Table of Contents Praise Title Page Dedication Introduction Chapter - Just the Way She Planned One in Seven Unseen Dangers A Mother’s Story Having Children, Going Broke Chapter - The Over-Consumption Myth Where Did the Money Go? For the Children Bidding War in the Suburbs Out of the Housing Trap? The Price of Education The Promise of Public Education That All-Important Degree Time for a Tuition Freeze? The Family Car Families Then, Families Now: The Two-Income Trap Chapter - Mom: The All-Purpose Safety Net The All-Purpose Safety Net No New Money Good Intentions Turn Back the Clock? Chapter - The Myth of the Immoral Debtor No Shame in Failure The Easy Way Out Fraud and Abuse What Went Wrong Two-Income Trap, Part Two Bad Timing Adding It Up There But for the Grace of God One Survivor’s Story An Ounce of Prevention The Myth Chapter - Going It Alone in a Two-Income World The Best of Times The Worst of Times Continuing Fallout from the Two-Income Trap Trying to Compete in a Two-Income World The Facts of Marriage Out of the Trap: Make Dad Pay More? Share the Pain? Tapped Out A Lesson from the Two-Parent Family Chapter - The Cement Life Raft The Brave New (Unregulated) World The Debt Explosion Mortgaging the Future Where the Money Is Repo Man in the Suburbs A Problem That Can Be Solved Deafening Silence Goliath Meets David Reclaiming the Politics of the Family Chapter - The Financial Fire Drill When the House Is Already on Fire Stay Home? The Other Solution: No Children? Bankrupt Children Playing by the Rules APPENDIX - The Consumer Bankruptcy Project, 2001 Acknowledgements NOTES INDEX ABOUT THE AUTHORS Copyright Page PRAISE FOR THE TWO-INCOME TRAP “Why are so many millions of parents earning more but enjoying it less in our modern economy? Why are mothers the only group of women worse off financially now than a generation ago? Why can’t today’s hardworking families afford the happier lifestyle of their parents? How can they escape the “two-income trap” and prevent a financial meltdown? In this excellent book, Warren and Tyagi tell the shocking story of that trap, and offer real hope for a better future.” —Senator Edward M Kennedy “A provocative new book the authors suggest ambitious solutions.” —Newsweek “At a time when many middle-class families are just an accident or an illness away from financial disaster, this book provides a well-researched road map of where we are, as well as viable escape routes.” —Boston Globe “An eye-opening, well-documented thesis set out in a succinct and easy-to-read fashion.” —Washington Post “THE TWO-INCOME TRAP goes a long way toward explaining why so many Americans, even quite affluent ones, are convinced they aren’t doing as well as their parents did or that they could have their success snatched away much more easily.” —Los Angeles Times Book Review “One of the best books that explains this historic moment and describes what families are going through.” —Senator John Edwards “Original solutions that go beyond ideology I highly recommend to my viewers that they get THE TWO-INCOME TRAP.” —Bill Moyers “[Warren] argues movingly that the misery and shame of bankruptcy is as pungent as ever—it’s just more widely experienced The book is brimming with proposed solutions to the nail-biting anxiety that the middle class finds itself in: subsidized day care, school vouchers, new bank regulations, among other measures.” —Wall Street Journal “Astounding.” —Mortimer B Zuckerman, editor-in-chief, U.S News & World Report “Warren and Tyagi argue persuasively that mass ‘over-consumption’ is not the problem Moreover, the book does offer unexpectedly fresh discussions of “deadbeat dads” (it turns out there aren’t very many of them) and the credit-card industry (where the current business strategy is to get financially troubled families ‘to borrow [still] more money’).” —National Review “In their groundbreaking book, Elizabeth Warren and Amelia Warren Tyagi demonstrate that even when a two-earner family today brings in almost twice the income of a one-earner family in the 1970s (in inflation-adjusted constant dollars), the 1970s family had more discretionary income than today’s.” —Atlantic Monthly “Warren and Tyagi masterfully demonstrate how parents’ quest for high-quality public schools often lies at the heart of their precarious economic position [I]nnovative ingenious approach to a difficult and divisive issue.” —Judith A Winston, Former Undersecretary and General Counsel, U.S Department of Education “Presenting carefully researched economic data to support their arguments, the authors contend that, contrary to popular myth, families aren’t in trouble because they’re squandering their second income on luxuries On the contrary, both incomes are almost entirely committed to necessities The authors recommend a number of useful societal