Tightening the Purse Strings
Is being female costing you a fortune?

By Kathy Kristof

Amy Borkowsky knows exactly how she’s spent her life...at least in terms of dollars and cents.

While cleaning out files one day, the comedienne ran across 12 years’ worth of 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 a humorous tale, not as a financial primer, Borkowsky’s observations speak volumes about the money traps into which women tend to fall.

“I used to feel bad for guys because our culture expects them to pay for dates,” says 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 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.

Barbie Syndrome

It’s often difficult to convince a woman she needs to be financially literate, claims Cheryl M. Burbano, a certified financial planner with American Express Financial Advisors.

“We are judged by society not by our brains but by our appearance,” Burbano says.

“I have clients who have never even written a check — and they’re not necessarily old-fashioned. They say, ‘My husband takes care of that. He makes all the financial decisions.’”

Whether culture is to blame or the “math is hard” perception, women need to realize that learning about money is a lot easier than living in poverty, Burbano says.

Like it or not, 80 percent to 90 percent of all women will have to fend for themselves economically, often because of death of a spouse or divorce.

Even if she isn’t the one who signs the checks, a woman should know how much her family earns, owes, saves, spends and invests.

Penny Pinching

Esther M. Berger, a certified financial planner with Berger & Associates, says she sees it with her female clients and friends and admits that she’s guilty of it: Something is on sale, so she buys it.

Many of those great-deal items are still hanging in her closet, unworn.

Unnecessary items are no bargain, regardless of how much they’ve been discounted.

Burbano sees other penny-wise/ pound-foolish mistakes, such as having low deductibles on car and homeowners insurance policies.

Low deductibles boost the cost of premiums by 15 percent to 25 percent, she says, for the dubious benefit of reducing the risk of paying more in the unlikely event of an accident.

Increase the deductible on an auto policy from $100 to $500, and put the premium savings in a bank account instead, she suggests.

“Pretty soon, guess what: You have the amount of the deductible,” she says. “You have insurance for catastrophic losses only, not for things you can afford to replace yourself.”

Comfort Spending

Have a bad day? Go out to dinner. Boss is a jerk? Buy a new handbag.

That kind of behavior starts a bad cycle.

Spending to relieve stress causes debt, which increases stress, which can lead to more spending to relieve stress, Berger explains.

Unfortunately, it’s a common practice among women.

“We indulge ourselves, often inappropriately,” Berger says.

“We buy, so we work harder to pay. We feel stressed out, so we feel like we need to be treated, so we buy something else. What’s wrong with this picture?”

Burbano suggests that if the urge to splurge is too much to resist, put credit cards in a big container of water and freeze them.

That keeps them safe for emergencies yet unavailable for impulse shopping.

Coming in Last

Women spend about 14 percent 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 accumulate a significant pension, Burbano says.

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 funded primarily by their own savings.

Numerous studies indicate that women save later and less than men do.

Burbano and Berger agree that’s largely because women are quick to put everyone else’s financial goals ahead of their own.

They save for college, they help older relatives, and they sacrifice their own savings for an array of wants and needs of husbands and kids before they ever save for themselves, Berger says.

“We are raised with this idea that we’re supposed to take care of everybody else,” Burbano says.

“But if you are not taken care of, how can you care for others? You need to pay yourself first. Not for shoes, but for building up a cash reserve and a retirement fund.”

Playing Not to Lose

Women and men invest for different reasons, Burbano says.

“Women invest to not lose money. Men invest to make money,” she says. “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. However, 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 percent a year from 1925 to the end of 2004, according to Ibbotson Associates, a market-research firm.

The value of long- and intermediate-term government bonds, on the other hand, has risen just 5.4 percent 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 percent stocks and 20 percent bonds, while a 60-year-old would hold just 40 percent of her portfolio in stock.

© 2005 Tribune Media Services Inc.