Free Republic
Browse · Search
News/Activism
Topics · Post Article

Skip to comments.

Two incomes, more debt?
Christian Science Monitor ^ | September 17, 2003 | Marilyn Gardner

Posted on 09/17/2003 2:00:15 AM PDT by Cincinatus' Wife

As a bankruptcy expert, Elizabeth Warren has seen the devastating effects on families when their finances collapse. She has also watched the number of bankruptcies escalate, rising 400 percent in the past 25 years. By the end of the decade, she says, an estimated 6 million families with children - 1 in every 7 such families - may declare bankruptcy. This year, more children are going through their parents' bankruptcies than their parents' divorces.

But Ms. Warren, a law professor at Harvard, rejects the conventional theory that overconsumption - squandering money on big-screen TVs, McMansions, restaurant meals, oversized cars, and luxury vacations - is to blame for insolvency and all those maxed-out credit cards. Instead, she points to the high cost of housing and education - fixed expenses that can quickly create a sea of red ink when families face layoffs, illness, or divorce. Skyrocketing healthcare costs add to the problem.

Ironically, Warren sees Mom's paycheck - a family's second income, the very asset meant to provide more financial stability - as a potential culprit rather than an economic cure. When middle-class mothers began entering the workforce en masse, she explains, their incomes gave parents more money to spend on housing. This created "frenzied bidding wars" for homes in desirable school districts. A deregulated mortgage industry compounded the peril by allowing homeowners to assume larger mortgages.

As a result, Warren says, dual-income families have less discretionary income and are more vulnerable economically than their single-breadwinner counterparts in the past.

She spells out her unusual theories in "The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke" (Basic Books), written with her daughter, Amelia Warren Tyagi.

"Two parents working hard at two jobs is not a guarantee against economic disaster," Warren says in a phone interview. "Today's parents feel they have no option but to pour enormous energy and all of their economic resources into getting their children into decent schools."

Problems arise, the authors add, when couples commit both incomes to fixed expenses. "Families aren't going broke because of one extra pair of Nikes," says Ms. Tyagi, a business consultant. "Families are vulnerable because they've stretched the fixed costs they have to pay month in, month out, no matter what. If something goes wrong and you face a period of unemployment, there's no way to cut back on the mortgage."

The No. 1 question every two-income couple needs to ask, Warren says, is whether their family can survive without one income. If not, she urges them to create an emergency backup plan as a hedge against the possibility that one of them will lose their income at some point.

The authors shun the conventional advice financial advisers often give, such as: Keep track of every penny. Don't eat out too often. Save on dry cleaning. They take the opposite approach, encouraging families to enjoy treats. If a layoff or illness occurs, the money allocated for these small pleasures can buy necessities.

Barbara Bergmann, an economist and a senior research associate at the Council on Contemporary Families, disagrees. She criticizes their theory that working mothers' salaries are partly to blame for the high rate of bankruptcies, calling it "totally fallacious." And she takes issue with the notion that the money mothers earn has fueled bidding wars.

According to the Bureau of Labor Statistics, Ms. Bergmann says, housing costs have risen 5.1 percent a year since 1970, when married mothers began entering the labor market in substantial numbers. During the same time, prices of consumer goods have gone up by almost the same amount, 4.9 percent a year.

She notes that rising mortgage payments include the home-equity loans people use to finance cars, renovate houses, and pay off credit-card debt.

For some two-income couples, cutting back on expenses remains important. In the early years of their marriage, Joe and Kristie Tamsevicius of Gurnee, Ill., faced more than $30,000 in credit-card debts. Mrs. Tamsevicius, who worked her way through college, had student loans to pay off. The arrival of two children added more expenses. "Babies are money-eating machines," she says. "They need so much."

By paying careful attention to what they spent, the couple gradually paid off their debts. They now have $40,000 in investments and savings. Among other cost-cutting measures, they drive to southern Wisconsin to shop for food, reducing their grocery bills from $180 a week to $110.

Last month, Mr. Tamsevicius, who does specialized computer programming, was laid off. To protect their assets, he has refinanced his truck, saving $200 a month. A rental property they own also brings in $300 a month. He plans to join his wife as a partner in her Internet business, Webmomz.com.