solutions to get families out of this trap this is a needed examination of an emerging social problem.” —Publishers Weekly “[This] sobering analysis of the widespread and largely unaddressed erosion of middle-class stability presents a carefully crafted, persuasive indictment of a financial industry preying on the hardships and vulnerabilities of middle-class families, and the argument is perhaps most effective in its careful accounting of the families of public education to serve equitably the needs of those families.” —Ruminator Review “[A]ccurately characterizes the plight of the middle class and illuminates the problems that arise when families become dependent upon two incomes without adequately saving.” —The Hill “The book persuasively argues that the rise of dual-income families is increasing the chances of a middle-class financial disaster.” —St Petersburg Times “My advice for a great way to start on the road back to fiscal solvency, or to avoid falling into this trap altogether, is to invest $26 of your dwindling discretionary income on THE TWO-INCOME TRAP The solutions and advice it provides might change the financial future for you and your children, today, tomorrow, and forever.” —Lowell Sun “The book should be mandatory reading for any couple before they begin a family.” —Pensacola News Journal “Well-constructed book [with a] very persuasive argument” —“Sound Money,” NPR “An extremely thoughtful, well-presented, relevant book that challenges some of the basic assumptions in America today this excellent work deserves to be considered by all, and most currently by policy-makers looking for creative solutions.” —Tampa Tribune “[A] comfort to parents who are sick of being told it is their own fault their families are struggling financially Here, finally is another interpretation of the data, one that says we’re going broke not because we over-spend on things we don’t need but because we’re good parents It is a sound policy document Whether you agree with their suggestions or not, [Warren and Tyagi] offer plenty of food for thought and a welcome break from the guilt that comes with each month’s efforts to keep up with the mounting bills.” —Chicago Parents Magazine ALSO BY ELIZABETH WARREN: As We Forgive Our Debtors The Fragile Middle Class This book is dedicated to all parents who wake up with hearts thudding over the possibility that buying school shoes and Girl Scout uniforms will mean that there won’t be enough left over to pay the mortgage These people are our neighbors, our brothers and sisters, our friends and coworkers They travel anonymously among us, but we know them They went to college, had kids, bought a home, played by the rules—and lost It is time to rewrite the rules so that these families are winners again the judicial districts of five states—California, Illinois, Pennsylvania, Tennessee, and Texas—in 1991 Melissa Jacoby, Teresa Sullivan, and Elizabeth Warren, “Rethinking the Debates over Health Care Financing: Evidence from the Bankruptcy Courts,” New York University Law Review 76 (2001): 375 The study collected questionnaire data from a random sample of 1,455 families who filed for bankruptcy in eight federal judicial districts: the Northern District of California, the Northern District of Illinois, the Eastern District of Kentucky, the Southern District of Ohio, the Eastern District of Pennsylvania, the Middle District of Tennessee, the Northern District of Texas, and the Eastern District of Wisconsin in 1999 Because one focus of the 2001 study was the relationship between home ownership and bankruptcy, the Northern District of Texas (Dallas) was chosen over the Western District, which included San Antonio It was the belief of the researchers that the housing market of Dallas was more typical and provided a more accurate representation of an urban center San Antonio’s housing market was considered atypical for two reasons: proximity to the Mexico border and the fact that San Antonio is home to three major military installations Each debtor must file in the district where he or she is a resident (legally defined), but some districts have more than one office to accept filings So, for example, if the debtor resides in the Northern District of Illinois, he or she can file in Chicago or Rockford, a suburb, although very few are filed in Rockford The researchers sampled only in the big cities, which is where the overwhelming majority of bankruptcies are filed in four of the five districts In the Central District of California, the researchers sampled only Los Angeles, but in that district a larger proportion of cases are also filed in outlying areas As we note in the text, this may result in a bias toward larger cities and an underrepresentation of rural and small-town areas For a discussion of this phenomenon, see Teresa A