Women and money; Building a financial future

Net Worth, stock quotes, insurance premiums, interest rates, tax deductions. The terms multiply like passwords to an elite social club--a male-only social club.

Women traditionally haven't aspired to the world of money management. But taking charge of their personal finances may be their only line of defense against social forces that pile responsibility on women while continuing to give them economic short shrift.

The old excuses--''My husband handles the money,'' ''I don't have enough money to consider a savings or investment plan,'' ''I can't even balance my checkbook, why play the stock market?'' - are no longer valid. The old-fashioned concept of saving by stashing coins in the sugar bowl won't stand up in today's economy. Women must perceive themselves as separate financial entities responsible for amassing and protecting a nest egg that will support a comfortable life style and provide a secure haven for retirement or for their survivors should they die.

To distill the most basic aspects of starting a personal money-management plan, the Monitor interviewed several financial experts, including columnists Jane Bryant Quinn and Sylvia Porter, stock brokers, debt counselors, and advisers from the Chase Exchange, a Chase Manhattan Bank financial service advising 25,000 women.

Although there is no single way to financial security, there are certain universal basics women can use and understand without elaborate financial training.

Financial planning begins with the simple recognition of what you have to work with (your net worth) and deciding where you want to go with it (budgeting). Figuring your net worth - your assets minus your liabilities--will probably surprise you. Most people aren't aware that literally everything in their possession is worth something--and that can add up. A net worth statement emphasizes where a person has tied up her money: Is your money draped on a hanger in the closet or working for you in a mutual fund? A net worth statement also emphasizes the value of a person's assets, and the importance of protecting that in a will. (Financial advisers recommend everyone maintain a current will, to ensure that everything from your stocks to your grandfather's pocketwatch will be divided among your heirs exactly as you designate. A properly executed will can prevent costly court proceedings that can drain the value of an estate.)

Tracking your present spending by keeping a detailed record of each day's expenditures for a month can help you set spending priorities and find corners to cut, says Chase Exchange counselor Darlene Despres. She says, for example, that one problem for busy working women is eating out a lot. She remembers one client who found that at the rate she and her husband were eating out, they were spending $2,000 a year just on breakfasts.

Aside from the simple addition and subtraction of figuring your net worth and budget, Ms. Quinn says, ''It's not necessary to do math in order to understand finances and how money works. Mathematics is an academic discipline and personal money management is something that is simple common sense . . . having nothing to do with whether you got 'A' or 'F' in arithmetic in high school. (You have to ask yourself) 'Am I going to feel comfortable with this, does this make sense, do I think the salesman is telling me the truth, how is this going to affect my husband, children, and family?' '' says Ms. Quinn.

The common sense she talks about begins with an honest look at your situation. Are you saving money? Are you protecting your assets as much as possible from taxes and inflation? Do you monitor your spending--keeping reasonable limits on credit card use and leaving enough each month to pay your fixed expenses? Are you doing more than just thinking about building funds for retirement or a college education for you or your children?

These are weighty decisions women often admit they prefer not to think about. But financial consciousness doesn't have to be achieved in one fell swoop, say financial advisers. It's a step-by-step process they say. Protecting and building assets is the basis of a financial plan. A woman's age, family situation, and her own tolerance to risk will determine the route she takes--but there are certain general things she should know about. Savings

Savings, or what Chase Exchange adviser Darlene Despres labels ''deferred spending,'' is the simplest way to start.

Sylvia Porter advises that saving is so important it should be counted as a fixed expense - pay yourself automatically, before paying any other bills. Most advisers agree that 5 to 10 percent of your paycheck is a good sum to sock away and that a permanent ''emergency fund'' of three to six months income be maintained.

Many agree that the surest way to enforce savings is a payroll deduction, where your employer deposits the money in savings vehicles ranging from a savings account to tax-deferred retirement funds.

When saving on your own, it's important to compare interest rates offered by various institutions. Also, be aware that the interest rate on a passbook account can be significantly less than the rate of inflation--meaning you are actually losing money.

Generally, the better the interest offered, the bigger the sum of money you must invest and at longer periods of time. Simple savings is considered the safest way to accumulate money for the woman who is uncomfortable speculating in other investments or who wants an assured, if only moderate, interest income on her assets. No special knowledge or responsibilities are required to sink your money into a savings account or a certificate of deposit. Money market funds offer higher returns than simple savings account but with a slight risk.

Many advisers recommend using money market funds as a savings tool. These are mutual funds that pool money from individuals and invest it in low-risk, highly liquid, and high-yield instruments like Treasury bills, US government agency issues, and commercial bank certificates of deposit. Money market funds offer higher returns than simple savings accounts but with a slight risk. Stocks and bonds

For the more intrepid individual willing to take slightly greater risks for a higher return on the dollar, there are other investment vehicles that may require more thought than a simple savings program.

