Customer Reviews

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

5 star:		(35)
4 star:		(29)
3 star:		(20)
2 star:		(10)
1 star:		(13)

 

 

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.

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?

Other reviewers have touched on the main points made in this book, so I won't go over them. I both agree and disagree with the authors. Yes, fixed expenses such as taxes and mortgages are higher than for previous generations. Yes, downsizing, foreign outsourcing and 9 million illegal immigrants are driving down wages. Yes, unforeseen health problems can devastate a family financially. These are serious problems that should be dealt with at the government level.

However, I disagree with the tone of victimization in the book. The average American must bare some responsibility for the problems they find themselves in. Most Americans are not politically involved. Many are likely to know the characters on Survivor, but most will not know the names of the Democratic presidential candidates. Many care more about celebrities and entertainment than the policies and laws that actually affect their lives. If ordinary people don't care about politics, why should the politicians look out for their needs?

In my condo complex many couples with small children own either one or two SUVs, which are much more costly to buy and run than the average Honda Civic or Ford Taurus. People I work with think nothing about spending a couple of hundred dollars on meals and drinks each weekend ($700-$800 a month). Most buy lunch each day at a cost of $5 to $7 (Approx. $120 a month). Many stop by at Starbucks for morning coffee (Approx. $50 a month). So my coworkers who earn about $2500 to $3500 a month after taxes can easily blow $1000 a month on restaurant food and beverages. My husband and I eat dinner out twice a month, which rarely costs more than $25. We buy lunch only a few times a month. We drink the coffee and tea provided at work. The authors seriously downplay much of the excessive, discretionary spending that is really going on.

There are a few other issues. People are putting off marriage, usually until their mid 30s. Living on one income is more costly than on two, which prevents many people from accumulating wealth and assets at an early age. This also makes it extremely difficult to live on one income when children arrive. Divorce rates are excessive. The main reason for divorce is irreconcilable differences. Studies have found that couples who work out their problems and stay married are twice as likely to be happy five years later than couples who split up. More women are choosing to be single parents. Singleness in whatever form it takes is a financial drain.

I am giving this book 3 stars because much of what is says is important. However, I am afraid the authors may be making excuses for many people who really are responsible for their bad financial situations.

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.

I have just started reading the book "Affluenza: The All-Consuming Epidemic" by John De Graaf, which has an interesting statistic. Fifteen years ago there were more high schools than shopping centers in the US. Today there are two shopping centers for every high school. Also, 70% of Americans go to the mall once a week. I recommend that you read Affluenza in addition to The Two-Income Trap, so you can compare and contrast. Affluenza somewhat contradicts the premise of The Two-Income Trap.

If Americans really are spending less than their parents' generation why has the number of shopping centers skyrocketed? Why is there so much debt and bankruptcy? It?s because creditors are extending a lot of credit to the uncredit-worthy. This includes people with bad credit and college students who earn little or no money. Many young people graduate from college with enormous amounts of credit card debt at excessive interest rates, on top of student loans. With the interest rapidly building it can take years to pay off the debt. Those are also years spent saving and investing little or no money. As a result many people have a lot of debt and no money saved when they marry, have children and buy a home. Smaller down payments mean higher mortgages. Of course, nowadays a car is no longer good enough for young urban and suburbanites so they buy costly SUVs and add higher auto payments and enormous gas bills to their problems. With little or no savings and high debt loads many people don't have the savings and the insurance to get through job losses or illnesses.

The authors' claim that "over-consumption" is not the problem simply doesn't stand up to scrutiny. Imagine a scenario. A college student lives as cheaply as possible. He graduates only with student loan debt. He gets a job, brings a bagged lunch to work, makes dinner at home and only buys clothes he needs. He puts $1000 a month into savings and pays more than the monthly minimum to quickly pay down his student loans. He gets married and he and his wife now put $2000 a month into savings. By 30 they have well over $150,000 saved, so they make a big down payment on a house. They now have an affordable mortgage. A child is born and thanks to their frugal habits and lack of debt either mom or dad can afford to stay home and raise it. They buy an insurance policy that will pay their mortgage if they can't make payments due to illness or job loss. They also buy life and disability policies, which they can afford because they are not overwhelmed with debt. How do I know this is possible? I'm 35 and I did it.

