The Two-Income Trap - Elizabeth Warren [6]
And the lines at the bankruptcy courts are not the only signs of financial distress. A family with children is now 75 percent more likely to be late on credit card payments than a family with no children.8 The number of car repossessions has doubled in just five years.9 Home foreclosures have more than tripled in less than 25 years, and families with children are now more likely than anyone else to lose the roof over their heads.10 Economists estimate that for every family that officially declares bankruptcy, there are seven more whose debt loads suggest that they should file for bankruptcy—if only they were more savvy about financial matters.11
Unseen Dangers
Who are the families in so much trouble? Most are like Ruth Ann and James—ordinary, middle-class people united by their determination to provide a decent life for their children. Like James, many had been felled by a layoff or a business failure; someone who glanced at this year’s tax return might label them as poor. But very few were chronically poor. For most, poverty was only temporary, a setback in an otherwise solidly middle-class life. When membership in the middle class is defined by enduring criteria that don’t disappear when a pink slip arrives—criteria such as going to college, owning a home, or having held a good job—more than 90 percent of those in bankruptcy would qualify as middle class.12 By every measure except their balance sheets, the families in our study are as solidly middle class as any in the country. And they are united by another common thread: Most of these families sent two parents into the workforce.
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