I’m a 30-year-old man, and I’m getting ready to move in with my boyfriend. Right now we both have separate bank accounts, and we’re trying to figure out the best way to share expenses.
His income is a lot higher than mine (almost twice as much). The fairest thing to do would probably be to split rent, groceries, and other household items 50/50. But that would have a much bigger impact on my day-to-day life than his. From an economist’s perspective, what should we do?
According to economics, the goal here should be to maximize your household utility—the sum of the happiness that you both experience.
In general, this means optimizing “on the margin.” This means for all of the items your household consumes, you want the last dollar you spend on each of them to deliver the same amount of happiness. Otherwise, your household should change the way you spend money.
Consider an example: For dinner, the two of you mostly order from either a Mexican restaurant or a Chinese restaurant. The last time you ordered from the Mexican place, the food was fine, but nothing special. But the last meal from the Chinese place was absolutely delicious. This means you are not optimizing on the margin—the marginal burrito is a lot worse than the marginal mapo tofu. You’d be better off ordering from the Chinese restaurant more often, and scaling back on the Mexican one.
Now apply this logic to the issue of household expenses. If you and your partner split your primary expenses 50/50, it’s going to create a situation where your marginal consumption is providing way more happiness than his. If you have an extra $5, it would mean getting a fancy espresso that you really enjoy, rather than making do with the crappy office coffee. If he gets another $5, maybe he just buys a slightly nicer cocktail before dinner. Clearly, your total family happiness would be happier if he gave you the $5, which suggest a 50/50 split is wrong.
One option is to simply pool your resources and act as a unit. If you do this, you would no longer have “his dollars” and “your dollars,” and you’d also no longer have “his expenses” and “your expenses.” In this scenario, your family would jointly agree on what to spend money on, theoretically in such a way that the marginal dollar is equally valuable to each of you. However, you may not want to pool all your money for various reasons.
If that’s the case, one option is to split expenses so that you each wind up with a similar amount of disposable income. This means he’ll pay more than his share of the rent, groceries, and the like, since his income his higher.
An example: say he makes $100,000 a year, you make $50,000 a year, and your rent and join expenses total $60,000 annually. If you combine your salaries and subtract the expenses, this leaves you as a couple with $90,000 of total disposable income—of which half would go to you and half to him. This would mean you pay only $5,000 (8%) of the joint expenses, and he pays $55,000 (92%).
Of course, he may feel that because he makes more money, he should get to spend more. A common solution, then, is to split the expenses in proportion to your incomes. In the example above, you’d pay $20,000 of the joint expenses and he would pay $40,000. Each of you spend about 40% of your incomes on rent and food and utilities, leaving you with $30,000 of disposable income, and him with $60,000.
From an economic standpoint, this is less efficient—he still likely values the marginal dollar less than you do, and your joint happiness would be happier if he gave you more. From a psychological standpoint, however, it may seem more fair, and it is certainly an improvement over a 50/50 split.
A final note: this all starts to fall apart if your incomes are too different. If you make $50,000 and he makes $2 million, then your proportional share of the joint expenses is likely to exceed your salary—at least if you want to live based on his earning power. In this case, pooling your money may well be the best option.
Emily Oster is an associate professor of economics at Brown University and the author of “Expecting Better: Why the Conventional Pregnancy Wisdom Is Wrong — and What You Really Need to Know.
Got an everyday problem that could use an economist’s point of view? Send Emily your questions at email@example.com.