The “pink tax” refers to gender-based price discrimination. Originally used to describe the sales taxes women pay for feminine hygiene products, the term has expanded.
Now it refers to the practice of charging women more than men for consumer items and services that are essentially the same — although they are marketed toward women (and are often pink).
The Pink Tax Isn’t New
The pink tax issue has been going on for a long time.
A 1994 California study found that women paid an average of $1,351 more per year because of gender pricing discrimination, which would be more than $2,300 when adjusted for inflation.
And a 2015 New York City Department of Consumer Affairs — now called the New York City Department of Consumer and Worker Protection — study found that on average, women’s products cost 7% more than similar ones for men.
The biggest difference was in personal care products, which cost women 13% more. Women’s shampoo, razors and cartridges, lotion and deodorant all cost more than similar items marketed toward men. The study also found examples of pink bikes, scooters, bike helmets and girls’ toys costing more than similar items for boys.
Since then, California and New York have passed laws to prevent some gender-based price discrimination, and other states have been studying the issue.
Eliminating the Tampon Tax
More states have been making moves to change sales tax laws that affect feminine hygiene products.
“In recent years, a growing number of states have enacted laws or considered legislation to exempt menstrual products form the sales tax,” Katherine Loughead, senior policy analyst with the Center for State Tax Policy at the Tax Foundation, says. States don’t impose extra taxes specifically on tampons, but some have exempted groceries and medical items from sales taxes while still taxing menstrual products as luxury items.
Illinois, Maryland, Massachusetts, Minnesota, New Jersey, New York and Pennsylvania exempted feminine hygiene products from sales taxes as of Jan. 1, 2017, according to the Tax Foundation.
The District of Columbia exempted tampons from sales tax in 2017; Connecticut did so in 2018 — and several more states followed suit. Colorado, Iowa, Nebraska and Virginia have all passed laws in the past year exempting menstrual products from sales taxes.
On the federal side, the 2020 Coronavirus Aid, Relief, and Economic Security Act changed the rules for flexible spending and health savings accounts, making menstrual products eligible for tax-free withdrawals like other medical expenses.
[Read: How to Choose a Health Savings Account.]
Financial Products That Cost Women More
There is still a variety of financial products that cost women more than men.
For example, women are more likely than men to require expensive long-term care and submit disability insurance claims, so they usually have to pay higher premiums.
And since they tend to live longer than men, they pay more for life annuities. Women do get an insurance benefit from their longer life expectancies, however: They usually pay lower life insurance premiums than men.
Keep reading for a deeper dive into why women pay more for certain financial products.
[READ: 15 Steps to Achieve Financial Freedom.]
Long-Term Care Insurance
“Long-term care insurance is typically more expensive for women because women have longer life expectancies,” Rachael Burns, certified financial planner with True Worth Financial Planning in Folsom, California, says.
“The longer women live, the more likely they are to need long-term care in their later years. Insurance carriers address this added risk by raising rates for women. Another consequence of living longer is that women are more likely than men to be single when they are elderly. Men are more likely than women to have a younger spouse who is able to help care for them at home and thereby reduce costs,” she adds.
Brian Gordon, president of Gordon Associates Long Term Care Planning in Bannockburn, Illinois, says the difference between men’s and women’s long-term care premiums varies by company.
“In our experience, we’ve seen differences of 20% all the way up to more than 50% more for women than men,” he says. “Women tend to use their policies more than men, mainly because they live longer and are more likely to need and qualify for benefits.”
Some group long-term care insurance policies employers offer use unisex pricing. Gordon says that the benefits often aren’t as high, however, as those in individual policies.
Disability Insurance
Disability insurance is more expensive for women than men, assuming they’re the same age and have similar medical histories, Natalie Taylor, certified financial planner in Santa Barbara, California, says. “This is because women become disabled at a higher rate than men.”
Insurers typically charge women more because they tend to have more claims. “Women face unique health conditions, like pregnancy, that make them more likely to become ‘disabled,'” Burns says.
Annuities
Women also pay more for life annuities that pay out for as long as they live.
“Annuities can be more expensive for women because annuity companies set their rates based on life expectancies,” Burns says.
“Since women typically live longer they would receive a guaranteed income for a longer time period, so the annuity companies have to charge higher rates to make up for the higher risk. While it might seem unfair that the costs are higher for women, they will most likely receive income for a longer time period — and could end up having a higher total annuity income of their lifetimes than men,” she adds.
For example, a 65-year-old woman who invests $100,000 in an immediate annuity that pays out over her lifetime could receive $593 per month no matter how long she lives. But a man the same age would receive $617 per month, according to ImmediateAnnuities.com. If the woman does end up living longer, however, she’ll receive more money in total than the man.
Financial Planning and the Pink Tax
Overcoming the pink tax is just one financial planning obstacle for women.
Not only do they have to pay more than men for some items, they tend to earn less than men and take more time off from work to care for children and parents, which affects their savings rates and Social Security benefits. Meanwhile, they have longer life expectancies and need to plan for more years in retirement.
“Since women are paid 84 cents for every dollar a man earns for equal work, women are at a disadvantage financially that goes beyond just their pay,” Taylor says.
“Specifically, because women earn less for equal work, their Social Security benefits are lower as well. Lower income also means it’s harder to find dollars to save and invest toward retirement, and because women live longer than men on average, they need more saved for retirement to last throughout their lifetime. This combination of factors puts women at a significant disadvantage from a retirement standpoint,” she adds.
[READ: Essential Sources of Retirement Income]
The most recent survey by the Transamerica Center for Retirement Studies found that baby boomer women have saved a median of $101,000 in retirement accounts, which is less than half of the $248,000 boomer men have saved. The difference in retirement savings by gender was similar for Generation X: Most women have saved a median of $51,000 compared to $127,000 for men.
“Women face societal headwinds that make it even more difficult to save and invest for a secure retirement,” Catherine Collinson, chief executive officer and president of the Transamerica Center for Retirement Studies, says.
“From the gender pay gap to taking time out of the workforce for parenting and caregiving, women have lower lifetime earnings, which translates into less retirement savings,” she says. And savings become even more important for women to cover longer life expectancies.
It’s also important for women to understand the long-term financial impact of taking time off from work for caregiving, Melody Evans, wealth management advisor with TIAA, says.
For example, consider a woman who turned 65 last year and took off two years when she was 30 to care for a child.
“Let’s say she was making $60,000 a year at the time and saving 3% of her income toward retirement, which her company would match,” Evans says.
[Read: How to Maximize Your 401(k) Match.]
“If she didn’t save during that two-year stretch for child care, that meant she would have lost $1,800 a year from her savings and $1,800 a year from the company match — that’s $3,600 a year, and a total of $7,200 during the two years of child care,” she says.
But that’s only a portion of the difference. If she would have invested that $7,200 in the Dow Jones Industrial Average in 1992, by the time she turned 65 that would investment would be worth $72,000, Evans says. “That’s a lot of compound interest she didn’t earn.”
Evans adds that it’s worth noting that besides the loss of retirement savings that could build wealth, if someone temporarily leaves the workforce, it can lower their chances of getting possibly higher pay raises, sooner promotions and ultimately, the ability to boost retirement savings even further for long-term wealth.
“Child care is very expensive but those costs don’t last forever. Every family should make the choice that’s right for them but I would encourage women to consider all these factors,” Evans says.
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The Pink Tax Costs Women Thousands of Dollars Over Their Lifetimes originally appeared on usnews.com
