on February 12, 2004
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.
on March 27, 2004
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?
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?
on January 1, 2005
Terribly depressing because I could follow the logic of the description of the problem, but either didn't agree with their solutions, or found them idealistic and unattainable as hopes for public policy.
I loved the book Affluenza, but I admit, it didn't sound like anyone I know. Maybe in the status-conscious city I grew up in, or in NYC, but not where I live now. This book though, speaks of most everyone I know. There are huge price differences between one school district and the next in our area and huge competition for 'magnet schools' and affordable private schools.
I think the fact that the reviews on here are one extreme or the other would suggest that this problem is largely regional, and those who live in different areas will draw different conclusions about it's accuracy.
One thing I wished they'd discussed in more detail is how different financial planning is when you have children. Our bank took our two incomes and our $260 car payment into consideration when they made our home loan, but they didn't take the $500 in childcare we'd typically have to pay for our eight month old child in order to have those two incomes, nor did they ask if we were planning more children.
People have criticized this book for letting irresponsible people off the hook, but it should be lauded for making people more responsible. If my bank doesn't take my children into consideration when lending me money, then it's something I'll have to do myself. That's what this book preaches.
on December 18, 2013
We both read this book right after we got married 8 years ago, and it set the tone for our marriage. We've stuck with the 60% solution and have managed to save about $150,000 since our wedding, despite the fact that (1) our household income (when both of us are working) isn't anywhere near the $100,000 mark; (2) we had a child; (3) we only had one average income for four years (due to one of us doing the stay-at-home parent thing).
on April 3, 2013
I just finished reading this book, very much expecting to love it. Since Ms. Warren took political stage, I have been a fan of how she has handled the Too-Big-Too-Fail financial corporate giants. Unfortunately, I was greatly disappointed.
The positives in this book include all of the great statistics on consumer spending behavior, rising education and housing costs, and many more widespread financial trends that have put the middle class in its present precarious situation. Ms. Warren and Ms. Tyagi come to an astonishingly poorly thought out 'source' of these economic conditions, however: that it is the result of women joining the workforce. They add to this false foundation with more falsities: that this is exactly what "feminists" all wanted (apparently the authors feel we are a monolithic group and that this one piece of progress in society is all that we needed to feel we're equal - hardly the case and nowhere near a conclusion of equality even within the scope of work and jobs alone), that if women had stayed out of the work force, these other modern-day economic realities would not be in existence, and that having a single income family is more secure than a dual-income family under the (false) assumption that if the sole income-earner loses their job then the other spouse can join the workforce to compensate for the income loss.
The logic lacking in these conclusions occurred so apparently to me as I was reading that I found it insulting that this book was so highly acclaimed. The majority of the economic reality for middle class Americans today are a result of loosened financial regulations across the board, and there is absolutely NOTHING that indicates these circumstances would not exist without the current dual-income family trend. Additionally, given the likelihood of loss of employment by any income-earner increases proportionally with the national unemployment rate, so goes the negative likelihood of a spouse, which has not been in the workforce for however many years, of ever being able to attain a job in such a market. Finally, women having less choice about whether they are able to work or not due to economic conditions in the middle class is not what the so-called monolithic group called feminists want. Feminists seek equality for all people, and women having equal pay for equal work would go a long way in helping families who depend on dual-incomes OR a single-mother income earner.
In a nutshell, I feel that some of the very compelling statistics (for example, that overall families are really not spending more money than they were 40 or so years ago) do not compensate for the poorly thought out conclusions reached in this book by the authors. I am very disappointed in this book and would not recommend adding it to anyone's reading list. There are certainly better books out there on the current state of economics for middle class Americans.
on January 15, 2004
This book describes two-income families competing ferociously with each other for homes in desirable school districts, driving home prices and property taxes to higher and higher levels, forcing many Americans to abandon their dreams of home ownership. All of this is done supposedly to benefit the children who, ironically, will be the first generation of Americans in history who will not be better off than their parents.