Sullivan, Elizabeth Warren, and Jay Lawrence Westbrook, “The Persistence of Local Legal Culture: Twenty Years of Evidence from the Bankruptcy Courts,” Harvard Journal of Law and Public Policy 17 (1994), reprinted in Charles J Tabb, Bankruptcy Anthology (Westbury, NY: Foundation Press, 2002) Mean bankruptcy filing rate per 1,000 adults, 1990-2000 SMR Research Corporation, The New Bankruptcy Epidemic: Forecasts, Causes, and Risk Control (Hackettstown, NJ, June 2001), pp 181-187 The 1970 occupational codes have been used in all of the preceding Consumer Bankruptcy Projects They are also still widely in use as the last “pure” occupational codes used by the Census Bureau They have been used in major studies such as the General Social Survey Since the 1970 census, the Bureau has adopted sets of codes that incorporate industry as well as occupation, but several “walkovers” are available that permit correspondence from one set of codes to another INDEX Added Worker Effect Affluenza: The All-Consuming Epidemic (de Graaf) African Americans Alimony American Association of University Professors American Bankers Association American Council on Education Assets, Protection of As We Forgive Our Debtors Automobiles repossessions of Banking industry profits See also Citibank; Deregulation of lending industry; MBNA; Credit cards Bankruptcy (fig.) of African Americans bankruptcy bill in Congress best predictor for in business Chapter and Chapter 13 and children and collection threats and debt debts not forgiven in and disability coverage and divorce fraud concerning and health See also Health issues, health insurance of Hispanics and immoral debtors and jobless and medical bills(fig.) See also Health issues National Bankruptcy Review Commission number of families filing (fig.) men with child support/alimony obligations filing and parenthood period before filing process described reasons for filing(fig.) refiling restricting right to file single mothers filing (fig.) stigma of and two-income families See also Families, with two incomes women filing See also Women, bankruptcy See also Consumer Bankruptcy project; As We Forgive Our Debtors; Fragile Middle Class, Debt Bidding wars college housing preschool and public schools and working mothers Biden, Joseph Birth rates Boston, pubic schools and housing Boucher, Rick Breneman, David Buckley, William F., Jr Bureau of Labor Statistics See also Consumer Expenditure Survey Bush, George W California bankruptcy data collection Campaign finance reform Chase Manhattan Chicago bankruptcy data collection Child care See Day care Children See also Child support; Day care; Education; under Families Child support and bankruptcy deadbeat dads enforcement increasing amounts awarded and joint custody and Share-the-Pain model Chronicle of Higher Education Church Women United Citibank Clinton, Bill Clinton, Hillary Clothing expenses Columbia University Community Reinvestment Act Computer expenses Congress See also Bankruptcy, bankruptcy bill in Congress; Bankruptcy, National Bankruptcy Review Commission; Campaign Finance Reform Consumer Bankruptcy Project (2001) (fig.)(fig.) summary of core and supplementary samples(table) Consumer Expenditure Survey (fig.)(fig.) Consumption over-consumption See also Automobiles; Clothing; Computer expenses; Cutting back on spending; Food; Vacations Costs of automobiles of bringing up children of college education of credit card companies of creditors to repossess of divorce fixed(fig.) of housing, see Homes, prices of preschool Credit cards aggressive collection tactics and families in financial trouble fees and layoffs, child support, and health insurance lapses marketing percentage increase in debt pre-approved offers profits for companies replacing credit card debt with mortgage debt See also Chase Manhattan; Citibank; MBNA Credit counseling Credit, democratization of Credit protection insurance Credit reports/ratings Crime Crittenden, Danielle Cutting back on spending See also Consumption Dallas bankruptcy data collection Day care Deadbeat dads Debt(fig.) and death of debtor debt explosion discharged by courts during bankruptcy not forgiven in bankruptcies personal responsibility for splitting after divorce See also Bankruptcy: Credit cards; Mortgages; Student loans de Graaf, John Delaware Deregulation of lending industry See also Banking industry; Interest rates, regulated/deregulated; Regulations, reregulating lending practices; Usury laws Disability insurance Discrimination Divorce costs of discretionary income before and after(fig.) divorced fathers See also Child support; Deadbeat dads divorced women See also Mothers, single mothers divorce explosion of the 1970s and joint custody of children and two-income families See also Child support Domestic violence Duke University Economist Education age of children starting school college education preschool private schools public schools school choice voucher programs of women Elderly people and long-term care insurance Elections/campaigns See also Political contributions Equal Credit Opportunity Act Equal opportunity Failing schools See also Education, public schools Falling from Grace (Newman) Families with children (fig.) See also Education without children cohabiting family values of a generation ago managing money in marital problems in See Marriage, marital problems with one income (fig.)