Double income, double expenses

As Warren and Tyagi note, a second income produces extra expenses. Creighton and Liza Abrams live in New Jersey and work in New York, he as a public relations executive, she as a marketing director. Their dual incomes require two expensive commutes, totaling $20 a day. Child care siphons off almost $2,000 a month and now costs more than their mortgage. They have "reasonable" credit-card debts and a small school loan, plus a car loan.

"Saving for two college educations while paying off a college education and saving for two retirements is tough," Mr. Abrams says. "We need to buy new appliances and paint the house, but we also want our first vacation in two years." Each choice will cost about $2,000. "If we killed off the credit cards, we could wipe out the college loan faster, then pay for the car and have an extra grand a month. That would really put us ahead."

How can parents avoid the two-income trap Warren and Tyagi describe? Sending Mom home is not the answer, they insist. Most families cannot afford to live on one salary. Instead, the authors advise couples to try to pay fixed expenses - mortgage, car, preschool tuition, health insurance - from one salary.

Other remedies require policy changes. Warren and Tyagi call for reregulating mortgages to require larger down payments for first-time home buyers. These have shrunk from an average of 18 percent in the mid-1970s to about 3 percent today. They propose public school vouchers, allowing parents to choose schools, thus freeing them from the need to live in high-priced neighborhoods. And they rail against usurious practices by credit-card companies, proposing caps on high penalties for late payments.

"Bankers who wear $3,000 suits and starched shirts are now charging interest rates that Jimmy the Leg-breaker didn't charge 25 years ago," Warren says. "Nobody sounds the alarm. The consequence is a wealth transfer of tens of billions of dollars every year from middle-class families to a handful of big banks."

A new study by Demos, a nonpartisan public-policy group in New York, supports that view. In the 1990s, the report finds, the average family's credit-card debt rose by 53 percent; middle-class families saw a 75 percent increase in that debt. For very low-income families, the figure shot up to 184 percent.

"Deregulation of the credit-card industry has allowed companies to take advantage of tough economic times," says Tamara Draut, coauthor of the study, "Borrowing to Make Ends Meet." The group wants Congress to rein in aggressive lending practices.

Whatever a family's economic challenges, they can be compounded by a cultural silence about money. Tyagi calls financial distress "the last great taboo." She notes that people will go on nationwide television and talk about intimate details of their lives, but they won't tell their own families that they're getting calls from collection agents who want to repossess the car.

Ashamed of financial problems

In a study conducted by the authors of more than 2,000 families in financial trouble, more than 80 percent said they didn't tell anyone, even when their difficulties stemmed from a job loss or illness, rather than overconsumption.

Many financial planning books ignore this kind of domestic fiscal crisis. "They tell how much to put in your 401(k), how to choose an IRA, but they tend to leave out the folks who are trying to decide whether to pay the health insurance or the car insurance," Tyagi says.

To those facing heavy debts, she offers reassurance, saying, "You're not alone. There are families at the PTA, at church, at work who are in just as much trouble as you are. They just don't talk about it." Emphasizing that most of those in financial straits are not immoral people trying to sneak away from their debts, she says, "It could happen to any of us. Families must try to overcome that shame and talk about it."


TOPICS: Business/Economy; Culture/Society; Front Page News; Miscellaneous; News/Current Events
KEYWORDS: bankruptsy; debt; employment; family
Navigation: use the links below to view more comments.
first previous 1-20 ... 41-6061-8081-100 ... 121-127 next last
To: AdamSelene235
Republicans suck! They let us down at every opportunity. Illegals, spending, judges, taxes, prescription drugs. At least the Demos are honest about what they are - socialists.
61 posted on 09/17/2003 7:08:21 AM PDT by chris1
[ Post Reply | Private Reply | To 60 | View Replies]

To: FITZ
Well, our family actually does make it on one income (but it ain't easy). My husband has a good job and makes about $100K/yr.

Sounds like a lot of money, but again...on Long Island it's just enough to get by with a modicum of comfort.

I have not taken a job myself, because quite frankly, it isn't worth it. The cost of hiring a babysitter for the kids every day after school would chew up way too much of that second salary, and of course, Uncle Sam would come calling for even more tax money.

