Wednesday, May 28, 2008

Pondering the two income trap

Jennifer F. sent me this lecture by Elizabeth Warren, author of The Two Income Trap. It's a scholarly--yet practical--analysis of spending patterns.



If American families are working so hard, why are we as a nation still in debt? Warren's answers may surprise you.

(I'd fast forward past the lengthy introduction.)

31 comments:

Shannon@Idylwild said...

I got about 3/4 of the way through before it shut down, but what a great lecture. I've always believed that "we" as a generation are just greedier and that's why "we" have so much trouble with debt & bankruptcy. Wow. It really makes being a sahm seem financially worthwhile, but at the same time makes me very, VERY nervous about the (relatively small) amount of debt we still carry. This will definitley be fodder for our next big family meeting!

Michelle Smiles said...

I only got about 45 minutes in but that was certainly interesting. Not what I would have guessed the reasons for higher debt and lower savings would be. Huh - thanks for sharing.

songbirdy said...

Very, very interesting. I got through the whole lecture (insert two dog to the yard breaks and 1 crying child interruption).

There should be a disclaimer as it is shocking and depressing information. Yet, for me, there was a lot of information in there that gave me a lot more respect for my society. To some degree our culture isn't a materialistic as I have believed.

Not saying that I give up my belief that we suffer from excess in every area of life.

The question now becomes, what do we do with this information? How can I use this information to better my family?

That and I'd love to see some comparisons between US and Canadian figures when it relates to health care and taxes... [my husband is currently in the highest tax bracket up here, you don't want to know!]

3beansalad said...

Interesting video. I know Elizabeth Warren isn't a policy analyst, but I'd like to hear more of her thoughts on how to remedy the middle class crunch. I would wager she wouldn't advocate for fewer women in the workforce. Rather, I think it would be affordable health care, school funding not based on property taxes, and a change in Federal tax structure. I'm going to see if I can get some of her books from the library.

Ewokgirl said...

That was really interesting. I'm perplexed by some of it, though. I guess I'm one of many who assumed that people are spending themselves into trouble through expensive car, house, and toy purchases. When I look around my own community, that seems to be the case, but I guess I only see a tiny portion of the whole.

The stuff about families with children made sense, though. My youth group kids attend one of the more highly-ranked schools on Newsweek's recent list of the 1300 best high schools in the country. Their parents pay through the nose for property taxes so that their kids can go to this school. Add to that the kids' activities, most of which come with travel expectations and other expenses, and you're looking at huge amounts of money being spent to give the kids a good start in life. I've watched my youth group work themselves to exhaustion to try to keep up and excel at too many things because that's what we're being told it takes to get into the good universities and succeed in life.

Frankly, my husband and I have looked at all this and wondered if we could even afford to have kids.

On the flip side, I'm looked at as something extremely unusual in that I'm a SAHW and have no children. I've been a SAHW for 9 years now. If something were to happen to my husband, I could easily go back to work, and we wouldn't really suffer any ill effects. Theoretically, if I worked, we could sock away my entire income and have an amazingly fabulous savings account and investments. Realistically, though, we'd spend that second income. And we'd eventually come to rely on it as necessary. When she explained about the loss of income for a 1970s family v. a 2000s family, it made a lot of sense, even though I couldn't seem to figure out on my own why it works.

Jane said...

Actually makes me feel a bit better. My parents had a lovely home at the age of 24. I am struggling to save (albeit in a **much** more costly city) enough to buy a home in my mid thirties. Just glad to know it's not my imagination that things are harder now.

Janette said...

Making me very nervous for my two children as they strive to become middle class. I think my son is well on his way- and my daughter ....not so.
YET, my duaghter is staying at home with the baby and that alone makes her state right now much more important in my mind.

Renae said...

I'm still listening, but this is fascinating. It makes me so grateful that we homeschool and that we bought the ugly, cheap house. :)

Anonymous said...

Wow, what a great video. I've seen Ms. Warren before and have always respected her message. For those who can't sit through the hour long video, i found the most interesting points at the 15.5, 25, 28, 32, 37, 39, 45, 50 and 53 minute marks. The intro ends at the 4.55 minute mark.

However receiving just the information/stats seems fatalistic to me. What is the answer/solution (other than policy change) to change these trends? What can the average reader do to overcome these odds?

Molly said...

Meredith,

It was a very interesting lecture, thanks for sharing. I am just wondering now what am I supposed to do with that information? How can I make it work for me? Any ideas would be appreciated.

Molly

Erika said...

Thank you for posting this! I watched the whole thing (and took notes to share with my husband). We are self-employed and our [HMO with no out of network benefits] health insurance is a full 40% MORE than our mortgage; definitely an expense my parents did not have to worry about when I was growing up, but something I hadn't really thought about since there is just no way around it. I guess the most important thing I got out of this was a little alleviation of the guilt I feel from not doing better financially. Maybe it isn't that I'm not trying hard enough--the odds are just so high against us making it even with all my efforts at curtailing the flexible expenses. (Though I am not about to stop trying!) Who would have thought such depressing information could actually be mildly uplifting?!

