May 27, 2016
Pattie Lovett-Reid: The economics of getting hitched
Chief Financial Commentator, CTV
ANALYSIS: It is nice to have confirmed what I truly believe – that weddings are fundamentally an economic transaction.
Emily Oster is an associate professor of economics at Brown University. When asked, “just how much should someone spend on a wedding gift?” She reinforced why weddings are a financial transaction. The goal of a wedding is for friends and family to provide the newlyweds with the basic necessities that they will need in their new home. When you, in turn, get married, these friends will do the same for you. What this means is that at each wedding you pay a little bit, and then when it is your turn, you get it all back at once. You can think of a wedding as a big “Christmas Club”; you pay into it little by little and it pays out all at once. This basically means that you should spend as much on them as you expect them to spend on you (or as much as they did spend on you).
Given this fact, according to Ebates.ca, the average amount spent on a gift is $146.00 for each wedding attended with 36 per cent of couples preferring cash as their gift. Wondering if you should stray away from the registry? Oster says no. Under the theory that weddings are a money transfer, the most efficient gift to give is cash. I am sure, by the way, that many young couples would appreciate cash, though they may fear it’s gauche to ask for it directly. If you do not give cash, the most efficient thing is to give the couple something they would have bought with the cash. This is why people register.
Given weddings can help establish the financial foundation for newlyweds, it is an important first step as couples make a decision together about large sums of cash. This is just the beginning.
According to robo-advisor Invisor, the start of a marriage is a great time to create a solid financial foundation. Here are tips on how to do just that:
1) Get to know each other’s spending and saving habits: Take a look at where you’re each starting from. Total assets (bank accounts, RRSPs, real estate) minus total liabilities (lines of credit, credit cards, student loans, mortgages)
2) Discuss goals together: Both individual goals and ‘couple goals’ are important. Consider factors such as pursuing education (will one person want to go back to school?), travel plans, having children, buying a home, and even retirement.
3) Discuss how you will set up accounts and make a plan for achievement: Do your best to stay out of debt throughout the wedding planning process; however, if you do incur debt, consider using your wedding money to repay that debt to avoid costly interest payments. If there is cash left over from wedding gifts, discuss how it will be used – whether it’s a down payment for a house, a honeymoon or a ‘rainy day fund’. Relate these potential uses to goals and find an advisor to help ensure your investments or savings are aligned with your goals.
4) Pay attention to costs: Looking at costs including homeownership, transportation, meals, etc. is especially important for young couples if they are to accumulate savings for things like a down payment on a house. Investment costs are no different. It is particularly important to pay attention to investment costs because high costs of investing can hinder the growth of a couple’s nest egg. Look for an investment advisor that can show you the costs you will incur to obtain their advice and shop around to be sure your investment costs are as low as possible.
As the Chief Financial Commentator for CTV News, Pattie Lovett-Reid gives viewers an informed opinion of the Canadian financial climate.
*Correction: An earlier version of this article mistakenly attributed the statistic stating the average amount spent on a wedding gift to Invisor. The correct attribution is Ebates.ca. BNN apologizes for the error.