Besides...I did 15 years in the workforce before I had the kids. I don't WANT to go back to work. I like being Mom, and I am willing to sacrifice some creature comforts in order to stay that way. I do wish, however, that the government didn't take half our income. Unfortunately, I don't see the tax situation in NY changing in my lifetime, so...as soon as hubby can retire, we are OUT OF HERE for good.
62 posted on 09/17/2003 7:09:19 AM PDT by VermiciousKnid
[ Post Reply | Private Reply | To 53 | View Replies]

To: VermiciousKnid
Escape from New York!!!!!
63 posted on 09/17/2003 7:23:20 AM PDT by chris1
[ Post Reply | Private Reply | To 62 | View Replies]

To: On the Road to Serfdom
...and think i should live in at least 200 square feet

arrghh, i meant 2000 square feet. LOL

64 posted on 09/17/2003 7:29:06 AM PDT by holdmuhbeer
[ Post Reply | Private Reply | To 56 | View Replies]

To: Cincinatus' Wife
This is also worth noting:

Nowadays folks have increased utility expenses. Such as cell phones, cable television, ISP's, second land lines, monthly home security monitoring, filtered water, on and on it goes.

Yes, it could be argued that these are all luxury items. But sadly most people who cannot afford these things go and get them anyway lest they be left behind by the technology boom. There is a herd mentality to all these stupid gadgets that only increases a family's monthly obligation. For instance, what man wants to be humiliated at work when the guys are talking about the big game on ESPN and he says, "we don't have cable, I didn't see it."

And, doesn't everyone have a cell phone these days. Most people did without not too many years ago, but now everyone needs one. WHY?

Not too long ago most people drank the water that came from their taps. Not anymore, they buy filtered/spring water. WHY!? - noone was keeling over from tap water.

All this technology gidgetry is taxing the common man. It is only my opinion that one day, I don't know when, the average Joe is going to wake up and say enough is enough and there will be a trend in America where people will turn their backs on this insanity and go back to a simpler life, a day when a man works to pay a mortgage, electric bill, and a phone. I don't expect it to be a large scale trend, but there will be some type of smaller scale rejection of this type of lifestyle. It's just getting insane.

For those in financial trouble I say to you, "add up every luxury utility expense (which is taxed and taxed and taxed)and see what you are doing to your bottom line.

Furthermore, forget about society's insanity that says you have to save for your child's college education. That's the biggest peice of howwash that's being sold to America today!!!!! What, we as parents are supposed slave to finance our kid's education so they can go out and earn a huge dollar when they get out of school and then they can carry on their lives with unsaddled college debt. I'm sick and tired of these pinhead financial experts telling America we need to save for our kid's college expenses and start today, don't wait, blah, blah, blah, blah, blah! My kids will get "room and board" help only, that is they can live at my house as long as they are a full-time student. Beyond that, they will find a way to be educated less my financial backing. Do college kids actually work anymore to put themselves through school?

Wow, this is turning into a full-fledge rant!!!

Debt robs you of peace of mind! Having no nest egg kills any chance at tanquility for most! And JOY can be found in most families where both parents know if they lose both their jobs today they can coast and get by for a specified time because they were prudent and saved, and haven't burndened themselves with enormous monthly expenses. So what is "peace of mind" worth? Making choices today can begin to restore "the peace that was meant to be."

Cable/Filtered Water/college savings/ISP/ETC or peace of mind?

Like everthing - It's a choice.

65 posted on 09/17/2003 7:37:07 AM PDT by Prolifeconservative (If there is another terrorist attack, the womb is a very unsafe place to hide.)
[ Post Reply | Private Reply | To 7 | View Replies]

To: biblewonk
(from the article) This year, more children are going through their parents' bankruptcies than their parents' divorces.

Incredible. I can't think of an acquaintance who's declared bankruptcy. Maybe it's hard to know without reading the announcements in the newspaper.

66 posted on 09/17/2003 7:37:38 AM PDT by newgeezer (A conservative who conserves -- a true capitalist!)
[ Post Reply | Private Reply | To 55 | View Replies]

To: GovernmentShrinker
And this article provides numerous illustrations of the number one rule of financial stability: don't have children before you can afford them. What are people thinking of, having a baby while they've got $30,000 in credit card debt, or before they've paid off their own student loans? Get completely out of debt except for a reasonable mortgage, pay cash for a good used car, and THEN start bringing children into the world.

Disagree. Children are not the problem here. If you wait until you can afford them you'll never have them. And we need to be reproducing at a far higher level than we are.

The problem is people getting themselves into 30K of CC debt in the first place. If you don't have the cash, don't buy it.

