards and BNPL loans operate differently.
A retail store credit card is a long-term, revolving line of credit that a store offers in conjunction with a bank partner. To entice new users, stores generally offer applicants a discount on their first card purchase, or financing deals. The card may also be tied into the retailer’s loyalty program, sometimes with bonus rewards for cardholders.
A buy-now, pay later loan — issued through a provider the merchant works with — typically breaks up the total cost of a purchase into installment payments over a set period of time. Some providers offer longer repayment periods, too, and charge interest. Users can have multiple purchases with the same BNPL provider at once, but those may be treated as individual loans with their own repayment terms.
With either payment method, make sure to pay off the balance on time — you might face penalties like fees and interest if you don’t stay on track.
A retail credit card can affect your credit history, as the account is reported to the three major credit bureaus: Equifax, Experian and TransUnion.
BNPL has been somewhat “invisible” to credit bureaus in the past, meaning the loan did not show up on users’ credit reports. But AfterPay, Affirm and Klarna are among the providers reporting some BNPL loans to the credit bureaus.
Both payment forms can be attractive for shoppers. Retail store credit cards tend to be easier to qualify for compared to other credit cards, especially as banks have been tightening credit card approval requirements in recent months, Schulz said.
Over the third quarter of 2024, some banks have tightened their lending standards for credit card loans, lowered their credit limits and increased minimum credit score requirements, according to the Federal Reserve.
“It’s a reaction from the banks to rising delinquencies, rising debt and overall economic uncertainty,” Schulz said.
BNPL can also be relatively easy to apply for and qualify.
“The rise of buy now, pay later is the biggest reason why Americans are opening fewer store cards,” according to Ted Rossman, an industry analyst at Bankrate.
‘Consider the total cost of ownership’
The holiday season is here, a busy time to buy gifts for family and friends. If you find yourself in a situation where a retail store credit card or a BNPL can help stretch your budget, consider the “total cost of ownership,” Rossman said.
“Both of these payment methods can be advantageous depending on how you use them, but could also be a pretty slippery slope into debt and overspending,” he said.
BNPL can be tricky because you can have multiple loans running at the same time, and the costs “can add up,” Rossman said. Make sure to keep track of the pay-later loans you have and are able to withstand the automatic deductions.
If you can’t pay a retail card purchase off at the end of the statement period, any discount, reward or perk that you may get is going to be washed over by the interest you’ll owe on top of the outstanding balance, Schulz said.
“Paying 30% interest to save 15 or 20% doesn’t make a whole lot of sense financially,” Schulz said.
IRS noncommittal on future expansion of Direct File free tax prep system
Congressman introduces bill to offer residence-based tax system to expatriates
FASB asks for input on accounting for intangible assets
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
Are American progressives making themselves sad?
U.S. Beneficial Ownership Information Registry Now Accepting Reports
-
Leaders6 days agoAliko Dangote – The Architect of African Industrial Transformation
-
Leaders1 week agoRishi Sunak, The politic and the Successful Businessman
-
Economics1 week agoProducer price index November 2024
-
Economics5 days agoKaren Friedman Agnifilo: A Champion of Justice and Legal Expertise
-
Accounting6 days agoMastering Petty Cash Management: Best Practices for Efficiency and Control
-
Technology5 days agoThe Rise of Generative AI and Its Applications: Transforming Industries
-
Finance1 week agoADBE, WBD, RIOT and more
-
Economics5 days agoHow to Mitigate Inflation’s Impact on Low Income Earners