Talk Is Vital in Planning Family Finances

Ruth King’s story is a cautionary tale about what can happen when a spouse gambles with the family nest egg.

No one keeps track of how many investors have turned into speculators, making increasingly risky bets on technology stocks, futures, options and other volatile investments. Anecdotal evidence suggests more people are borrowing money to invest and are taking chances on highflying stocks.

But when gamblers use family money and keep their spouses in the dark about the chances they’re taking, aggressive behavior can have disastrous results.

The trouble began when King’s employer transferred her to California three years ago. King’s husband, who had been laid off from his previous job, had trouble finding a new position here. Since he had time on his hands, he took over managing the family’s finances, including submitting King’s expense reports for her extensive job-related travel. He also spent a lot of time on his computer, King remembers.

“I thought he was looking for a job. I had no idea he was day trading,” King said.

The first warning sign came three months after the move, when one of King’s supervisors casually asked her about a spike in her expense claims. When King reviewed the reports, she discovered her husband had double-billed the company for airline tickets, hotels and meals to the tune of nearly $25,000.

Her husband said the double billings were a mistake. King didn’t quite believe him, but there was no evidence--yet--that anything else was amiss. Her husband didn’t drink or use drugs, and it seemed unlikely he had anyone on the side--”He never left the house,” King said.

What’s more, King had always believed her husband was an aboveboard kind of guy, and he had a reputation among their friends for straight dealing and integrity.

“He wasn’t the kind of person who did bad things. He was scrupulous and honest,” she said.

What King didn’t know was that her husband was also borrowing against the couple’s credit cards to gamble on stocks and was hiding the statements from her. He cashed in both their life insurance policies, forging her signature to get the money, she said. In six months of day trading, he wiped out nearly all the family’s assets, except for King’s retirement account, which he couldn’t touch, and plunged them more than $50,000 into debt.

“He made some risky choices, and he just couldn’t recover,” King said.

Her husband committed suicide in June 1997. That’s when King discovered the debts, the missing life insurance and the day-trading accounts he had hidden.

Although King’s situation is extreme, her family’s lack of communication about finances was not. A recent study commissioned by OppenheimerFunds found that many couples fail to talk about key financial goals and strategies, such as how much money they may need in retirement (45% have never discussed it) or even at what age they should retire (44% hadn’t talked about it).

“Financial acumen has progressed, but the level of communication has not,” said Rob Denson, Oppenheimer’s director of corporate affairs. “Next to sex, perhaps ahead of sex, this is the area that gets the least discussion in relationships.”

Financial planner Victoria Collins, who has a doctorate in psychology, said the excitement of trading and the “You can do it!” atmosphere created by online brokerage advertisements and the financial media can easily lead investors astray.

“People who may not gamble on slot machines or go to Las Vegas can in fact become addicted to playing the stock market,” said Collins, a principal with Keller Group in Irvine.

The risks mount when gamblers keep their strategies, and their losses, a secret from their spouses.

“That gives more impetus to take higher risks to make up for what you’ve lost. That’s how people get into such a hole,” Collins said.

Collins believes that men may be more susceptible both to stock market gambling and to hiding their losses, for fear of losing face. But women can be vulnerable, too, she said.

“I see women getting involved in investment clubs who suddenly think they know everything,” Collins said. “Not to disparage investment clubs--they’re wonderful--but nobody knows everything in today’s world.”

The key to avoiding such problems may be keeping both spouses involved in every aspect of the family’s finances.

Collins recommends regular family summits to discuss financial matters, including goals and strategies. Both spouses’ risk tolerance should be considered when family money is involved.

“Make sure you maintain open and honest communication,” Collins said.

Investors who want to experiment with riskier strategies--options, futures, buying on margin or frequent trading--should agree to limit their forays, using perhaps 10% of a retirement account.

A determined gambler will still find ways to feed his or her addiction, of course, even with counseling.

“It may be that person may not be able to have access to any money, that a money manager or bookkeeper will have to be hired” to monitor accounts and give the gambler an allowance, Collins said.

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Times researcher Nona Yates contributed to this report.

Liz Pulliam Weston is a personal finance writer for The Times and a graduate of the personal financial planning certificate program at UC Irvine. Questions can be sent to her at liz.pulliam@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053. She regrets that she cannot respond personally to queries. For past Money Talk questions and answers, visit The Times’ Web site at https://www.latimes.com/moneytalk.

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Risky Business

Among recent indicators of investor willingness to take risk:

n The New York Stock Exchange reported that margin debt--money borrowed to buy stocks and other investments--rose 5% in March to $278.5 billion, a 78% increase from a year earlier.

n The volume of futures and option trading--bets on future movements of prices--has soared. Contracts on the Chicago Board Options Exchange doubled in the last year; trading in equity index futures and options is up 40%.

n A 1998 UC Davis study found that men tend to take more risk by trading more often than women; higher trading costs led to lower returns.

Sources: Federal Reserve, Chicago Board Options Exchange, Chicago Mercantile Exchange, Times research.