Cars are another big issue with me. People insist that they have to have a new car every three years or so. If they'd just wait three years and buy that car (when it's 4 model years old) they'll save around 40-50% of the cost. Then drive it for 10-12 years and do it again. The cost savings is incredible.

Likewise if you want a big house, buy a big fixer-upper.

We bought our 2200 sq ft home for 24K back in 1987. After much work (and about 50-60K of improvements) it's worth well over 100K now but my housing payment is still less than the rent I paid previously.

And lastly, live in a cheaper area. My cost of living is next to nothing compared to the big cities. I pay about $575 a year in property taxes (although they will increase this year)

We are a one-income family with children and we are doing quite nicely. Of course we eat out far too often but we're working on that.

67 posted on 09/17/2003 7:40:28 AM PDT by John O (God Save America (Please))
[ Post Reply | Private Reply | To 37 | View Replies]

To: Prolifeconservative
College today is the saddest and cruelest hoax on the middle class. I know many many many plumbers painters dry wall fence mechanic's etc who are making far more than college grads and have no debt or school loans. College is a farce today because these kids come out learning and knowing nothing helpful in terms of employment. It is another transfer of wealth to the elites.
68 posted on 09/17/2003 7:40:39 AM PDT by chris1
[ Post Reply | Private Reply | To 65 | View Replies]

To: Prolifeconservative
And, doesn't everyone have a cell phone these days. Most people did without not too many years ago, but now everyone needs one. WHY?

I hate cell phones and I refuse to use one unless it's an emergency. I don't like talking on the phone when I'm home, much less when I am out.

69 posted on 09/17/2003 7:44:24 AM PDT by dfwgator
[ Post Reply | Private Reply | To 65 | View Replies]

To: backhoe
Taxes...

You mean these?

Building Permit Tax
Capital Gains Tax
CDL license Tax
Cigarette Tax
Corporate Income Tax
Court Fines (indirect taxes)
Dog License Tax
Federal Income Tax
Federal Unemployment Tax (FUTA)
Fishing License Tax
Food License Tax
Fuel permit tax
Gasoline Tax
Hunting License Tax
Inheritance Tax Interest expense (tax on the money)
Inventory tax IRS Interest Charges (tax on top of tax)
IRS Penalties (tax on top of tax)
Liquor Tax
Local Income Tax
Luxury Taxes
Marriage License Tax
Medicare Tax
Property Tax
Real Estate Tax
Septic Permit Tax
Service Charge Taxes
Social Security Tax
Road Usage Taxes (Truckers)
Sales Taxes
Recreational Vehicle Tax
Road Toll Booth Taxes
School Tax
State Income Tax
State Unemployment Tax (SUTA)
Telephone federal excise tax
Telephone federal universal service fee tax
Telephone federal, state and local surcharge taxes
Telephone minimum usage surcharge tax
Telephone recurring and non-recurring charges tax
Telephone state and local tax
Telephone usage charge tax
Toll Bridge Taxes
Toll Tunnel Taxes
Traffic Fines (indirect taxation)
Trailer registration tax
Utility Taxes
Vehicle License Registration Tax
Vehicle Sales Tax
Watercraft registration Tax
Well Permit Tax
Workers Compensation Tax

70 posted on 09/17/2003 7:48:47 AM PDT by ladtx ( "Remember your regiment and follow your officers." Captain Charles May, 2d Dragoons, 9 May 1846)
[ Post Reply | Private Reply | To 2 | View Replies]

To: Cincinatus' Wife
TAXES! Excellent point. What's it up to, 50%? BIG government needs to cut back.

Seems about right, especially when looking at my husband's check. It gets ZAPPED big-time.

71 posted on 09/17/2003 7:50:39 AM PDT by madison10
[ Post Reply | Private Reply | To 6 | View Replies]

To: FITZ
I am sooo blessed to have been given that gift. I will not be able to give it to my children (free and clear that is). I took care of very young sick parents (Daddy died at 52 of cancer and Mom pined away for him until 61), while my sisters had families they could not afford. My parents actually bought a duplex for them (and my dad was a salesman who never earned more than 24,000 a year, but was frugal) on the thought that they would save money to get a house of their own, splitting the investment for a down payment. Both families while paying 215.00 a month, chose to live the high life and in the end the house was sold at a loss. Neither sister could understand why I got my parent's house.
One is now a lesbian and the other just survived bankruptcy with her second husband.
Is this too much information?
72 posted on 09/17/2003 7:51:32 AM PDT by netmilsmom (I may hide, but I never leave!)
[ Post Reply | Private Reply | To 54 | View Replies]

To: holdmuhbeer
arrghh, i meant 2000 square feet. LOL

Ah, your parents are behind the times ... the Realtors and builder's associations say you should have 1000 sqft per person, so you need 4,000, and I need 9,000. And then they wonder why people can't make their payments!