Today's ordinary middle class kids live in McMansions, watch plasma TVs, play video games and ride in SUVs with built-in DVD players. Thanks to cheap foreign labor assembling products that our American neighbors used to make, we can all afford this stuff.
But Americans have been duped. This generation?s rising college tuitions are bankrupting their parents. Once kids graduate they discover that the jobs they were promised have already been outsourced to brilliant young Indians who speak fluent English and received their educations courtesy of their own government. Unbelievably, this is the first generation of American college graduates that won't be fielding job offers. We American taxpayers unwittingly funded the Internet technology that revolutionized the way businesses operate, enabling people oceans away to perform white collar jobs formerly held by Americans. While all of this has been going on, many of those still fortunate enough to be employed are vainly plodding away working extra long hours so they can buy their kids fancier gadgets than their classmates have. Our value system needs an overhaul.
A high performing society must have a healthy mix of stay-at-home and working people to keep the balance. Neighborhoods are safer and more pleasant to live in when retired and stay-at-home people are present. Fewer people competing for jobs means better jobs and higher salaries for those who do work. Maybe somebody's unemployed college graduate kid will find a good job because somebody else's mom or dad decided to stay home for a while. This is not sexism or a moral issue. This is common sense. The Two-Income Trap is a trap for all of society but it will especially hurt the children it was supposed to benefit.
Elizabeth Warren is a professor of Law at Harvard Law School, and has written other books such as All Your Worth: The Ultimate Lifetime Money Plan,The Fragile Middle Class: Americans in Debt,As We Forgive Our Debtors: Bankruptcy and Consumer Credit in America.
They wrote in the first chapter of this 2003 book, "The idea behind this book took root in the sprint of 1999, when Elizabeth was reviewing some preliminary data from an early phase of the Consumer Bankruptcy Project... In just twenty years, the number of women filing bankruptcy had, in reality, increased by 662 percent. As I soon discovered, divorced and single women weren't the only ones in trouble; several hundred thousand married women filed for bankruptcy along with their husbands. Our research unearthed one stunning fact. The families in the worst financial trouble are not the usual suspects... They are parents with children at home. Having a child is now the single best predictor that a woman will end up in financial collapse... Over the past generation, the signs of middle-class distress have continued to grow... If those trends persist... nearly one of every seven families with children would have declared itself flat broke." (Pg. 5-6) They add, "This book will tell the story of how having children has become the dividing line between the solvent and the insolvent, and how today's parents are working harder than ever and falling desperately behind even with two incomes... We want them to see that there is a way out... Changes can be made in Congress... so that the average parent can once again spend her nights fretting about potty training and prom dresses, not about home foreclosures and overdrawn bank accounts. Changes that can make America's great middle class secure once again." (Pg. 13)
They explain, "The average two-income family earns far more today than did the single-breadwinner family of a generation ago. And yet... today's dual-income families have LESS discretionary income... than the single-income family of a generation ago. And so the Two-Income Trap has been neatly sprung. Mothers now work two jobs, at home and at the office. And yet they have less cash on hand. Mom's paycheck has been pumped directly into the basic costs of keeping the children in the middle class." (Pg. 8) They add, "The Two-Income Trap is thick with irony. Middle-class mothers went into the workforce in a calculated effort to give their families an economic edge. Instead, millions of them are now in the workplace just so their families can break even... Today's middle-class mother is trapped: She can't afford to work, and she can't afford to quit." (Pg. 10-11) They suggest, "Today's mothers are no longer working to get ahead; now they must work just to keep up. Somewhere along the way, they fell into a terrible trap." (Pg. 32)
They observe, "Not only did stay-at-home wives like my mother function as backup workers, insuring against their husbands' loss of income, they were also available when the family had unexpected expenses." (Pg. 61) After summarizing the growing pattern of household debt, they comment, "If families aren't buying more goods, then what are they using all that debt for? They get into debt trying to buy their way out of the Two-Income Trap. The bidding war has inflated the cost of middle-class life to the point that once they have paid the mortgage and other fixed expenses, families have little discretionary income left---and even less margin for error." (Pg. 130)
This is a perceptive study and analysis of a growing and pervasive problem, that will be of interest to many students of contemporary economic problems and their social effects.
