What's Mine Is Mine and What's Yours Is Ours: Challenging the Income Pooling Assumption
ABSTRACT - Social policy makers, economic analysts, marketing and business strategists have regarded income which accrues to an individual family or household member as family income. However, there is a growing body of evidence calling this presumption into question. In this paper, the authors challenge the validity of the pooling assumption, then draw and discuss the major implications following from this challenge for social policy makers and marketing strategists. The challenge is based on a review of the literature in the fields of anthropology, social policy and consumer behaviour, as well as on research conducted by the authors.
Judith J. Marshall and Frances Woolley (1993) ,"What's Mine Is Mine and What's Yours Is Ours: Challenging the Income Pooling Assumption", in NA - Advances in Consumer Research Volume 20, eds. Leigh McAlister and Michael L. Rothschild, Provo, UT : Association for Consumer Research, Pages: 541-545.
[The authors would like to acknowledge and thank the Winnipeg Area Study, Department of Sociology, University of Manitoba, Winnipeg, Manitoba, R3T 2N2 for supplying empirical data used in this paper, and the support of a Carleton University reserach grant.] Social policy makers, economic analysts, marketing and business strategists have regarded income which accrues to an individual family or household member as family income. However, there is a growing body of evidence calling this presumption into question. In this paper, the authors challenge the validity of the pooling assumption, then draw and discuss the major implications following from this challenge for social policy makers and marketing strategists. The challenge is based on a review of the literature in the fields of anthropology, social policy and consumer behaviour, as well as on research conducted by the authors. INTRODUCTION "...and all my worldly goods with thee I share..." -
[The authors would like to acknowledge and thank the Winnipeg Area Study, Department of Sociology, University of Manitoba, Winnipeg, Manitoba, R3T 2N2 for supplying empirical data used in this paper, and the support of a Carleton University reserach grant.]
Social policy makers, economic analysts, marketing and business strategists have regarded income which accrues to an individual family or household member as family income. However, there is a growing body of evidence calling this presumption into question. In this paper, the authors challenge the validity of the pooling assumption, then draw and discuss the major implications following from this challenge for social policy makers and marketing strategists. The challenge is based on a review of the literature in the fields of anthropology, social policy and consumer behaviour, as well as on research conducted by the authors.
"...and all my worldly goods with thee I share..."
-Husband's traditional vow in Anglican Church of Canada wedding ceremony, Book of Common Prayer, 1959.
Social policy makers, economic analysts, marketing and business strategists have regarded income which accrues to an individual family or household member as family income ( i.e.,Eichler 1988; MacIntyre 1990). For example, in the U.S. tax, liabilities are based on family income. When calculating eligibility for social assistance in Canada, the husband's and wife's incomes are added together to find family income. Similarly, total family or household income is widely used as a market segmentation or market descriptor variable. The ubiquitous use of total family income in social policy, economic and business analysis is based on the presumption that all household income enters a common pool to which both husband and wife have equal and unfettered access.
However, there is a growing body of evidence that the pooling of income in families may not be as pervasive as generally believed (Edwards 1981; Morris 1984; Pahl 1989). Moreover, there is reason to believe that the financial roles of wives and husbands in the family have been changing, because of women's increased money income, shifting family values, economic stresses such as increased unemployment, and because of changes in money management technology associated with the increased use of automated teller machines, debit and credit cards, automatic pay cheque bank deposits and deductions and so on (Asser and Bobinski 1991; Granbois,Rosen, and Acito 1986; Jamison 1991; Kim and Lee 1989; Marshall and Heslop 1988; Pahl 1983; 1989; Rosen and Granbois 1983; Schaninger, Buss and Grover 1982).
The purpose of this paper is twofold. First, the authors challenge the validity of the pooling assumption, then draw and discuss the major implications following from this challenge for social policy makers, marketing strategists and consumer researchers in 3 areas: (1) taxation policy, (2) the measurement of poverty and affluence and (3) definitions of household. The challenge is based on a review of the literature in the fields of anthropology, social policy and consumer behaviour, as well as on research conducted by the authors. The second purpose of the paper is to argue the need for a program of future research to investigate the actual financial arrangements used by different families and links (if any) between financial arrangements adopted in the family and predictor variables (such as sex-role attitudes, sources of income) as well as outcome variables (such as spending patterns, consumer decision making patterns, quality of life).
CHALLENGING THE POOLING ASSUMPTION
Family financial arrangements including the study of household budgets, flows of resources, marital roles in family financial behaviour and decisions about how to allocate and consume financial resources are usually relegated to a "black box" by consumer researchers. There are, however, a number of notable exceptions, such as Asser and Bobinski 1991; Ferber and Lee 1974; Granbois, Rosen and Acito 1986; Rosen and Granbois 1983; Schaninger, Buss and Grover 1982. Moreover, outside the consumer behaviour research stream, the subject of family financial allocation practices has begun to attract a little attention (Pahl 1989; Wilk 1989). Existing literature will be reviewed briefly below in an attempt to assess the validity of the pooling assumption.