Our new house has 2,400 ft (for 9 of us, as of 2/1/04); the identical house next door is owned by a young, childless, 2-income couple (and their new rottweilers, which are toast if they tunnel under our fence or bark at night ...)

Almost everyone in our apartment building is building a new house - the Japanese are permanent renters, maybe they know something the rest don't? Most families are getting houses 300K and up, with much smaller families than ours. People's expectations have just grown unrealistically ... and then academics give them someone else to blame (lenders) when they can't pay their bills.

73 posted on 09/17/2003 7:51:44 AM PDT by Tax-chick (RIP Johnny Cash ... "Take this weight from me, let my spirit be unchained.")
[ Post Reply | Private Reply | To 64 | View Replies]

Comment #74 Removed by Moderator

To: John O
For most families, children ARE the problem. And if they're the sort of people who'll never have them because they think they can't afford them, they're probably better off not having children. If having children and raising them yourself (not dumping them in daycare and government schools, while both parents work to pay off their debts) isn't a bigger priority than ever-increasing material wealth and comfort, don't have them. For people who really make having and raising children the priority, they'll be able to finish their educations, get out of debt, and make the down payment on a modest home within a few years, and then skip all the unnecessary stuff and easily afford to have children.
75 posted on 09/17/2003 7:55:30 AM PDT by GovernmentShrinker
[ Post Reply | Private Reply | To 67 | View Replies]

To: netmilsmom
We could afford it at the time but the property taxes and insurance rates are killing us.

Car insurance is outrageous. It may actually pay my husband and I for me to quit my job and sell the second car I need to get to that second job.

Did not realize until recently that the cost of living in Michigan is HIGH compared to outlying areas of Ohio. Friends who have moved here have faced mega sticker shock.

76 posted on 09/17/2003 7:56:54 AM PDT by madison10
[ Post Reply | Private Reply | To 39 | View Replies]

To: Prolifeconservative
What you said!
77 posted on 09/17/2003 7:59:30 AM PDT by Tax-chick (RIP Johnny Cash ... "Take this weight from me, let my spirit be unchained.")
[ Post Reply | Private Reply | To 65 | View Replies]

To: backhoe
One word she missed... Taxes...

Yes, government is way, way too big and overstepping its bounds by orders of magnitude. Taxes are obscenely high by any measure of Constitutional justification.

But, blaming bankruptcy on taxes is something like blaming obesity on food, blaming 9/11 on the airlines, or blaming lung cancer on Philip Morris.

Bankruptcy is caused by living too close to the edge, poor planning, unpreparedness and/or "unbridled enthusiasm."

78 posted on 09/17/2003 8:04:53 AM PDT by newgeezer (A conservative who conserves -- a true capitalist!)
[ Post Reply | Private Reply | To 2 | View Replies]

To: newgeezer
Incredible. I can't think of an acquaintance who's declared bankruptcy. Maybe it's hard to know without reading the announcements in the newspaper.

I am a consumer bankruptcy attorney, so I know about 400 people that have filed bankruptcy. I assure you, one of your acquiantances has filed at some point in their life. It's not something that needs to be broadcast.

Several years ago, I went to a Mardi Gras ball. Several prominent people in the community were there and I had done a bankruptcy for a couple of them. Upon my entrance, they all put their masks on and pretended they didn't recognize me! Obviously I played along.

79 posted on 09/17/2003 8:05:22 AM PDT by bigeasy_70118
[ Post Reply | Private Reply | To 66 | View Replies]

To: alloysteel
or like an Administration spending half a TRILLION bucks more than it collects in taxes in one year, on the assumption that magical growth will return one day, some day, but never today, to balance the budget?
80 posted on 09/17/2003 8:08:37 AM PDT by fortaydoos
[ Post Reply | Private Reply | To 3 | View Replies]


Navigation: use the links below to view more comments.
first previous 1-20 ... 41-6061-8081-100 ... 121-127 next last

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
News/Activism
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson