The Two-Income Trap: Why Middle-Class Parents are Going Broke [Paperback]

Elizabeth Warren (Author), Amelia Warren Tyagi (Author)

Book Description

Release date: August 17, 2004

In this revolutionary exposé, Harvard Law School bankruptcy expert Elizabeth Warren and financial consultant Amelia Tyagi show that today's middle-class parents are increasingly trapped by financial meltdowns. Astonishingly, sending mothers to work has made families more vulnerable to financial disaster than ever before. Today's two-income family earns 75% more money than its single-income counterpart of a generation ago, but has 25% less discretionary income to cover living costs. This is "the rare financial book that sidesteps accusations of individual wastefulness to focus on institutional changes," raved the Boston Globe. Warren and Tyagi reveal how the ferocious bidding war for housing and education has silently engulfed America's suburbs, driving up the cost of keeping families in the middle class. The authors show why the usual remedies-child-support enforcement, subsidized daycare, and higher salaries for women-won't solve the problem. But as the Wall Street Journal observed, "The book is brimming with proposed solutions to the nail-biting anxiety that the middle class finds itself in: subsidized day care, school vouchers, new bank regulation, among other measures." From Senator Edward M. Kennedy to Dr. Phil to Bill Moyers, The Two-Income Trap has created a sensation among economists, politicians, and families-all those who care about America's middle-class crisis.

Editorial Reviews

From Publishers Weekly

Warren, a law professor at Harvard (The Fragile Middle Class) and her daughter Tyagi, a former McKinsey consultant, have joined forces here to argue here that the two-parent middle-class working family is on the brink of financial disaster. The number of families declaring bankruptcy or receiving a foreclosure against their house has shot up dramatically. Presenting carefully researched economic data to support their arguments, the authors contend that, contrary to popular myth, families aren't in trouble because they're squandering their second income on luxuries. On the contrary, both incomes are almost entirely committed to necessities, such as home and car payments, health insurance and children's education costs. When an unforeseen event such as serious illness, job loss or divorce occurs, families have no discretionary income to fall back on. The authors recommend a number of useful societal solutions to get families out of this trap, such as legally prohibiting credit card companies from charging grossly unfair interest rates and exposing banks that employ a loan-to-own strategy that steers minority customers to higher mortgage rates with an eye to future foreclosures. Warren and Tyagi point out that families buy homes they cannot afford in order to live in a neighborhood with better schools. Their proposed solution, however-to institute a public school voucher system with wider choice-is less carefully thought out. Overall, however, this is a needed examination of an emerging social problem.
Copyright 2003 Reed Business Information, Inc. --This text refers to an out of print or unavailable edition of this title.

Review

"A startling account of the elusiveness of the American Dream." -- - Time Magazine

"Makes a good case that the epidemic of bankruptcy is not about people being irresponsible." -- - Paul Krugman

"You should read this book!" -- - Dr. Phil

See all Editorial Reviews

Product Details

• Paperback: 255 pages
• Publisher: Basic Books; Reprint edition (August 17, 2004)
• Language: English
• ISBN-10: 0465090907
• ISBN-13: 978-0465090907
• Product Dimensions: 5.3 x 0.7 x 8 inches
• Shipping Weight: 10.6 ounces (View shipping rates and policies)
• Average Customer Review: 3.6 out of 5 stars  See all reviews (120 customer reviews)
• Amazon Best Sellers Rank: #57,503 in Books (See Top 100 in Books)

Most Helpful Customer Reviews

176 of 186 people found the following review helpful

4.0 out of 5 stars This is One Scary Book February 12, 2004

By James Sadler

Format:Hardcover

The mother/daughter team of Elizabeth Warren and Amelia Warren Tyagi have written one scary book. What exactly makes this book so frightening? The fact that many of their conclusions are probably correct.

A friend who happens to be a CPA who counsels families in financial trouble told me about this book. She actually is warning her clients not to read it because it paints a fairly bleak and depressing picture. Naturally, after she told me this, I had to read it, even though she was correct, much of the information contained in it is depressing.

For one thing, in many ways the integration of women into the workplace and the rise of the two income family has not had the positive effect one might have hoped it would. Because so many families are now two income dependent they have become trapped and are more financially vulnerable than previous generations. Many families use all of the income they receive from both husband and wife, and barely get by. As a result, any interruption of the income flow can result in disaster. One telling statistic: today's two-income family earns 75% more money than its single-income counterpart of a generation ago, but actually has less discretionary income once their fixed monthly bills are paid.

This is generally blamed on overconsumption and claims that we are a credit card generation that it is paying the price for its free spending ways. And no doubt credit spending has its role in the financial problems of middle America. But Warren and Tyagi make a compelling case that this is not necessarily the whole story. Instead, they propose that the culprit is in large part the ever escalating cost of housing and education in America's suburbs.... As many parents chase the better schools in an attempt to assure their children the best possible education, real estate prices in areas serviced by those schools rise and with it the cost of the homes.