(fig.) (fig.) See also Families, with stay-at-home mothers politics of the family risk concerning (fig.) single parent See also Mothers, single mothers with stay-at-home mothers with two incomes (fig.)(fig.) (fig.) Family and Medical Leave Act Family Research Council Fannie Mae Fathers See also Child support; Deadbeat dads Federal Housing Administration Federal Reserve Federal spending Feminism agenda for women/single mothers See also Women’s movement Financial planning emergency backup plans Florida bankruptcy laws Focus on the Family Food costs restaurant meals spending on Foreclosure rates See also Homes, foreclosures Fragile Middle Class, The Frank, Robert Fraud See under Bankruptcies Fresno, California, public schools Friedan, Betty Gephardt, Richard Gore, Al Grapes of Wrath (Steinbeck) Great Depression Hadassah Harvard University Hatch, Orrin Health issues and filing for bankruptcy health insurance See also Disability coverage Herring Hardware Himmelstein, David Hispanics Homes of African Americans and Hispanics age of appliances/furnishings for bidding wars for of divorced fathers down payments foreclosures See also Foreclosure rates of Hispanics home equity and bankruptcy home equity loans home ownership being “house poor,” housing and joint custody of children housing market and public education voucher system prices regulation of housing market renting and school quality single mothers owning size of spending on as proportion of family income vacation homes See also Mortgages Hospitals Housing and Urban Development, department of Hyde, Henry Illinois bankruptcy data collection Income, discretionary(fig.) before and after divorce (fig.) See also Families, with one income; Families, with two incomes Income gap between single/married parents Inflation Insurance See also Credit protection insurance; Disability coverage; Health issues, health insurance; Long-term care insurance Interest rates exported from state to state and inflation rate or prime rate and late payments lowered by Federal Reserve regulated/deregulated See also Deregulation of lending industry; Regulations, reregulating lending practices; Usury laws Iovine, Vickie Iowa bankruptcy data collection Jones, Edith Kilmark, Constance K-Mart Lawless, Robert Layoffs and family income(fig.) and two-income families See also Bankruptcy, job loss: Unemployment Learning disabilities Lee, Sheila Jackson Loans home equity loans loan sharking Loan to Own practice long-term/short-term commitments predatory lending practices See also Democratization of credit; Mortgages; Student loans Long-term care insurance Los Angeles bankruptcy data collection Lott, Trent Managers/supervisors Markell, Bruce Marriage couples who never marry marital problems See also Divorce remarrying Martinez, Arthur C Maryland bankruptcy laws Mather, Cotton Mawn, Barry MBNA credit card company Medicaid Medical problems See Health issues Middle class and consumerism See also Consumption in the future and loss of health insurance middle-class single mothers See also Mothers, single mothers and need for two incomes Minorities Money magazine Morality and debt Mortgages costs deregulation of mortgage lending industry down payments FHA-backed a generation ago home equity loans loan to own practice and redlining refinancing second size of subprime See also Forclosure rates; Homes Mothers child support for never-married See also Child support entry into the workforce and family income a generation ago single mothers working, after giving birth See also Families, with stay-at-home mothers; Families, with two incomes Murray, Patricia NAACP See National Association for the Advancement of Colored People Nashville bankruptcy data collection National Association for the Advancement of Colored People (NAACP) National Collegiate Athletic Association National Consumer Bankruptcy Coalition (NCBC) National Housing Institute NCBC See National Consumer Bankruptcy Coalition Newman, Katherine Newsweek New York State Banking Department New York Times NOW Legal Defense and Education Fund Payday loans Pelosi, Nancy Pennsylvania Bankruptcy data collection Philadelphia Planning See Financial planning Police officers Political contributions See also Campaign finance reform Porter, Katherine Pottow, John Poverty being “house poor,” poverty line Preschool See Education Professors See Teachers/professors Public goods Public housing Regulations reregulating lending practices See also Deregulation of lending industry Religious leaders Renting Repossessions See also under Automobiles Republicans See also George W Bush, Orrin Hatch, Henry Hyde Retirement/retirement accounts Risk(fig.)