US government bonds--by buying them you loan the government money--are considered the safest investment around. Sylvia Porter, who explains that she is in the stage of life where security rather than rapid growth is most important, says she has roughly 40 percent of her assets in tax-exempt US government securities. (Not simple savings bonds, but higher interest securities.)

But when investing in any kind of bond, no matter how safe it is, the overall value must be weighed. How long will your money be tied up? What is the market for the bond, and can you sell it if you need the cash? How much can you gain on one particular bond over another or over some other investment?

Stocks, which can be much more risky but much more lucrative, require even more attention from the investor.

''A person must do what makes them sleep comfortably at night,'' advises Beryl Bunker, vice-president of John Hancock Advisers. Married 40 years, Mrs. Bunker has built her own portfolio of investments in US government securities, stocks, bonds, and real estate. This type of diversification, she says, offers secure, steady growth investments as well as chances on rapid, high-yield, but more risky, investments. But she claims the stock market can be an exciting challenge.

For the interested but careful first-time stock investor, Mrs. Bunker advises studying the business you want to invest in. To build confidence, she says, ''Try running a paper portfolio. Investment professionals do this a lot. Theoretically you have $10,000 to invest. Next time you hear a hot tip from your cabbie or cousin, invest it on paper and keep tabs of its value in the newspaper.''

Although stock brokers are used to dealing in sums of thousands of dollars, they will invest smaller sums for you. For example, Betsy Kross, a Boston broker with Kidder Peabody, says she bought $40 of high-tech stock for a client three years ago. The stock is worth $1,000 today, she says.

One way to play the stock market with less risk is through a mutual fund. This method pools funds from many people and invests them in a wide variety of securities. Depending on your goals, you can choose a fund that specializes in rapid growth, growth and income, or tax-exempt income. Money market funds are set up the same way, but are considered a lower risk proposition because funds are invested in short term debts (less than a year). Life Insurance

All women should be aware of life insurance - whether they are the insured or the beneficiaries. Find out exactly what coverage you have in your own private policy or through employer-sponsored plans. If you're married, find out about your spouse's coverage. Would the coverage be enough to keep your family on its feet financially if you or your spouse died?

''The main purpose of life insurance is to leave this world without owing anybody and, if you've got dependents, to guarantee they will continue to enjoy life,'' explains Raymond Gehring, national director of benefits planning for Aetna Life & Casualty.

A woman should ensure that her survivors would not be left in the lurch if she died--that would mean protecting financial dependents (children or elderly parents) whose futures rest on her income or a husband who might be depending on his wife's second income or her services as a housewife, which would be costly to replace. Or if she is single, without a family, she would want to provide for relatives who would be left to settle her estate and its debts.

Most people lack adequate coverage, says Mr. Gehring. The average amount of life insurance that reaches beneficiaries is $34,000. The bulk of life-insurance benefits paid out came from employer-sponsored group life insurance, which usually covers only 11/2 to 2 times annual earnings.

A married woman dependent on her husband's support should be sure that his life insurance would cover bills that are left at his death and funds for college educations for the children (because under social-security cuts, education benefits are no longer paid). The wife should not overlook what it would take to support herself for life without a husband.

The cheapest life insurance is term insurance, says Mr. Gehring. This is pure insurance and pays one lump sum upon the insured's death. The premiums stay the same only for the term of the policy, usually one to five years. Whole life, or straight life insurance is considered part savings and part insurance. While premiums are much higher, they never increase and you can borrow on the policy or cash it in after a certain period.

Mr. Gehring offers a price comparison between the two types of insurance for a 25-year-old woman: $188 annually for a $100,000 term policy and $630 annually for a $100,000 whole life policy. Obviously, if a person is not well set financially and is concerned about her family, the term policy is the better deal. Many financial planners argue that buying term and investing the $442 difference is always the better deal, because you, rather than the insurance company, are getting the full return on the investment. And the investment pool can be used to pay the higher premiums when new term policies are written. Retirement

Gauging exactly how much you'll need for retirement and how you'll get it is the financial equivalent of shooting at a moving target. With inflation and unpredictable twists of the economy, the surest way to hit the mark is to collect a lot of ammunition early.

Financial advisers unanimously encourage women to think about retirement from the moment they start to work. Statistics show that elderly women are the fastest growing poverty group; that with an average monthly benefit of $233, social security is not enough to retire on; that the average single woman retires with only $1,000 in the bank; and that 1 in 5 widows spends her husband's life insurance money within two years.

Retirement is probably the last thing on the mind of a young woman trying to find money for this year's Caribbean vacation or for her children's new clothes. She may opt against contributing to her employer's pension plan, or resist tying up money in the much touted IRAs (individual retirement accounts). She may think the social-security deductions in her paycheck are plan enough for the future. But Sylvia Porter says a more realistic appraisal of social security is needed.