Anonymous said...

I have read Elizabeth Warren's book, & found this lecture interesting as well. Much to ponder...definitely something ALL Americans should care about. As she put it, Middle Class was something sort of boring, made fun of, etc. But it is crucial to the well-being & overall culture of this country. Truly, there is so much that would change, & not for the better, if it were not for the middle class Americans.

Brenda

Lynn Four said...

Excellent lecture. Our family has pondered this recently. We have also seen this first hand in our homeschool community(bankruptcy,forclosures, no health coverage.) If ever there was atime to be debt free it is NOW.

Anonymous said...

Thanks for posting. I spent my son's nap watching it and it was worth the time.

Jenny's Vegcafe said...

It never really occurred to me how much extra we're paying to get into a good school district as part of educational expenses for my children. Add the two years of preschool and Wow! Even if I limit activities and buy everything second hand it still adds up. You can't get a second hand education.
I live in a very good school district right on the county line next to the not so great one. People pay (they have to) thousands more for the same house because of the school district.
It makes homeschooling seem like a good idea.
Something that wasn't mentioned in the lecture was that there aren't many small/modest sized houses being built now. What I see are all little McMansions. A lot of people may want to the big house but how many would be satisfied by one that's just the right size?

Frugalicious said...

I watched this on mymoneyblog.com a few weeks ago. What I found interesting is how our parents generation blames us for spending more on junk when really we are spending less while the costs that are difficult to cut are higher such as health care.

To get past the two income trap you have to be very creative. What she said that affirmed what I am fearful of is that those that get "ahead" do not experience job loss, or a major medical issue. Although we save for those, one major problem can drain our savings substantially.

lizzykristine said...

Wow, Meredith. Thanks for posting this! I got off track with today's schedule in order to watch the whole thing, and it was so fascinating that I took notes. I thought for sure that being a simple one-income family is harder these days. Now I know why -- her lecture made so much sense.

Who knows what the future holds? It is easy for me to worry, but I'm glad that the Lord is truly in control of our lives. Glad I can trust Him to provide my needs instead of bearing the whole burden of providing for myself!

eleanor joyce said...

Any chance of you offering a brief synposis?
Love you blog, by the way. I visit almost every day. Please consider entering the giveaway contest on my blog. I know you would LOVE the magazine, based on your blog content.
Thanks,
Eleanor

Anonymous said...

I can't get on to listen, but given the situation of the economy and our household, it's only going to get worse, from my standpoint.
I am a mom of 2 and my husband has not found substantial work or career since he was laid off - He made 80k annually -Still, I am not complaining because I know I am well blessed!Vacations? Gone -
Free trips to beach and coast - free and totally priceless-
Savings? Not the greatest -
We have 4 vehics that have been paid off - no credit card debt - but medical bills up the wazoo...
We have a home loan/mortgage - 250 plus - Interest rate not good.
However, I am glad that I'm employed, although I yearn and long to be a domestic goddess - I am just that on weekends... With all the costs of living - we are strapped with only one income - Meaningful frugality is my name -
When your bills are more than the money you bring home, that's very real. We have to just learn to conserve more, spend less, and get creative with making money on the side - I have baked full size homeade Arkansas (grandma's recipe) pound cakes for collegues and friends for years -
I have labels and specialty flavors -
I'm going to be offering my cakes to 1 coffee shop - charging a flat rate and they are charging the public 3 bucks a slice... The demand will be coming in...It's going to be fun and as a working mom & wife, I have learned that you just have to 'do what you gotta do' for your your family... I thank God for that... That's the truth.
Working mama in the NW -
(Latrice)

Meredith said...

Way to go, Latrice!

I think Warren is careful not to make value judgements on two-income families, or even families in which the wife is breadwinner.

Basically, the secret value of a 1-income household is that the 2nd person can add income if necessary--if a spouse becomes disabled or loses the job.

The danger is when a household is set up to NEED 2 incomes, and then one is lost. There is no margin.

However, she points out that the challenge is huge to live 1-income in a world that has grown to encompass the 2-income family.

To me, that's where frugality comes in, finding creative ways to make up the difference by doing it ourselves, enjoying free things, etc.

Tasha said...

Wow!!!I am suprised on one hand:
I was suprised by the 76% increase in housing and the 74% increase in insurance costs.

But on the other, debt is what is killing our middle class. She showed a huge percentage of revolving debt. We may be spending less on clothes, food and appliances as a middle class,(as compared to 1970) but unfortunately a large portion of these expenses are being bought on credit cards which blows these costs out of the water.

It makes the efforts that we as wives are trying to make to be frugal even more important to our families.

Meredith,
Thanks for the eye opener!!
Tasha

TheNormalMiddle said...

Latrice, you hit the nail on the head. Sometimes you gotta do what you gotta do.

Been a SAHM/homeschooler for 7 years.