(fig.) after filing for bankruptcy of lenders See also under Families Safety issues and automobiles and car seats See also Crime; Violence Safety net S&L See Savings and Loan crisis Saving(s) (fig.) as tax exempt Savings and Loan (S&L) crisis Schill, Michael School transportation expenses Schools See Education Schor, Juliet Schumer, Charles Sears retail chain She Works, He Works: How Two-Income Families Are Happier, Healthier, and Better Off Social Security Disability Insurance (SSDI) South Dakota usury laws Sports, college SSDI See Social Security, Disability Insurance Steinbeck, John Student loans and bankruptcy Subsidies Suburbs Sullivan, Teresa A Supply and demand See also Bidding wars Supreme Court Taxes and bankruptcy on savings tax credits Teachers/professors Tennessee bankruptcy data collection Texaco Texas bankruptcy data collection bankruptcy laws Thacher, Thomas D Thorne, Deborah Two-income trap and one-income families and single-parent families See also Families, with one income; Families, with stay-at-home mothers; Families, with two incomes; Safety net Unemployment unemployment insurance See also Layoffs United Airlines Universities See also Education, college education Urban centers urban flight U.S News & World Report Usury laws Vacation spending Values Violence Violence Against Women Act Voucher programs See under Education Wachter, Susan Wages differential in men’s/women’s garnishing growth of women’s Weill, Sandy Weitzman, Lenore Welfare Westbrook, Jay Lawrence Widows Wisconsin, University of Women bankruptcy and childless education income legal protections in the workforce See also Divorce; Families; Feminism; Mothers; Women’s movement Women’s movement See also Feminism Woolhandler, Steffie YWCA ABOUT THE AUTHORS Elizabeth Warren is the Leo Gottlieb Professor of Law at Harvard Law School She has coauthored six books on bankruptcy and commercial law, including the prizewinning As We Forgive Our Debtors and The Fragile Middle Class She was senior adviser to the 1997 Congressional Bankruptcy Review Commission on Bankruptcy In 1998, the National Law Journal named her one of the Fifty Most Influential Women Lawyers in America She is the mother of two grown children, and she lives in Cambridge, Massachusetts, with her husband Amelia Warren Tyagi holds degrees from Brown University and the Wharton School at the University of Pennsylvania She worked as a consultant for McKinsey & Company, where she specialized in health care and public education In 1999, she cofounded a health benefits firm, HealthAllies She lives in Los Angeles with her husband and their two-year-old daughter Warren and Tyagi are mother and daughter This is their first book together Copyright © 2003 by Elizabeth Warren and Amelia Warren Tyagi Published by Basic Books, A Member of the Perseus Books Group Hardback first published in 2003 by Basic Books Paperback first published in 2004 by Basic Books All rights reserved No part of this book may be reproduced in any manner whatsoever without written permission except in the case of brief quotations embodied in critical articles and reviews For information, address Basic Books, 387 Park Avenue South, New York, NY 10016-8810 Books published by Basic Books are available at special discounts for bulk purchases in the United States by corporations, institutions, and other organizations For more information, please contact the Special Markets Department at the Perseus Books Group, 11 Cambridge Center, Cambridge, MA 02142, or call (617) 252-5298, (800) 255-1514 or e-mail special.markets@perseusbooks.com Warren, Elizabeth The two-income trap : Elizabeth Warren and Amelia Warren Tyagi p cm eISBN : 978-0-465-00991-6 Dual-career families—United States Family—Economic aspects—United States Bankruptcy—United States I Tyagi, Amelia Warren, 1971- II Title HQ536.W35 2003 306.3’6’973—dc21 2003010496 / ... INDEX ABOUT THE AUTHORS Copyright Page PRAISE FOR THE TWO- INCOME TRAP Why are so many millions of parents earning more but enjoying it less in our modern economy? Why are mothers the only group... more or less the same on paper They share the same assets, they owe the same debts, and they have the same black marks on their credit reports But behind the curtain of marriage, there are important... They are under assault, but they are fighters They want to know the truth about what is going on, and they are willing to work hard to protect themselves The Two- Income Trap tells a harrowing