This book is pretty good and is worth reading, because it discusses many important issues and makes many good points. For example, I agree with the idea of rate caps on credit cards and I agree that universities don?t do much to keep costs down. However, its unfortunate that the authors have downplayed the obvious over-consumption that is widespread in America today. Frugality and saving from a young age are the simplest solutions to the two income trap.

I think my views are equal to most other reviewers. I'll add in that the two income "trap" can apply to almost any household income situation. A single-income family earning 100K a year can be trapped if they spend as much as they earn and then suddenly lose income.

We need to get back to a different goal of living well within your means, well under your means, saving perhaps 20% of what you earn, and not maxing out your mortage or any other spending. It's not all bad news. There is hope although this book does paint a depressing picture.

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.

I believe one insightful portion of the dedication to this book sums up its thesis best:

"..dedicated to all parents who wake up with hearts thudding over the possibility that buying school shoes and Girl Scout uniforms will mean that there won't be enough left over to pay the mortgage... They travel anonymously among us, but we know them. They went to college, had kids, bought a home, played by the rules- and lost."

This is not the first time that Elizabeth Warren has sounded the alarm about stable, hard-working people going under in droves. Indeed, the contents of this book are actually a graphic, terrifying distillation of two previous books written by Prof. Warren (in collaboration with Teresa Sullivan and Jay Lawrence Westbrook) chronicling the rapidly evolving disaster of consumer bankruptcy in America. The first book, As We Forgive Our Debtors, was an outgrowth of the US Consumer Bankruptcy Project, and looked at all of the key players in consumer bankruptcy, focusing in particular on bankrupt debtors and their creditors; it was very academic in nature, which may have explained its tepid reception in the marketplace (however, I suspect the very incendiary comments and conclusions all throughout the book rankled quite a few feathers in the banking industry, and may well be the real reason the text was conspicuously ignored). The second book, The Fragile Middle Class, focused exclusively on bankrupt debtors, and looked closely at the fallout associated with consumer bankruptcy for several reference groups; it was less academic and more activist in tone, and actually preceded The Two Income Trap in sounding the alarm about US consumer bankruptcy.

The Two-Income Trap also sounds the alarm, and zeroes in on the reference group everyone would readily say is most likely NOT to go bankrupt: two-income, solidly middle-class mothers and fathers with kids and a home in the burbs. This book, much like the ones before it, dispells the prevailing myths that the bankrupt are ignorant, low-income deadbeats, unrepentant spendthrifts who take advantage of a far-too-lenient system with giddy glee, and have no control over their impulses. Instead, each book has demonstrated that the bankrupt have to have a fairly high degree of financial savvy to even consider bankruptcy, that the majority of the bankrupt are solidly middle class, that most got in over their head in a situation far beyond their control, and all are profoundly embarassed by their bankruptcy, which all of them see not only as a financial failure, but also a personal one, as well.

Yet, it is also clear to me that the spirit of activism, which was subdued in As We Forgive Our Debtors and quite forceful in The Fragile Middle Class, is not only alive and well in this book, but also very loud, and very clear; indeed, the activist tenor is quite torrential in this narrative. The authors, both women, clearly have written a book to discuss the plight of a particular reference group: middle class women, be they married, single or divorced, with children. This reference group has quickly become the single biggest cohort represented in the bankruptcy rolls. In the book, the authors go so far as to imply that women's liberation has resulted in more than a few of their sisters ending up in the poorhouse.

Having previously read Lionel Tiger's The Decline of Males, and Warren Farrell's insightful books, Why Men Are The Way They Are and The Myth of Male Power, I found the contents of this book (and the authors' aforementioned implication) most interesting. I submit that equality of the sexes has finally been achieved, albeit in a most peculiar and unorthodox way- via financial insecurity, as nowadays it apparently knows no gender difference. Though my intention is to be partially humorous, I realize that more than a few will take offense at such a comment, but my main thrust is this: what we see before us is all part of a larger plan to reinstate the New And Improved Feudalism upon the masses. Call me crazy if you like, but before you pass judgment, I strongly suggest that the intelligent, thinking individual read Robert Manning's Credit Card Nation for more insight into my claim.

For many, the pursuit of the American Dream (which many would say was a cute little myth in any event) has devolved from an honest chance at a guaranteed title shot, to little more than a gamble with one's finances resembling Russian Roullette with an interesting twist: instead of one chamber holding a live round, five chambers have live rounds. Lose a job, miss a payment, and you can kiss your house and your middle class existence goodbye.

Frankly, this game's too rich for my blood, and I think I will pass...

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.