Jan 19, 2006

The AP today covered a study from a researcher at the Ohio State University who finds that:

“a person who marries – and stays married – accumulates nearly twice
as much personal wealth as a person who is single or divorced.

And for those who divorce, it’s a bit more expensive than giving up
half of everything they own. They lose, on average, three-fourths of their
personal net worth.”

The article mentions a number of reasons why this might be the case, but the most interesting is that married people are more economically productive because they are working for something that is bigger than themselves – they are working for the welfare of their family.

I fully agree with that – I work much harder for my wife and daughter than I would ever work for myself. Left to my own devices, I’d live in a small shack with my Tivo and a PC, but that just won’t fly with a family. But is this the full story? Does what you learn by being married motivate and teach you to be more financially responsible, or is it that people who tend to have the skills for financial responsibility also have what it takes to make a relationship work and last? I don’t know that we’ll ever find out…

A few other things stuck out as noteworthy to me.

First, is the size and length of the study – 9,055 people from 1985 to 2000. WOW! That’s amazingly comprehensive – crap, the media quotes statistics from polls of 300 people as reflective of the almost 300 million people in the population. While this study may be a bit skewed for age it is probably the most accurate picture we’ll ever see on the matter, and is likely a lot more accurate many the statistics we are quoted on any number of topics.

Secondly, as a fairly new father, I found it interesting that this seems to fly in the face of the “kids are SO expensive” urban legend. That made me do some research – it seems that on average, a US family will spend a median of just over $200,000 to raise a 17 year old, or about $12,000 a year. Sounds like a lot of money, huh?

Consider that this cost includes things like housing and it starts to make more sense. To put it into some perspective, the average person will own about 3.5 cars over that same 17 year period. Given the average new car price of around $28,000 and they are spending $98,000 in cars. Oh, and those cars are financed, so that $98,000 over the 4-5 year loans that paid for them will actually cost you around $115,000. Now figure the gas, wear and tear, etc… You see where I’m going. It isn’t that expensive relative to other things in our lives.

What is amazing is that married people have more wealth and STILL spend over 200K raising each child. And what if you have a child out of wedlock? Hmm… Maybe it isn’t just a bad parenting idea, maybe its a bad financial decision as well. Given that children usually go to the mother in a divorce, these costs may explain why divorced women will have 2.5 times less wealth than divorced men.

The third thing that I found noteworthy, is the amount of wealth that these same people have accumulated. The study says that the participants had a median of $1,500 at the start of the study and finished up with $10,900 in the 15th year. Amazingly enough, this was 93% more than single or divorced people over the life of the study. Keep in mind that the study “defines wealth as the total value of a person’s assets, such as real estate, stocks and bank accounts, minus liabilities, such as mortgages.”

OK, I have to say that it scares the crap out of me that these participants, who are now 41 to 49 years old, have a median of only $10,900 in net worth. Oh, and the single and divorced people have 93% less! This doesn’t bode well for the future of our country – not when, as I mentioned before, the average car is over $28,000! After more than half a lifetime, a large majority of the people in America won’t even be able to pay cash for the average new car. They won’t even be able to buy half a car.

Something is seriously wrong with our spending habits. The 2002 Census says that the median household income is $42,614. Lets assume a household is 2 married people. So the 41 year old married person from the study had $639,210 come through their household in the 15 years of the study. Adjust down for inflation, etc and lets say (generously) that they had only $525,000 come through their household. Over half a million dollars, and all they have to show for it is $10,900.

This person’s individual savings rate is only 2.07%! In fact, its worse than that – the national savings rate is really only about 1.6%. This is horrible! In 1985, when this study began, the average savings rate was right under 11%. That’s a 687% drop! If we had continued with those numbers, the married person in question would have $57,750 in wealth, rather than just $10,900. A significant difference to be sure.

Anyway, I digress…

Its clear from this study that getting married, and staying married is a good financial decision. Hmm, go figure – traditional family values having a positive effect on both the individual and on society. Amazing how that works.