The Two Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke (Hardcover)

by Elizabeth Warren (Author), Amelia Warren Tyagi (Author) "Ruth Ann smiles when she talks about the summer she was pregnant with Ellie..." (more)
Key Phrases: financial fire drill, bankruptcy filing rates, added worker effect, Two-Income Trap, Ruth Ann, New York (more...)

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.

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 --This text refers to the Paperback edition.

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Product Details

• Hardcover: 272 pages
• Publisher: Basic Books (September 3, 2003)
• Language: English
• ISBN-10: 0465090826
• ISBN-13: 978-0465090822
• Product Dimensions: 9.3 x 6.3 x 1.1 inches
• Shipping Weight: 1.2 pounds
• Average Customer Review: 3.4 out of 5 stars See all reviews (88 customer reviews)
• Amazon.com Sales Rank: #91,579 in Books (See Bestsellers in Books)

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Customer Reviews

Most Helpful Customer Reviews

96 of 103 people found the following review helpful:

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

By	James Sadler (Plano, TX United States) - See all my reviews (REAL NAME)

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.

63 of 70 people found the following review helpful:

3.0 out of 5 stars Yes Virginia, many Americans are over-consuming, January 28, 2004

By A Customer

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.

138 of 168 people found the following review helpful:

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

By	K. Johnson (US/Asia) - See all my reviews (TOP 1000 REVIEWER)    (REAL NAME)

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?