Going back to work full time in August as a teacher kicking and screaming all the way. Husband lost job hours down to very little (they call it short-time at his work, but it is little more than a layoff with a few working hours here and there)

I hate it, I want to continue to be a one income family. But reality is, it takes money in this world. We've been on 1 income for 7 years so I know all the tricks (cancel the paper, go without cable, one junk paid-for car, etc). I have done all the tricks. In the end, we must raise our income at some time. And, I go to work and help.

It stinks. It hurts. Especially when 1 income families look down their nose at you and assume you are working because you want to own McMansions and drive SUV's and take the kids to Disney each year.

I laugh. Little do they know I rarely sleep anymore, wondering how to pay for my daughter's 7th surgery.

You do what you gotta do. Hold your head high and tune out the drama.

Simple Family Supper lady said...

VERY interesting!!!!!! Thank you for posting this... it took me all afternoon to get through it (bits at a time) and it was well worth it. LOTS to think about and be thankful that we are primarily a one income family.
Heather

Ann said...

Thanks for posting this. Her worries about the collapse of the middle class are interesting in relation to some of the research about the poverty culture. My husband exposed me to some of Ruby Payne's work about class structure in America. It is interesting to compare her work with Warren's.

Annie

Anonymous said...

I watched the entire video with my oldest son, and we had a great conversation as we watched it. I think that although what Elizabeth Warren says is true, I do still think that there are always ways to get around at least some of the expenses she mentioned. We are a homeschooling family, and I think that my children have received an education second to none. And that does NOT mean that we do everything perfectly or that they are "super scholars", but they do have a true love of learning and a good solid work ethic that I think will carry them far as they grow up and move into careers of their own. Homeschooling is a way that any family can "buy" themselves the freedom to have more flexibility as to where they live, and thus greatly reduce their cost of living.
We also REALLY stress two other things in our home: staying out of debt, and learning as many "do it yourself" skills as possible. In looking at college options for our oldest son, we are seriously exploring the whole online/distance learning option, because it can significantly reduce the cost of a college education. And having solid home carpentry skills and /or homemaking skills is something we are adament that our children learn also so that they have more options someday when it comes time for them to buy a home and support a family, etc.
I think even in very tough times, there are still ways to stretch those dollars further than what the statistics suggest. Thank you so much for posting this, Meredith, because things like this are always a sobering reminder to me how important it is for me to manage the income my husband brings in in a wise and careful way.
Susan

Morning said...

I watched this spellbound -- isn't it fascinating when someone actually gets the figures and turns accepted 'wisdom' on its head? The safety net provided by that second person at home is enormous -- and something I hadn't really considered before. Thanks for bringing this lecture to my attention.

Anonymous said...

Thanks, Meredith and ladies!
As women, we must continue to pray and cheer each other on and on and... ON!
I understand about not getting much sleep Sister Normal Middle-
Promise - Been there, still doing that.
What keeps me encouraged is Meredith's blog - and my daily devotionals. I find my children to be the perfect devotional often. God is always telling me something, through them.
Going back to work was hard for me. I was so blessed to get 5-6 months off with my children, while on maternity leave... It hurt to go back - Our last child is when he was laid off -
It gets tough - and I too USED to worry about what friends would say if they knew my husband lost his job. Truth is, I didn't say a word for one year - We kept it to ourselves, and didn't miss a beat.
We have been through some serious proverbial categorical 4 storms and I am eternally grateful for my mom and especially my sister -
Sometimes it's good not to share it all with 'friend' girls, b/c they get to acting wierd - I mean some of the best and good ones too... Sometimes it's best to have you and hubby to work it out behind closed doors - That weeds out some of the potential dramamine ( I call it) ...
Best of luck to you - and yes, hold your head up high, continue to pray out loud in the open and behind closed doors in your secret place, as well as tune in to Like Merchant Ships to stay refreshed...

Those things (and a few others) have kept me from standing on the rail of our city bridge during some pretty hard times girl- LOL!
HARD working mama in the NW
latrice

Elizabeth G. said...

What an eye-opener! Thank you so much for this video. I knew some of it already and some was new to me - such as, we are spending more on the basics and less on flexibles. Ugh. Well, I'm a SAHM, but we currently cannot afford health insurance. I'm considering part-time work when my children return to school in the Fall, to try and help afford health coverage.

It's hard!

fluffernutter said...

Somehow this made me feel better. We have been discussing in our family -- how it's possible to earn what we do (more than 30 percent more than the median) and have no debt except the mortgage, have no expensive hobbies and we still can't seem to save much for retirement. I guess the answer is those higher fixed expenses (mortgage, taxes, health insurance). And Warren didn't even discuss our next-largest two expenditure: saving for college. After those, all that's left is grocery money. And we thought we were somehow frittering money away.
I don't see how you one-income families cope.

Karen said...

This is very interesting, I'm still getting through it. I loved learning about the median family expenses then and now.

I have a lot of thoughts, one biggie is the aggressive way credit is extended to families, which I feel should be more tightly regulated.

Karen said...

I loved the lecture, and being able to watch it free on YouTube.

I wonder if I can augment my children's educations by having them watch Berkley lectures and saving a little on tuition? :)