Cohabitation and Financial Well-Being

  • October 9, 2019
  • The Topic: Cohabitation and Financial Well-Being
  • The News Story: How Cohabitation Became the Hottest Life-Strategy in Town
  • The New Research: Long-Term Financial Damage

The media remains fascinated with the practice of cohabitation, and with it the dream that marriage is “becoming outdated” or “evolving.” The latest evidence of this fascination is a Psychology Today post arguing that “Cohabitation is up sharply. It may be a sign that many are re-thinking marriage.” Says the story, “A new U.S. Census Bureau report shows that the number of unmarried partners living together has almost tripled in the past two decades, from 6 million to 17 million.”

The profile of these cohabiters has also changed: They tend to be older, more educated, and make more money than they once did. According to the story, “The proportion making less than $30,000 annually (in 2017 dollars) dipped from 64 percent in 1996 to 53 percent in 2017. In addition, among the college-educated, two-earner couples were more prevalent among cohabitators (78 percent) than married adults (67 percent).” In short, “among college-educated adults, the median-adjusted household income of cohabitators exceeded that of married adults.”

But try as they might, the media cannot talk away the profound differences between marriage and cohabitation. And when it comes to finances, cohabitation brings with it short-term gains, but long-term losses. 

(Source: Elyakim Kislev, Psychology Today, “How Cohabitation Became the Hottest Life-Strategy in Town,” October 5, 2019.)

The New Research: Long-Term Financial Damage

Despite mounting evidence concerning the ill effects of cohabitation, more and more young people are turning to this living arrangement as a precursor to—or substitute for—traditional marriage. But a new study out of the field of financial planning reveals yet another danger to the practice of cohabitation—significantly lessened financial wealth.

Highlighting that “[c]ohabitation—or living with a significant other outside of marriage—is the most common way young adults form their first residential relationship in America today,” researchers from Kansas State University and Iowa State University seek to understand how this practice affects couples’ long-term financial well-being. Whereas marriage used to be considered one of the marks of entry into adulthood, things like career and higher education are today considered to be more important. “What is more,” the researchers continue, “many young adults today have taken on debt, which may be a reason for the increased cohabitation rates and delays in marriage.”

The researchers acknowledge that it is “well-known” that married couples “accumulate the greatest wealth over time measured by both financial assets and housing.” But with the increasing prevalence of cohabitation—now about two-thirds of couples who marry have lived together first—“[u]nderstanding how young people are accumulating assets is important for long-term financial security and stability.” To conduct their study, the researchers use data from the National Longitudinal Survey of Youth, 1997 cohort, to study the “financial implications of cohabitation” amongst those young people born in the period of 1980 to 1984. Specifically, the net worth and both financial and nonfinancial asset accumulation of this sample once they reached 30 years of age were weighed against the experiences of cohabitation, marriage, and singleness.

The results should give pause to any couples considering cohabitation. As the researchers expected, “those with the highest net worth were the married respondents.” What may be surprising to some, however, is the extent to which cohabitation dampens material prospects even once the cohabiters then marry. In this sample, those who had married without any prior cohabitation had an average of $16,340 more in wealth than one-time cohabiters, and $18,265 more than those who had cohabited more than once. “Serial cohabiters” who remained unmarried had a whopping $33,809 less, on average, than those who were married without prior cohabitation. Single respondents had the least net worth of all—those who had never cohabited had $39,945 less than their peers who were married without prior cohabitation.

The research also shows that married respondents who had never cohabited had greater financial assets—investments, savings, etc.—than both those who had cohabited and single respondents. “Specifically, among married respondents, when compared to married, never-cohabited respondents, those who had cohabited one time had $4,783 less in financial assets, while respondents who were serial cohabiters had $6,930 less in financial assets.” First-time cohabiters (who were still cohabiting at the time of the survey and had not transitioned to marriage) held $9,645 less in financial assets as compared to their married, never-cohabited counterparts, and serial cohabiters had $8,763 less in financial assets. Single respondents again fared the worst, with $13,852 less in financial assets than their married, never-cohabited peers.

In terms of non-financial assets—houses, cars, and other possessions—the differences were much less glaring. Among married respondents, there was no difference in non-financial asset value, no matter how many times they had cohabited prior to transitioning to marriage. First-time cohabiters had $6,859 less in non-financial assets when compared to marrieds, and serial cohabiters “reported statistically no less in non-financial assets as compared to married respondents.” Single respondents were the most disadvantaged in this category as well.

The researchers summarize their findings: “Individuals who had ever cohabited, regardless of current relationship status, had significantly lower net worth and financial assets than those who had married directly without cohabiting.” The cohabiters also tended to prefer the accumulation of non-financial assets—including consumer goods—than financial assets like savings and investments. The implications of these findings, the researchers remark, are important particularly for financial planners. Such planners need to be aware of the likelihood of their young clients having cohabited at least once, and be prepared also to counsel such clients on the importance of accumulating financial assets versus things like houses or cars. So serious are their findings that the researchers close with the warning: “A client who has cohabited just once in their life, or who maybe are cohabiting for their first time, may not have significant financial consequences, but clients who are frequently cohabiting with significant others may be a sign that a discussion is warranted around the negative impact of such decisions on their financial assets and overall net worth.”

It seems that as in so many other areas, the instability of cohabitation bodes ill for the long-term well being of couples.

(Source: Bryce J. Christensen and Nicole M. King, “New Research,” The Natural Family 32.1-2 [2018]. Study: Sonya Britt-Lutter, Cassandra Dorius, and Derek Lawson, “The Financial Implications of Cohabitation Among Young Adults,” Journal of Financial Planning 31.4 [April 2018]: 38-45.)