Why Women Need Their Own Financial Identity
Why now is the best time to start building your own financial identity—even in happy marriages.
It’s hard to believe that only some 50-odd years ago, a woman’s financial identity was tied explicitly to someone else—her husband, her father or some other male in her life. In the modern age, women make up nearly half of the American workforce. In addition, the average age of marriage is now in the late 20s—and unfortunately, the divorce rate remains high.
In other words, women are in financial control of their destiny. Even if they’re married, most women are still financial earners and maintain their own financial identity. With that in mind, here are critical financial items that every woman should know regardless of their stage of life or marital status.
Whether you’ve graduated from college or entered the workforce out of high school, establishing your financial identity is one of the first things every woman should do once they’re on their own. Establishing a bank account, making payments towards any student loan debt, opening a credit card and maintaining regular payments will get your credit history going. It is important to be cautious when opening a credit card – it can be a great way to build credit and earn rewards points, but if used irresponsibly it can have serious consequences when spending gets outside of ones means.
Once you have planted some roots and gotten on record with FICO and other credit bureaus to build a good credit score, it can be the basis for you to get a car loan or mortgage. Smaller credit purchases, such as furniture, are also within reach once your credit record is established.
The longer you keep your credit score healthy by making payments and using your credit in smart, responsible ways, the better your credit score will be. As you transition from building your credit to maintaining a healthy score, be sure to regularly check your score through services such as Equifax, Experian, and TransUnion (a free report from each is available once every 12 months). Not only will checking your score show how your hard work is paying off, but will also alert you of any potential red flags or fraudulent activity.
At this time you’ll also be able to explore investing and saving your money, even if it’s only a small amount each month. You might consider designating a specific amount each paycheck to be directly deposited into a savings account. This tactic allows you to set savings goals and "pay yourself first," by setting aside money that you won’t even see in your checking account and won’t be tempted to spend.
In addition, explore different types of investments such as stocks, bonds or IRAs, as they offer a variety of tax benefits and interest accrual. If your employer offers stock purchasing plans and/or 401k, see how you can work this into your budget—particularly if your employer incentivizes 401k by offering a matching percentage.
While it is up to each individual couple how finances are shared and maintained when getting married, it is important to stay on the same page regarding finances—income, bills, mortgages investments, property, etc. Regardless of your state’s communal property laws, you should make sure that your name is on every joint property and joint account—and there’s certainly nothing wrong with you keeping your own account (or your spouse keeping their own).
In a perfect world, all of this is just a logistical precaution and a means for ensuring you maintain your credit score and financial identity. Not only does this strengthen communication and trust, it also accounts for any potential mistakes and makes budgeting for big-ticket items (vacations, homes, etc.) much easier. It also helps the couple prepare a safety net in case of an emergency. It’s much easier to handle a medical or financial emergency if you know where you stand going in.
This is particularly true in a worst-case scenario. If your spouse dies but has all accounts and property under their name, then there are many legal hurdles to get access. In addition to having your individual account and joint accounts, a transparent and accurate big picture of all accounts and where they stand takes care of many logistics in a worst-case scenario. It’s critical to be both proactive and preventative with your finances—and it benefits both partners if they maintain individual and joint financial identities.
Divorce as a Reality
While getting divorced is not an ideal outcome, it is a reality that women and men alike should think about with their finances. Here’s where having your own financial identity really benefits you. Detangling a couple’s legal commitments—from children to property—is difficult enough; having your own financial identity to fall back on spares you from one of the biggest hurdles out there. Being knowledgeable about the family finances, budgets, savings, expenses and more also means a cleaner separation, as both sides know exactly what’s at stake and can head straight to negotiation.
Regardless of where you are in life, if you haven’t started to establish your financial identity, now’s the best time to start. Even if you’re in a happy long-term marriage with children—perhaps especially if you have children —it’s a good idea to start in an open and transparent way for your entire family’s sake. An independent financial identity, along with a strong credit history and a working knowledge of finances, prepares you for whatever life throws at you.
Amanda Atcheson is Product Marketing Manager for CO-OP Financial Services (www.co-opfs.org), a Rancho Cucamonga, California-based financial technology and payments company serving credit unions.