A number of different models describing household resource allocation in a variety of cultures and subcultures have been outlined in the anthropological literature - see, for example, Guyer 1986; McMillan 1986; Wilk 1989). The work of anthropologists demonstrates the variety of financial allocation systems that have been adopted by families in different cultures. In an overview of anthropological work on household resource management flows, Wilk (1989:38) concludes:
"It may appear that we are dealing here with two basic types of households; one ... which has no household pool or fund, and one like the Euro-American single-account household. But most of the world's households actually lie in between, with some communal or conjugal funds, and other funds that are individually managed."
Social Policy Research
The study of family financial allocation systems has also been tackled by social policy researchers working primarily in Britain. One of the leading writers and researchers studying family financial allocation systems, Jan Pahl (1983; 1989) argues that in societies in which money is a source of power, it is likely that the balance of power between husband and wife will be reflected in their control over economic resources. She focuses work on couples living together in married or marriage-like states.
A major contribution of Pahl's (1983) work has been the development of a typology consisting of four different types of family financial management systems: (1) whole wage system, (2) allowance system, (3) shared management system, (4) independent management system. Each of these systems is summarized below:
Whole Wage System. In households using this system, one partner, usually the wife, is responsible for managing all finances of the household and is also responsible for all expenditures except for the personal spending money of the other partner. In this system, both partners have access to the money coming into the household, but the wife is responsible for management.
Allowance System. In households using this system, the husband gives the wife a set amount of money every week or month to which she adds her own earnings if there are any. The woman is responsible for paying for specific items while the remainder of the money stays under the control of the husband and he pays for other items. The husband has access to the main source of income, the wife has access to only that part of it which he chooses to give her. There can be many variations in this system because of varying patterns of responsibility for different items. For example, if the wife's domain of financial responsibility is large, she has access to a larger portion of the income coming into the household.
Pooling/Shared Management. The key characteristic of this system of financial allocation is the philosophy (held by both partners) that "its not my money, its not his/her money, its our money". Families using this system utilize a joint account or common kitty into which all income is paid and from which both can draw. Both husband and wife have access to all income and responsibility for expenses is shared more or less equally.
Independent Management System. This system may be used when both partners have an income and neither has access to all household funds. Each maintains separate control over his/her own income and each partner is responsible for specific items of expenditure.
Of direct relevance to the thesis of this paper are the studies that have researched empirically the frequency of use of these or similar systems. These studies have been summarized in Table 1. A review of Table 1 shows:
(1) Strong evidence for challenging the pooling assumption. Pooling/Shared Management was used by just over one-half of the families in Pahl's (1989) study but was used much less by families (from 2%-29%) in all other studies. In the majority of the research, use of pooling was found in fewer than half the families. A careful reading of this research leaves many unanswered questions about the pooling system. The ideology behind this system is clearly one of equal access to a couple's resources and sharing of management tasks. However, the extent of sharing can vary enormously. Who checks account statements, pays major bills and so on? Does spending have to be justified to the other partner? Pahl (1989) reported that pooling couples have a greater degree of jointness than couples using other systems - more joint bank accounts and so on. In spite of this jointness, she also found that wives tended to be more accountable to husbands for spending than did husbands to wives.
(2) There have been a number of studies utilizing the Pahl (1983) typology of financial allocation systems which facilitates comparisons. However, the studies have been small scale and concentrated in the U.K. (three), with one in each of Australia, India and Scotland. Given the small scale of the studies and methodological differences in financial system measurement, it is not surprising that there is a wide variation in the reported frequencies of each management system.
(3) Little is known about North American families (either Canadian or American). Given the differences in culture, the emergence of different family forms and the demise of the traditional family - this is a significant gap.
Much consumer research has been devoted to studying families in the context of North American culture. Research on husband/wife roles in family economic behaviour has tended to focus on who does what tasks in the family rather than tracing the financial allocation systems used. In their seminal study of 230 newlywed couples in the United States during their first year of marriage and one year later, Ferber and Lee (1974) identified the family financial officer (FFO) as the individual (could be couple) who carried the main responsibility for family finances. Ferber and Lee (1974) reported that most often the couple did this, but that the incidence of joint action decreased over time (49% in Wave 1 and 37% in Wave 2). The husband was the FFO in a little over one-quarter of couples (26%-Wave 1 and 27%-Wave 2) and the wife's role appeared to increase over time (Wave 1-25%, Wave 2-37%). This work does not provide information to allow the reader to determine the extent of pooling of income earned by partners or the extent to which each partner has access to the income earned by the other partner.