She says questions about social security come to her ''by the barrel.'' They are mostly from women ''terrified they'll lose that base of protection,'' she says, adding that ''the psychological benefit of social security is almost beyond belief . . . especially when you consider how little you get (from it).'' She urges that solid retirement planning means a realistic appraisal of expected social-security benefits. A working woman should also be aware that because of the income averaging involved in benefit formulas, interruptions in her career--like those for raising a family--can lower her benefits in retirement.

''It's never too early'' to plan for retirement, says Ms. Quinn, who at 42 is tailoring most of her investments for retirement. Financial advisers unanimously endorse this position. "When you're younger you're more involved in present consumption.[You're] just not geared to thinking that at some point you're going to wish you had that money."

Ms. Quinn advocates signing up with employer pension plans, noting that you'll get the money when you leave the company or when you retire at 65. "It is a no-lose situation," she says, adding that be waiting, a person loses not only time, but interest and often employer contributions.l advisers tout the IRA as much as advertisers do.

''The IRA is made for women who have not put their toe into the investment water,'' says Delayne Gold, vice-president of Bache Halsey Stuart Shields Inc., a New York brokerage firm. ''If they consider a self-directed IRA plan . . . it's tailor-made for women who have not been in the stock market. It's an opportunity to talk to a broker.'' (IRA funds can be invested in the stock market. But, like any other investment, this does not provide a guaranteed return.)

Married women, dependent on their husbands, should familiarize themselves with their retirement options. For example, in addition to the $2,000 he can put away in a tax-exempt IRA, a working spouse can put away $250 in his nonworking wife's name.

The housewife should also be aware that her husband may opt to raise his pension benefits while he is alive and that this could leave her with no pension at all after his death. Taxes

In keeping with the idea that women need to think more about their finances, experts advise that keeping a hand in their own tax-return preparations is a sure way to maintain financial control and learn better ways to protect growing assets. With all the self-help literature on tax preparation, anyone should be able to prepare a basic tax return alone. But with more-involved returns, advisers suggest checking with a professional.

Women directly benefit from certain tax breaks. For example, new formulas for the child-care credit--which amounts to a direct reduction of taxable income--will be increased for those earning less than $10,000. If you need child care in order to hold down a job, you qualify to take a percentage of the cost out of your income.

New rules permitting any working person to put $2,000 away, tax free in an IRA, could make it more profitable for a housewife to take a job. After taxes, it used to be that the relatively small amount earned by her part-time or low-paid full-time job amounted to even less. But the first $2,000 she earns now will be tax free if she puts it into an IRA.

New laws have also eliminated taxes on estates worth less than $600,000 (actually $225,000 in 1982 and progressing to $600,000 in 1987). This means that an estate can be passed once, free of inheritance tax. If your financial planning included insurance to cover hefty estate taxes, you probably no longer need as much. Credit, loans, etc.

Allowed to get out of hand, the buy-now, pay-later theory is the surest way to sabotage a financial plan.

''Using credit to maintain a life style no longer affordable (because of inflation) and looking at credit as an extension of income'' rather than an expense, is the first mistake a person makes with borrowing money,'' explains Stan Benson, president of the Consumer Credit Counselors of Los Angeles. A rule of thumb for borrowing is that the item you buy should last as long as the payments for it, he says. Conservative counselors add that debts should never amount to more than 10 percent of your income.

The Chase Exchange lists these signs that credit debt is out of control:

* Postponing paying the phone bill in order to make a car payment.

* Buying food with credit because you're always short of cash.

* Using checking account overdrafts to pay bills.Chase Exchange advisers recommend not using credit cards at all during the first six months you are developing a financial plan. Scattered impulse charges for a blouse here or a meal there can disrupt the development of a spending pattern. Chase advisers also suggest you not even use a credit card until you've started saving.

There are various strategies to be aware of in using credit. Shop around for different interest rates. This can make a difference when paying a bill back over a long period. Also, be aware that that $200 suit marked down to $150 may not be such a bargain if you charge it and pay interest for it.

It is important, though, to develop a credit history. Someday you may want or need to borrow money and no one will lend you a large sum if you can't prove you're a good risk.

To establish credit, Chase advisers recommend opening a savings account in your name. You can offer this as collateral. You might even apply for a small loan you don't actually need, deposit it in your account, and pay it back on time. Some bank, department store, and gas credit cards can be easy to get and will help you build a credit history if you use them.

Be sure to establish credit in your own name--you may need it in case of divorce or the death of your husband, when joint accounts may be canceled or frozen. Also, warns one department-store credit director, a woman who has a joint credit card with her husband can have her own credit record tarnished if he fails to pay the bills, or runs up a debt he can't pay.