MSNBC has an interesting review of a new book entitled The Two-Income Trap: Why Middle Class Mothers and Fathers Are Going Broke. While the first part of the piece is anecdotal, it brings up some startling statistics:
This year, more people will end up bankrupt than will suffer a heart attack. More adults will file for bankruptcy than will be diagnosed with cancer. More people will file for bankruptcy than will graduate from college. And, in an era when traditionalists decry the demise of the institution of marriage, Americans will file more petitions for bankruptcy than for divorce.
Amazing. And the profiles are counterintuitive:
The families in the worst financial trouble are not the usual suspects. They are not the very young, tempted by the freedom of their first credit cards. They are not the elderly, trapped by failing bodies and declining savings accounts. And they are not a random assortment of Americans who lack the self-control to keep their spending in check. Rather, the people who consistently rank in the worst financial trouble are united by one surprising characteristic. 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.
By the usual logic, sending a second parent into the workforce should make a family more financially secure, not less. But this reasoning ignores an important fact of two-income life. When mothers joined the workforce, the family gave up something of considerable (although unrecognized) economic value: an extra skilled and dedicated adult, available to pitch in to help save the family during times of emergency. When Junior got sick, the stay-at-home mother was there to care for him full-time, without the need to hire a nurse. If Dad was laid off, Mom could enter the workforce, bringing in a new income until Dad found another job. And if the couple divorced, the mother who had not been working outside the home could get a job and add new income to support her children. The stay-at-home mother gave her family a safety net, an all-purpose insurance policy against disaster.
If two-income families had saved the second paycheck, they would have built a different kind of safety net — the kind that comes from having plenty of money in the bank. But families didn’t save that money. Even as millions of mothers marched into the workforce, savings declined, and not, as we will show, because families were frittering away their paychecks on toys for themselves or their children. Instead, families were swept up in a bidding war, competing furiously with one another for their most important possession: a house in a decent school district. As confidence in the school system crumbled, the bidding war for family housing intensified, and parents soon found themselves bidding up the price for other opportunities for their kids, such as a slot in a decent preschool or admission to a good college. Mom’s extra income fit in perfectly, coming at just the right time to give each family extra ammunition to compete in the bidding wars — and to drive the prices even higher for the things they all wanted.
The average two-income family earns far more today than did the single-breadwinner family of a generation ago. And yet, once they have paid the mortgage, the car payments, the taxes, the health insurance, and the day-care bills, today’s dual-income families have less discretionary income — and less money to put away for a rainy day — 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.
At the same time that millions of mothers went to work, the family needed the stay-at-home mom (or a costly replacement) more than ever. The number of frail elderly, most of whom must depend on family for daily care, spiraled upward. Hospitals began discharging patients “quicker and sicker,” expecting the family to pick up the task of nursing them back to health. With Mom in the workforce, parents were faced with a painful choice between paying for expensive care and taking time off work. At the same time, the divorce rate continued its upward climb. This situation was compounded by a leaner-and-meaner business climate that closed plants and laid off workers with alarming frequency. In this tougher world, millions of two-income families learned the price of living without a safety net.
Inevitably, the Two-Income Trap affected the one-income family too. When millions of mothers entered the workforce, they ratcheted up the price of a middle-class life for everyone, including families that wanted to keep Mom at home. A generation ago, a single breadwinner who worked diligently and spent carefully could assure his family a comfortable position in the middle class. But the frenzied bidding wars, fueled by families with two incomes, changed the game for single-income families as well, pushing them down the economic ladder. To keep Mom at home, the average single-income family must forfeit decent public schools and preschools, health insurance, and college degrees, leaving themselves and their children with a tenuous hold on their middle-class dreams.
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. At a time when women are getting college diplomas and entering the workforce in record numbers, their families are in more financial trouble than ever. Partly these women were the victims of bad timing: Despite general economic prosperity, the risks facing their families jumped considerably. Partly they were the victims of optimistic myopia: They saw the rewards a working mother could bring, without seeing the risks associated with that newfound income. And partly they were the victims of one another. As millions of mothers poured into the workplace, it became increasingly difficult to put together a middle-class life on a single income. The combination has taken these women out of the home and away from their children and simultaneously made family life less, not more, financially secure. Today’s middle-class mother is trapped: She can’t afford to work, and she canÃ¢€™t afford to quit.
Part of this strikes me as misleading. To say that people have less discretionary income now than in the past ignores the fact that, while shelter isn’t discretionary, luxury is. Rather clearly, people on the aggregate are living far more affluent lifestyles than they did even 20-25 years ago. The size of the median home huge compared to the norm a generation ago. Most middle class families drive more luxurious cars, eat at restaurants more routinely, and have much more material wealth than their 1970s counterparts. But the price of that seems to be that many of us are only a couple paychecks away from going broke.