The Two-Income Trap [Paperback]

Most young couples today come from middle-class families with nice houses and good education. They are desperate now to get their children in good public school like they were before. The good schools today are found in the good neighborhoods. To live in these places, parents typically spend at least one paycheck on housing. Statistically, the house prices have raised with "79 percentage between 1983 and 1998". Apparently, these high housing costs have originated at the time when mothers entered in the workforce, generating parental bidding wars for good places with good schools. Also, the most recent credit system has dramatically changed the loan approval for housing from twenty percent down payment thirty years ago to three percent down payment today, attracting more and more families in the mortgage system. Without any good strategy, like to pay the high debt first, many of the two income couples seem to lose the loan's advantage, knowing that the late mortgage payment entails very high interest or even losing property. In order to reduce the long run mortgage bad effect, the book offers possible solutions such as school vouchers or a regulated mortgage market, making parents free to choose convenient public schools or financial nightmare release.

More often the idea of moving into the safe place with good school arises when mom and dad decide to have children. The arrival of children adds more long-term expenses to the already fixed mortgage, which represents full-day preschool education and later college education. Warren and Tyagi researches demonstrate that, today, the preschool public institutions cost is "six thousand and five hundred dollars a year" in Chicago for one child. For the higher learning education "The price of college has grown twice as fast as the average professor's salary", and "Tuition room, and board now cost more than eight thousand and six hundred a year at the average of public university". Particular education is even more prohibitively expensive. Mentality about children education has changed from one generation to another. To succeed in life today, the mentality dictates at least high school diploma. A generation ago, the need of high education was not indispensable to reach the middle class level. Accordingly, the middle class parents are caught in the middle of another bidding war, budgeting once again the family's incomes for long term. Solutions to attenuate these high education costs remain to be solved by the public founds from government or by all state colleges themselves, mandating the increase of their tuition fees.

Because the increasing frequency of divorces and job losses, in the past thirty years more and more families declare bankruptcy. Already in debt with the long-term payments, the family's financial position is in jeopardy at any time especially before these tragic events struck. The Warrens explain well that neither moms nor dads are protected against the bankruptcy's hit, once they declared the divorce. Since the fixed debts are made under the both signatures, there are no winners in this diabolic trial. Dads must pay their parts even though their incomes are lower than alimonies, and moms struggle to keep up the payments on debts. In most cases both parents financially are tied up for their rest of their lives. When mom or dad is laid off, or one of the two salaries at least is reduced, the crisis begins. Usually, both family members try to cut some daily expenses as much as they can, but in reality, these cuts do not allow them to cover the one lost or reduced paycheck. Evan though one member works extra hours and the other one has a part time job, the newest income is still not sufficient to cover the total family monthly expenses. If moms want to exit the financial disaster the book recommend that they should find other dads quickly, to cover the lost income. Dads should also find a way to help paying the old, common debt part as quickly as possible. For the laid offs, the best solution seems to be a saving plan, covering the fixed items payments for a few months. Finding quickly another job or selling the house represents two major actions that parents should take, before the disaster strikes again, and the debt rages out of control.

In their way to middle class stage, two income families attempt to duplicate in few years what may have taken a generation ago fifteen years to accumulate. The results are well known. Within few years they have many assets, but they are all caught in many liabilities. The book is a good financial lesson for the condition of middle-class families in United States. However the book treats sensible financial proposals, Elisabeth Warren and Amelia Tyagi details the real life in a good neighborhood.

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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.

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