The Two-Income Trap - Elizabeth Warren [12]
The same balancing act holds true in other areas. The average family spends more on airline travel than it did a generation ago, but it spends less on dry cleaning. More on telephone services, but less on tobacco. More on pets, but less on carpets.19 And, when we add it all up, increases in one category are offset by decreases in another. In other words, there seems to be about as much frivolous spending today as there was a generation ago.
Yet the myth remains rock solid: Middle-class families are rushing headlong into financial ruin because they are squandering too much money on Red Lobster, Gucci, and trips to the Bahamas. Americans cling so tightly to the myth not because it is supported by hard evidence, but because it is a comforting way to explain away some very bad news. If families are in trouble because they squander their money, then those of us who shop at Costco and cook our own pasta have nothing to worry about. Moreover, if families are to blame for their own failures, then the rest of us bear no responsibility for helping those who are in trouble. Their fault, their problem. We can join the chorus of experts advising the financial failures to “simplify”—stay away from Perrier and Rolex. Follow this sensible advice, and credit card balances will vanish, bankruptcy filings will disappear, and mortgage foreclosures will cease to plague America.
Reality is not nearly so neat. Sure, there are some families who buy too much stuff, but there is no evidence of any “epidemic” in overspending—certainly nothing that could explain a 255 percent increase in the foreclosure rate, a 430 percent increase in the bankruptcy rolls, and a 570 percent increase in credit card debt.20 A growing number of families are in terrible financial trouble, but no matter how many times the accusation is hurled, Prada and HBO are not the reason.
Where Did the Money Go?
If they aren’t spending themselves into oblivion on designer water and DVDs, how did middle-class families get into so much financial trouble? The answer starts, quite literally, at home.
We could pile cliché on cliché about the home, but we will settle for this observation: The home is the most important purchase for the average middle-class family. To the overwhelming majority of Americans, home ownership stands out as the single most important component of “the good life.”21 Homes mark the lives of their children, setting out the parameters of their universe. The luck of location will determine whether there are computers in their classrooms, whether there are sidewalks for them to ride bikes on, and whether the front yard is a safe place to play. And a home will consume more of the family’s income than any other purchase—more than food, more than cars, more than health insurance, more than child care.
As anyone who has read the newspapers or purchased a home knows, it costs a lot more to buy a house than it used to.22 (Since the overwhelming majority of middle-class parents are homeowners, we focus this discussion on the costs of owning, rather than renting.23) What most of us have forgotten, however, is that today’s home prices are not the product of some inevitable demographic force that has simply rolled its way across America. Quite the opposite. In the late 1980s, several commentators predicted a spectacular collapse in the housing market. Economists reasoned that the baby boomers were about to become empty nesters, so pressure on the housing market would undergo a sharp reversal. According to these experts, housing prices would reverse their forty-year upward trend and drop during the 1990s and 2000s—anywhere from 10 to 47 percent.24
Of course, the over-consumption critics have a ready explanation for why housing prices shot up despite expert predictions: Americans are bankrupting themselves to buy over-gadgeted, oversized “McMansions.”. Money magazine captures this view: “A generation or so ago . . . a basic,