Charles Schwab may not yet be advising clients to marry and to stay married, but committing themselves to wedlock may actually be the shrewdest financial move a couple of young investors can make. Convincing proof of the importance of marriage in determining "wealth outcomes" appears in a study recently published in The Journal of Marriage and Family by a team of sociologists from Purdue University. Parsing nationally representative retirement data from 1992, the Purdue scholars demonstrate beyond doubt that "being married has a large effect on household wealth."
The overall pattern allows for easy summary: "individuals who are not continuously married have significantly lower wealth than those who remain married throughout the life course." More specific calculations add detail, revealing that currently unmarried adults experience "a 63% reduction in total wealth relative to those who are married." Parceling out the unmarried by type, the researchers have determined that "being separated, never married, divorced, cohabiting, or widowed results in a 77%, 75%, 73%, 58%, and 45% reduction in wealth respectively." Though widows do somewhat better than other unmarried adults, "all of these [unmarried] groups have significantly lower wealth than the currently married."
Remarriage appears to mitigate but not to eliminate the harmful financial effects of a failed marriage. Compared to continuously married peers, those who "have divorced once or twice but are currently remarried . . .still experience a 24% and 52% reduction in wealth" respectively.
The financial effects of living outside of marriage do differ by gender: women who have never wed, for example, experience an 86% reduction in wealth compared to a 61% reduction for men who remain lifelong bachelors. Still, as the authors point out, "both reductions are substantial."
The Purdue scholars acknowledge that the linkage between continuous marriage and accumulation of wealth may, in part, reflect "a selection effect." That is, individuals who enjoy a higher economic status are more likely to marry and to stay married than peers who are not so favorably situated. But the researchers hasten to insist on the need "to consider the possibility that marriage causes some of the better outcomes we see for the married." They reason that marriage fosters the accumulation of wealth because "it provides institutionalized protection, which generates economies of scale, task specialization, and access to work-related fringe benefits, that leads to rewards like broader social networks and higher savings rates." In short, "participating in the social institution of marriage creates a lifestyle that can lead to cumulative advantage," while not participating or interrupting participation in this institution can "set the stage for negative outcomes later in life."
Because a great many Baby Boomers have failed in their marital unions, the authors of the new study fear that "an increasing number of people may be entering retirement with insufficient economic resources . . . [A] substantial proportion of the upcoming cohorts will have experienced a sequence of marital events that inhibits the accumulation of wealth in mid-life." The researchers thus warn that the high rates of divorce in recent decades are fraught with "serious implications for aging individuals, their families, and public policies for retirement saving incentives and income maintenance programs."
