Being Oblivious to Cash Flow Isn’t Funny
Amy Borkowsky knows exactly how she’s spent her life -- in the financial sense. While cleaning out files one day, the New York comedian ran across 12 years’ worth of her American Express bills and later compiled the discovery into a book called “Statements: True Tales of Life, Love and Credit Card Bills.”
Though meant as humor, not as a financial primer, Borkowsky’s observations speak volumes about the money traps that women can fall into.
“I used to feel bad for guys because our culture expects them to pay for dates,” said Borkowsky about one of her first financial revelations. “But after I looked at what I spent on clothes and makeup and having my hair done before going out, I realized that a guy didn’t just owe me dinner. He owed me a down payment on a condominium.”
Dressing to impress -- and all the spending that requires -- isn’t the only costly habit that is more common among women than men, experts maintain.
The good news is that the solutions are simple. It’s a matter of identifying the problem and taking steps to fix it.
Here are some common problems.
The Barbie syndrome: It’s often difficult to convince a woman that she needs to be financially literate, said Cheryl M. Burbano, a certified financial planner with American Express Financial Advisors in Tampa, Fla.
“We are judged by society not by our brains but by our appearance,” she said. “I have clients who have never even written a check -- and they’re not necessarily older people. They say, ‘My husband takes care of that. He makes all the financial decisions.’ ”
Whether it’s the fault of the culture or a perception that “math is hard,” women need to realize that learning about finance is lot easier than living in poverty, Burbano said. Like it or not, 80% to 90% of all women will have to fend for themselves economically, often because of death or divorce. Whether or not she writes the checks, every woman should know how much her family earns, owes, saves and invests.
Penny-wise: Esther M. Berger, a certified financial planner with Berger & Associates in Beverly Hills, says she sees it with her female clients and friends and admits that she even does it: She sees a sale and she buys something. And many of those marked-down “bargains” sit unused in her closet until she gives them away. Unnecessary items are no bargain -- no matter how much they’ve been discounted, she says.
Burbano sees other penny-wise-and-pound-foolish mistakes -- such as having low deductibles on car and homeowners insurance policies. Low deductibles boost the cost of premiums by 15% to 25%, she said, for the dubious benefit of reducing the risk of paying more in the unlikely event of an accident. Boost the deductible on an auto policy from $100 to $500, and put the premium savings in a bank account, she suggested.
“Pretty soon, guess what, you have the amount of the deductible set aside,” she said.
“You have insurance for catastrophic losses only -- not for things you can afford to replace yourself.”
Retaliatory spending: Have a bad day? Go out to dinner. Boss is a jerk? Buy something.
Is that good advice? Not at all. Spending to relieve stress causes debt, which increases stress, which can cause more spending to relieve stress, Berger said. Unfortunately, it’s a common practice among women, she said.
“We indulge ourselves, sometimes appropriately,” Berger added. “We buy, so we work harder to pay. We feel stressed out, so we feel like we need to be indulged, so we buy something else and then we have to work harder.
“We need to stop and take stock of what’s wrong with this picture.”
If the urge to splurge is too much to resist, Burbano suggests putting credit cards in a big container of water, in the freezer. That keeps them safe for emergencies and unavailable for impulse shopping.
Saving everyone else first: Women spend about 14% less time in the workforce than men do because they take time off to care for children and aging relatives, which means they’re less likely to have a significant pension, Burbano said. And yet they live an average of seven years longer than men.
That combination suggests women should save more and save early, because they have long retirements that will need to be primarily funded by their own savings. But they don’t.
A plethora of studies indicate that women save later and less than men do. Burbano and Berger agreed that that’s largely because women are quick to put everyone else’s financial goals ahead of their own. They’ll finance the college fund, they’ll help older relatives, and they’ll finance an array of wants and needs for the husband and kids before they ever save for themselves, Berger said.
“We are raised with this idea that we’re supposed to take care of everybody else,” Burbano said. “But if you are not taken care of, how can you care for others? You need to pay yourself first. Not for shoes; to build up a cash reserve and a retirement fund.”
Playing not to lose: Women and men invest for different reasons, Burbano said.
“Women invest to not lose money. Men invest to make money,” she said. “There’s a big difference.”
Indeed, where men may invest too aggressively -- loading up their portfolios with stocks -- women tend to load up on fixed-income investments, such as government bonds.
Though conservative, fixed-income investments protect principal, they appreciate much more slowly than stocks, leaving the investor at risk of losing buying power to inflation over time. Certainly, taking too little risk depresses returns and leaves the investor significantly less wealthy at retirement.
Large-company stocks have appreciated by an average of 10.4% a year from 1925 to the end of 2004, according to Ibbotson Associates, a Chicago-based market research firm. The value of long- and intermediate-term government bonds, on the other hand, has risen just 5.4% on average since the 1920s.
That difference boils down to a fortune over time. Someone who invested just $100 in big-company stocks in 1925 would have $253,320 today, according to Ibbotson, while that same $100 invested in government bonds would be worth just $6,572.
The right investing balance is a diversified portfolio of stocks and bonds, which provides a reasonable amount of safety without giving up on growth. The simple rule of thumb is to “invest your age” in bonds and the rest in stock. That gives a 20-year-old a fairly aggressive mix of 80% stocks and 20% bonds, while a 60-year-old would hold just 40% of her portfolio in stock.
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Kathy M. Kristof welcomes your comments and suggestions but regrets that she cannot respond individually to letters or phone calls. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail kathy.kristof@latimes.com.