At one time, families could count on stay-at-home mothers as a kind of financial safety net if disaster struck. If dad lost his job or some other financial problem arose, mom could go to work either fulltime or part-time to help tide the family over until the crisis abated. But today, when so many families are dependent on two incomes, families are at a frightening risk should any financial crisis arise in the family. The authors do propose some modest solutions, but its doubtful many of their suggestions would ever be implemented on anything more than a limited basis. Among their suggestions are rate caps on credit cards and open-access public schools, but none of their suggestions can truly provide a fix for the problem.

Some people have dismissed their findings and conclusions. Unfortunately, I believe they are truly on to the core of the problem.

While this book does indeed paint a bleak picture, with bankruptcy often proving to be the only solution for many families, it is a timely and recommended book for anyone concerned about the financial future of Middle America. I would criticize the authors for not offering more realistic solutions to the problem, unfortunately in the current economic environment there may not be any. Read more ›

53 of 61 people found the following review helpful

4.0 out of 5 stars What a relief! March 27, 2004

By A Customer

Format:Hardcover

As a stay-at-home mom who was seriously considering putting my 3 young children in daycare to return to the workforce, I am so glad I read this book first. My husband and I have graduate degrees and yet we just get by each month. It seems absurd that we live paycheck to paycheck on my husband's >$80k salary, but after rent, our one car payment, health insurance, and our utilities we have just enough left over to eat and put gas in the cars. I admit we splurge on Starbucks on the weekend and eat out once or twice a month (nothing fancy, of course). I feel guilty when I buy clothes for the kids (target), go grocery shopping (costco and at least 2 other markets to get the best prices), or get a hair cut (SuperCuts). The fact that we don't have a savings account or own a home drives me crazy and makes me feel like we're financial failures. BUT when even older, fixer-upper homes in our area (San Diego) cost more than $450,000, it seems impossible to save even a 5% down payment just by cutting back on our weekly Starbucks treats. Not to mention we would not even qualify for a loan on a home that price without a 20% down payment. I know, you are saying, "MOVE!". Well, my husband works in biotech and there are a plethora of jobs here and only in a few other places in the U.S. in this field. In addition, our family is here and we rely on their moral support and occasional free babysitting. Some things in life are more important than money. This book erased my guilt and made me see that we aren't the only ones living this middle-class trap. I realize we have to live our lives despite not living up to financial experts' admonitions that one should have a financial safety net or own a home.... Yes, we could be financially devastated by one unfortunate event, but I could then return to work and our families would ensure we would not be homeless. Beside the feeling that I am doing the right thing being home with my kids, I do often wonder if I am doing them a disservice by not having money in the bank or a home of their own. I loved this book! I am truly grateful that we are only in this situation living on one income and not two. Then what would we do if things got out of control? Read more ›

166 of 201 people found the following review helpful

5.0 out of 5 stars Are You One Of These People? October 22, 2003

By K. Johnson VINE™ VOICE

Format:Hardcover

The financial decline of the middle class families began 30 years ago and continues to this day. So why are they only people that are proposing solutions to this decline academics who do quantitative and qualitative (case study) research, and then propose public policy societal solutions?

Elizabeth Warren and Amelia Tyagi have the experience and are appropriate authorities on this phenomenon. They identify the primary reasons of it: fixed expenses. Those expenses which are constant and "come in every month" has increased substantially in the last 3 decades.

Remember in the 1980s when the acronym word "DINK" was in vogue? Double Income No Kids. It may have sounded hip then but DINKS earn less today than one person earned thirty years ago, in 1973.
It is a commonly known fact that middle class two-income earning families have been and still are losing economic ground. And they will continue to lose ground. Warren and Tyagi correctly argue with ample and valid evidence that it's not spending sprees, lavish vacations, or luxury items that are doing it. It's the necessities stupid. Property values supported with gargantuan mortgages are pushing debt ratios beyond the 38% considered the maximum safe and acceptable limit. Housing prices have outpaced wages significantly. Insurance premiums are constant and steady expenses that take a higher percentage of income today than in previous years and they too, are necessities. Education costs have risen dramatically more than wages. What's the American solution? Simply to borrow more money to pay for the higher tuition. Taxes have risen to mammoth proportions and take major chunks out of hard working families hard earned paychecks (taxation is not an issue delved into by the authors....) Again, the killer is the fixed expenses classified as "necessities." Both incomes today are significantly committed to necessities, such as mortgage and car payments, health care costs, insurance premiums, and children's and adult's education costs.

The authors provide many practical and proven ways to assist folks in these situations (i.e., the "financial fire drill"). But the solution provided by the authors, who are experts in this field and are renown for their work is: public policy changes. Public policy changes take place when collective and coordinated societal "thinking" changes. Is this likely to happen? If the economic situation has been allowed to get to the point that it has gotten to now, then why would change finally be implemented now? Citizens didn't pay attention. Policy-makers (who are citizens) didn't pay attention. Most are still don't pay attention. Now a couple of academics are examining the origins and and growth of this problem and offering remedies for it. Few will understand and act accordingly. The masses will simply keep struggling and asking "why?"

We know what the dilemma is and we know some of the solutions that can help resolve it, but will these proposed solutions ever take place? Read more ›