Back in the mid to late 60s, average real income in the U.S., which is just economic terminology for income adjusted for inflation, started to decline for the first time. Once that trend gets started in a country, for whatever reason, it's almost impossible to reverse, as any economic historian will tell you.
Now, forty years later, the impact of that dire trend is here for all to see. The American middle class is moribund and on the verge of extinction, if it isn't already. And in the last 15 years, the middle class has suffered through the worst of it, with job flight overseas in the late 90s, and the corporate restructurings of the early 90s. What is not well known is that most of the increase in profitability that drove the great bull market of the 90s was widespread and extensive corporate downsizings, restructurings, and layoffs during that period, which made companies leaner and and meaner. It wasn't that American companies were now better managed or were producing better products, although there were a few exceptions.
That's the sad macroeconomic backstory to the current situation. In this book, Prof. Warren examines the personal toll this economic sea change has produced, and how it has affected the families themselves. And her claims are backed up with massive amounts of data. And at this point, no one, even conservatives, denies it. Liberals and conservatives just disagree on the reasons for it.
Warren provides convincing evidence that it isn't frivolous spending that is driving most Americans into debt, which is the conservative view, but needed fixed expenses such as a mortgage, medical insurance, education, and so on, all of which have climbed precipitously in recent years, much more than the level of inflation, and more importantly, of average income.
Reckoned in these terms, I can't disagree with her conclusions. My only quip is that I'm sure that the millions of people who took out piggy-back loans were only too happy to take those cash payments, without the bank twisting their arms too much. There's the old saying about when a deal sounds too good, it probably is, but apparently no one was thinking in those terms. On the other hand, it was the mortgage lenders "loan to own" strategy that backfired on them, when interest rates went up. Word to the wise--no one can predict interest rates for very long, including economists--let alone your average citizen.
Also, Prof. Warren's data notwithstanding, which is very convincing, I should add, nevertheless, we've all seen people who have come into windfalls who've just frittered it away on frivolous consumption instead of doing the wise thing and saving and investing it. In fact, at my age, I've been around a while (I'm pushing 60) and I can't count the number of people I've seen do this.
Overall, though, I agree with almost all of what Warren has to say. But the likely cure for the current situation--balancing the budget, increasing taxes, ending the war in Iraq, creating better paying jobs and not simply more low paying ones, providing affordable medical insurance, buying smaller, more economical cars, eating out less often, and spending more responsibly when necessary--is probably more than Americans can stomach. Debt has simply become a way of life here, and that isn't going to change anytime soon. Not to mention the fact that creating more and better jobs would require some real creativity and rethinking of our whole work economy. Does anyone think our current crop of leaders (whether republican or democrat) is up to this task?
on April 28, 2005
At first I thought that it would be impossible for a two income family to go broke but the more I looked online at real estate prices in L.A., New York etc. the more I realized how that could happen. HOLY COW!
I think that this is a great book for people living it high priced areas but I don't know how much it pertains to us simple folks here in places like Oklahoma. You might not believe this but you can actually live quite well in Oklahoma City for about 40K per year. You can actually buy a nice home WITH a lot for 100K, send your kids to good schools AND have a lot of the other things that you need or want. My husband and I both work and if one of us were laid-off we really could live on one salary with minimal belt tightening. I have lived in Fairfield, Connecticut and I feel that even though salaries are higher there they are not high enough to off set the costs of housing, taxes and insurance.
Having said all of that, It's a really good book for people in high priced areas but not for everyone.