I am trying to find information to resolve an issue in our household. Basically, I had this idea about a fair sharing of expenses in a household, more specifically a couple with kids. It is known that one traditional way of managing a family's income is putting it together in a pot and making decisions together. However, it seems odd to me that someone earning 30K should have a 50% vote on what to do with the money, especially if the earning for the family are in the 400K range. So I thought that each one of us could have a private amount of money, aside from this main shared family one. Then each one of us could participate in the shared expenses according to their level of income in the family. So if I earn 93K a year and my wife 7K a year I think that she should contribute to 7% of all the agreed family spending and me 93%. The remaining part is her discretionary saved amount.
There seems to be two questions here.
- For a couple with kids and highly unequal incomes, what is the best way to make expenditure decisions? (Do both individuals get equal votes? Would that be unfair to the higher-earning individual?)
- For the same couple, what is the best way to share expenses?
For the second question, you suggested a possible solution, that of sharing expenses by percentage of gross income. While this is plausible, it comes with certain pitfalls. The person earning more may have higher debts and other responsibilities and may end up resenting the higher share of expenses.
A way around this would be to share major expenses (e.g., rent) by percentage of gross income, while utilities, food and such other expenses are shared equally. This allows the lower-earning member some savings for discretionary expenses while still contributing a fair share of the family expenses. In this case, the more comparable the expenditure patterns of the couple, the more equal the distribution can be. If the higher-earning individual has significantly more expensive tastes, then his/her share should be higher, and the expenditure share would be more along the lines of percentage of gross income (equitable).
This case brings us to the first question, which is how to make expenditure decisions. Now, even if expenses are shared by percentage of gross income, higher overall expenses would reduce the amount available for discretionary spending for the lower-income member. The spending decisions, therefore, need to be agreed upon by both parties, whatever the distribution of expense sharing.
Pooling incomes of both individuals and using that to cover all expenses, where expenditure decisions are also made as a family would, of course, make things considerably simpler for the couple. However, that would mean debt sharing as well, which might lead to complications if the relationship runs into troubled waters. One possible way to circumvent this issue is to divide the income net of essential family expenditure (rent, utilities, child’s education etc.) by percentage of gross income, to be spent by each individual for personal expenses. Using the given example, if the essential family expenditure per annum is 50K, Yanick gets 93% of the remaining 50K, while his wife gets the rest, which they can each spend on personal expenses.
There is no perfect formula for distribution of expenses under unequal income, it depends on tastes and preferences of the individuals.