The Two-Income Trap: Why Middle-Class Mothers & Fathers Are Going Broke

Authors:   Elizabeth Warren & Amelia Warren Tyagi
Publisher/Date:   BasicBooks / Perseus (2003)
ISBN:   0-465-09082-6 (Hardback; 180 pages + Appendices)
Related Website:    n/a

So maybe we've been looking at this money thing all wrong.

While I had serious doubts early on, Warren and Tyagi's work in The Two-Income Trap makes for an extremely worthwhile read. The ideas are quite original, sharply pertinent, and very thought-provoking. I also suspect that the authors' theories are largely correct.

So what's the big deal? Well, just this:   Warren, the Leo Gottlieb Professor of Law at Harvard University, and her daughter Amelia (a business consulant of sorts) string together statistic after statistic showing that dual-income households are in fact more prone to economic collapse than single-income households.

In what might be the largest economic paradox of modern times, the post-1970s mass exodus of Moms from the kitchen to the corporate office effectively imperiled millions of families' finances, according to the authors. But isn't this what the women's rights groups and high-profile personalities from Washington and Hollywood alike have urged us to do for years? Well, yes. Which means that most of what we've been told to believe about families' financial success (and what they should do to improve their economic standing) is dangerously wrong.

Using her expertise in bankruptcy and law, Ms. Warren puts forth a shiny new theory to answer the question, "Why are so many middle-class Americans ending up in the bankruptcy courts?" Surprisingly, her studies do not place the blame at the footsteps of the usual suspects of over-consumption and irresponsible debting. (If they did, the material here wouldn't be particularly new, would it?)

Rather, Warren and Tyagi posit that the largest cause for middle-class families' bankruptcies lies much more directly in the "...ferocious bidding war for housing and decent schools" meant to propel their children into equal or better middle-class lives. And in order to attain these ultra-desired homes in good neighborhoods and quality school districts (everybody wants into them, after all, which is what sends the property prices to the moon), families have had no choice but to send Mom into the corporate world — and commit all of her newfound income to housing and other long-term expenses, rather than allowing the stay-at-home mother to be the "financial safety net" of sorts that she was in generations past. Read the book, and you'll find that all in all, it's a pretty compelling argument.

In regard to this housing "bidding war," the authors write:

This in itself [millions of parents searching for increasingly scarce slices of housing in safe neighborhoods with good schools nearby] would have been enough to trigger a bidding war for suburban homes in good school districts. But a growing number of families brought new artillery to the war: a second income. In an era when the overwhelming majority of mothers are bringing home a paycheck and covering a big part of the family's bills, it is easy to forget that just one generation ago most middle-class mothers — including those in the workforce — made only modest contributions to the family's regular expenses. A generation ago, the average working wife contributed just one-quarter of the family's total income. In many families, Mom's earnings were treated as "pin money" to cover treats and extras, not mortgages and car payments.

So, back then, if some sort of financial disaster befell the family (Dad is laid off, Junior needs some high-dollar medical treatment, or Grandma needs more day-to-day in-home care), then Mom was the "safety net." She could launch herself into action (finding at least temporary employment) to help tide the family over until the rough times saw an end.

Today, though, when disaster rolls into the average middle-class home, Mom is already at work. She's likely bringing home a steady paycheck. That, in and of itself, would not necessarily be a bad thing — if all or most of that money were being saved. But that money isn't being saved. Instead it is already committed — long-term committed, usually — to things like mortgage payments (much higher now than in previous generations), car payments (also much higher now than in previous times), and tuition payments for exclusive preschools. "Today's mothers are no longer working hard to get ahead," the authors write. "Now they must work just to keep up."

It is in these instances that the normal "bad luck" that happens in practically everyone's lives does the most financial damage. Dad is at work, Mom is at work, and their entire income is already committed to fixed expenses. There is no margin here, no room for error, if Dad suddenly gets laid off in a fit of cost-cutting at the plant. And what happens if he cannot find a similarly-paying job for a few months? Six months? A year? And in between, an unexpected medical expense strikes?

When it comes to the causes of middle-class bankruptcies, the authors also spend a good deal of time attempting to dispel "The Over-Consumption Myth" and "The Myth of the Immoral Debtor." Both chapters make for interesting, if not totally believable, reading.

The average family of four spends more at restaurants than it used to, but it spends less at the grocery store — a lot less. Families are saving big bucks by skipping the T-bone steaks, buying their cereal in bulk at Costco, and opting for generic paper towels and canned vegetables. Those savings more than compensate for all that restaurant eating — so much so that, factoring in inflation, today's family of four is actually spending 22 percent less on food (at-home and restaurant eating combined) than its counterpart of a generation ago.

The Two-Income Trap goes on to discuss predatory lending practices, divorce hardships, and practically every other factor that one might imagine as playing a part in a nation of burgeoning personal bankruptcies.

I found The Two-Income Trap to be an excellent and enjoyable read, and worth forking over the money for the hardback edition. I'm looking forward to reading it for a second time, as I'm quite sure I breezed past some some good and salient points. When it comes to rethinking one's ideas about the causes of bankruptcy, extreme debt, and the possible side effects of sending Mom out to work, this book is a certain eye-opener.

Michael • September, 2003

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