Similarly, Rosen and Granbois (1983) conducted highly structured joint husband-wife interviews with 82 couples covering:
(1) implementation - who handled bookkeeping, balanced checkbooks, reconciled checkbooks, corrected checkbook errors, reconciled savings statements and paid bills, and
(2) decision-making activities including who decided on method of saving, amounts to be contributed to savings, number and ownership of checking accounts, items and amounts for monthly budget, what to do with leftover money, the system of budgeting and/or spending from income, the method of financing purchases, the priority for paying bills, and amounts to pay on three different kinds of credit card bills. Jamison (1991) compared two LIMRA studies examining the roles of husbands and wives in family financial behaviour. He found that in 1965, men played less of a role in running family finances than many suspected. Duties such as keeping a budget, tracking expenses and signing checks tended to be either shared or done by wives. By 1990, husbands reported that the husband played a larger role - the husband is more apt to keep the budget and keep track of bills. Wives reported roles similar to those in 1965.
A CANADIAN STUDY OF FAMILY FINANCIAL ALLOCATION
Additional empirical evidence regarding the extent of pooling/shared management was gathered by analyzing data gathered from a large study (conducted in a major mid-western Canadian city) designed to describe financial decision making and gift giving patterns in Canadian households. Key features of this research are described below.
Data used in this study were collected as part of the 1988 Winnipeg Area Study. A systematic random sample of 753 addresses was selected for personal interviewing from a computerized list of addresses. The household was the primary sampling unit. After pretesting in 65 households, the questionnaire was finalized and interviewing was conducted by trained, experienced interviewers. All potential respondents were mailed a letter explaining the survey and asking their cooperation in advance of the first interviewer contact. The mean length of the interview was 48 minutes. Interviews were completed in 528 residences for a completion rate of 72.1% of eligible households, or 70.1 percent of the original sample. Analysis (see Currie (1988) for a detailed analysis of these issues) reveals that the neighbourhood distribution, household size and home ownership, as well as sex and age of the respondents are consistent with the 1986 census data on the Winnipeg population.
FREQUENCY OF USE OF FAMILY FINANCIAL ALLOCATION SYSTEMS
A total of 314 husband/wife households (married or common-law) were included in the sample. In 154 of these households, the male was the household respondent, while females were interviewed in the other 150 households. The average age of household respondents was 41 years and median family income was $40,000-$44,999.
The sample consisted of (1) 37.8% dual income families where both the husband and wife worked full-time, (2) 14.3% of families where the husband worked full-time and the wife part-time, (3) 19.7% of families where the husband worked full-time and the wife did not work, (4) 9.2% of families where the wife worked full-time and the husband did not, (5) 19.0% of families where neither worked full-time (this category consisted of a combination of students, retirees and so on).
Respondents were asked whether the income in their family goes into a common fund where each member can draw on it or whether it is handled by the male, female or divided between the partners. Table 2 shows that over half of the households reported that the main income does not go into a common fund accessed by both the husband and wife. In about 41% of families the income does go into a common fund where each member draws on it. In about 1/4 of families, the male handles the main income and the female handles it in another quarter. Relatively few respondents (4.4%) reported that income was divided among the family members.
There is a significant difference between the way male and female respondents report the way the main income is handled in their families (c2=10.0, p<.05). Women are more likely to report that income is put into a common fund (46.3% of female respondents and 36.2% of male respondents report that the main income goes into a common fund) or that they handle it (26.8% of female respondents report that they handle it themselves while 21.3% of male respondents said that their female partners handled it). Men are more likely to report that they handle the money (32.2% of male respondents say they handle it, 21.1% of female respondents say that their male spouse handles it).
HOW MAIN INCOME IS HANDLED
Overall, study participants did not believe that the person whose money pays the bills should have the most say in subsequent decision making. However, female respondents were significantly more likely to disagree with this view of family power (c2=12.3, p<.01). 84.4% of females disagreed, 1.3% were neutral, and 14.4% agreed with this view of power, while 74.6% of the male respondents disagreed, 6.5% were neutral, and 18.8% agreed.
CONCLUSIONS AND IMPLICATIONS FOR SOCIAL POLICY MAKERS AND CONSUMER BEHAVIOUR
This brief analysis of control and management of family financial resources all but shatters the pooling assumption which has characterized thinking about family financial arrangements in North American families. The research shows that equal and unfettered access to all household income appears to be a minority approach to family financial arrangements. A number of implications resulting from these conclusions are outlined below.
First, implications for taxation policy follow a rejection or modification of the pooling assumption. American couples are taxed on the basis of their combined incomes, while the Canadian tax system is for the most part based on individual earnings. Advocates of joint taxation often defend their position by arguing that couples pool their income. For example, MacIntyre (1990) advocates making married couples tax units because "an overwhelming majority of husbands and wives claim they receive approximately equal consumption benefits from their aggregate marital income" (p. 155).
