The Two-Income Trap - Elizabeth Warren [28]
We offer two examples. We begin with Tom and Susan, representatives of the average middle-class family of a generation ago. (Once again, to make the comparisons easy, all figures are adjusted for inflation, reported in 2000 dollars throughout this discussion.) Tom works full-time, earning $38,700, the median income for a fully employed man in 1973, while Susan stays at home to care for the house and children. 111 Tom and Susan have the typical two children, one in grade school and a three-year-old who stays home with Susan. The family buys health insurance through Tom’s job, to which they contribute $1,030 a year—the average amount spent by an insured family that made at least some contribution to the cost of a private insurance policy. 112 They own an average home in an average family neighborhood—costing them $5,310 a year in mortgage payments.113 Shopping is within walking distance, so the family owns just one car, on which it spends $5,140 a year for car payments, maintenance, gas, and repairs.114 And, like all good citizens, they pay their taxes, which claim about 24 percent of Tom’s income.115 Once all the taxes, mortgage payments, and other fixed expenses are paid, Tom and Susan are left with $17,834 in discretionary income (inflation adjusted), or about 46 percent of Tom’s pretax paycheck. They aren’t rich, but they have nearly $1,500 a month to cover food, clothing, utilities, and anything else they might need.
So how does our 1973 couple compare with Justin and Kimberly, the modern-day version of the traditional family? Like Tom, Justin is an average earner, bringing home $39,000 in 2000—not even 1 percent more than his counterpart of a generation ago. But there is one big difference: Thanks to Kimberly’s full-time salary, the family’s combined income is $67,800—a whopping 75 percent higher than the household income for Tom and Susan.116 A quick look at their income statement shows how the modern dual-income couple has sailed past their single-income counterpart of a generation ago.
So where did all that money go? Like Tom and Susan, Justin and Kimberly bought an average home, but today that three-bedroom-two-bath ranch costs a lot more. Their annual mortgage payments are nearly $9,000.117 The older child still goes to the public elementary school, but after school and during summer vacations he goes to day care, at an average yearly cost of $4,350. The younger child attends a full-time preschool/day care program, which costs the family $5,320 a year.118 With Kimberly at work, the second car is a must, so the family spends more than $8,000 a year on its two vehicles. Health insurance is another must, and even with Justin’s employer picking up a big share of the cost, insurance takes $1,650 from the couple’s paychecks. 119 Taxes also take their toll. Thanks in part to Kimberly’s extra income, the family has been bumped into a higher bracket, and the government takes 33 percent of the family’s money.120 So where does that leave Justin and Kimberly after these basic expenses are deducted? With $17,045—about $800 less than Tom and Susan, who were getting by on just one income.
Source: Analysis of Consumer Expenditure Survey
FIGURE 2.1 Fixed costs as a share of family income
This bears repeating. Today, after an average two-income family makes its house payments, car payments, insurance payments, and child care payments, they have less money left over, even though they have a second, full-time earner in the workplace.121
If Justin and Kimberly have less money left over than Tom and Susan did, what happens to a family that tries to get by on a single income in today’s economy? Their expenses would be a little lower than Justin and Kimberly’s. They can save on after-school care for the older child, their taxes will be lower, and, if they are lucky enough to live close to shopping and other services, perhaps they can get by without a second car. But if they tried to live a normal, middle-class life in other ways