Our research indicates that the structure of family finances is complex. While 91 percent of respondents to the Winnipeg study consider their earnings to belong to the family, one third of females and 44 percent of males have separate bank accounts. Only 41 percent report that the main income goes into a common fund where each member draws on it. Much household income is shared. But not all household income is. And makers of taxation policy must be aware of the separation as well as the sharing within households.
Measurement of Poverty and Affluence
Second, rejecting or at least questioning the common pooling/equal sharing assumption points to the need for questioning what is the appropriate income to be used by social policy makers in determining eligibility for social security programmes. What is the appropriate income unit for marketing strategists and consumer researchers to utilize in the measurement and analyses of purchasing power - household income or individual income? The fundamental issue is how should poverty and affluence be measured? Most consumer researchers, social policy makers and business strategists take it for granted that all members of any one family household have the same standard of living (level of poverty or affluence) and that they all receive equal or equitable shares of money coming into the family. If two individuals sharing a household are of the same sex or of different generations, the assumption of pooling and sharing is less likely. Given the emergence of large numbers of different family forms, it is becoming increasingly essential to investigate financial arrangements in alternate household forms. The evidence reviewed in this paper suggests that for the purpose of analyzing purchasing behaviour, the family is not a homogeneous unit; rather it is a collection of individuals whose social relationships affect substantially their claim on family resources. This leads to the inescapable conclusion that hardship or affluence may be concealed by the assumption that the household is an economic unit within which resources are shared equitably.
Definition of Household
The third implication resulting from this review of family financial management and control relates to both our definition and analysis of household formation and dissolution. The term household in North America typically refers to people who live at the same address, having meals prepared together and with common housekeeping. However, as most consumer behaviour theorists recognize, there are many different dimensions to the formation of households. Individuals in the same household may share accommodation, eat meals together, pool money for housekeeping expenses, enter a sexual relationship, spend leisure time together, help other household members with domestic work and so on or they may not. When the idea of a household is used it is often assumed that either a person is in a household or out. Yet data from the Winnipeg study shows that, at least with respect to income sharing, household boundaries can be hard to draw. Some households pool all their income, others do not. Moreover, individuals in households share their income with others outside the household: 12.5 percent of our total sample supported at least one person who did not live with them, most commonly a son, daughter, or ex-partner, and 10.5 percent received financial support, most often from their mother or ex-partner.
We do not know the social processes involved in forming or dissolving a household - is there a typical sequence of events in which people form a household along one dimension of their life before amalgamating along another dimension? Do the income transfers between separated individuals facilitate other links, such as joint custody of children? Given the number of different household forms in North American society, can we characterize households differently depending on the aspects of life which are amalgamated? We need to improve our understanding of relationships between patterns of allocation of money and other elements which combine together in our definition of household.
THE NEED FOR FUTURE RESEARCH
In conclusion, research on financial allocation arrangements in a variety of household types needs to be done. Our understanding of consumers' financial behaviour is lagging far behind our knowledge of most other aspects of consumer behaviour. Evidence reveals that families have organized their money in a variety of ways. The research question that needs attention is: What are the patterns of control and financial management systems used by households in late twentieth century North America? The first task of consumer researchers is to describe patterns of control and financial management in different household forms. The second task is to identify and test relationships among predictors and outcomes and patterns of control and management of family finances. The extant literature does provide some tentative ideas about patterns we might observe in varying household types. For example, the literature suggests that independent control and management of incomes is more likely to occur in dual career families. As well, since research suggests that time brings better understanding by one partner of another's preferences, we hypothesize that the use of joint or shared management systems is likely to be lower in families further on in the family life cycle. Focusing on outcome variables, we expect there to be a relationship between family financial management and quality of life. The existing literature (Pahl 1989) suggests that joint control of family finances and joint or independent management are positively related to marital satisfaction, financial well-being and satisfaction with financial management. Lastly, we hypothesize that the degree of control exercised over the process of resource allocation and the financial management system will be reflected in husband/wife product decision making patterns. For example, joint control of finances is likely to be associated with joint patterns of husband/wife consumer decision making.
A mix of quantitative and qualitative approaches is necessary to advance knowledge in the field. An ideal study would incorporate a fairly quantitative survey in conjunction with detailed depth interviews of a smaller subsample. There are a number of other issues which must be tackled - it is necessary to study financial practices in different household forms - ones where there are grown children or perhaps an aging parent in the household, ones composed of same sex individuals in roommate situations as well as more permanent ones, blended families and so on. The role of children (both adult and dependent) in family financial management and the fate of the money they bring to the household has also been under-researched.
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Judith J. Marshall, Carleton University
Frances Woolley, Carleton University
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