Surviving on today’s Family Income

A book came out last year which should have gotten more attention had the nation’s news media not fallen in the obsessive trap of the Iraq-obsessive President. It is called “The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke”(Basic Books).

Written by Harvard Law Professor Elizabeth Warren, an expert on consumer bankruptcy, and her Wharton M.B.A. daughter, Amelia Warren Tyagi, this volume provides insights not normally revealed by aggregate economic data. It is about real earnest people in financial trouble.

The Warrens stimulated my recollection of growing up in a New England mill town in the late Forties, where one breadwinner could provide a family with a middle-class living standard as then defined. Even in the Seventies, the authors report that most families could do fairly well on one income. An average family paid 56 percent of its only breadwinner’s wages for housing, health insurance and other fixed costs.

Today that family, notwithstanding the availability of two incomes, pays 75 percent for these necessities and has 25 percent left over for discretionary purchases. It gets worse of course for single parents who have only 4 percent of income after fixed costs.

Compared with the Fifties, the share of family income going to housing now is much higher. You think interest rates on mortgages are low today, between 5.5 and 6 percent? Fifty years ago, the interest rates on fixed mortgages were under 3 percent and better yet with a VA housing loan.

There were millions of veterans then.

With the decline of the extended family and the shattering of the nuclear family for many, the ever-longer commutes, costs of getting to work and placing the children in day care all take a sizable chunk of the paycheck. Less time for comparison shopping increases the consumer dollars spent on items. Then come the charges, fees and penalties associated with an overextended credit card economy. Credit has a million pushers – subprime predatory lending rates, pay day loans, rent-to-own rackets.

The lending industry has been all over Congress in recent years to pass legislation making it even more difficult to go into bankruptcy. To gain more influence on Capitol Hill beyond their buying and renting of lawmakers, these lobbyists spread the myth of immoral borrowers exorbitantly dining out and buying too many fancy clothes. An intensive study of 2000 families who fell into dire financial straits, if not bankruptcy shows a different real picture. Warren says “it’s about homes in safe neighborhoods (which raises prices).” She gives many more examples of the “two income trap.”

A major study is needed on the costs associated with two spouses going to work, in addition to day care which now can cost $500 a month or more. For instance, another used car, another auto insurance policy, repair and maintenance expenses, and parking fees add up to real money.

Consumers ought to spend some time netting out what is left after these and other expenses. Of course, there are expenses from the consequences of children being without their parents for hours during the day – delinquency, guilt-based expensive gifts to the children (Nintendo games instead of quality playful time), and the credentialed counselors who now take the place of aunt, grandma or uncle.

Much of economic growth in recent years has come from the commercializing of family functions once provided free. The time pressures on working parents leads to this need to pay for what the family formerly provided cheaper or free.

The Warrens recommend re-instating the usury laws which protected consumers from staggering interest rates that amount to a debtors’ prison without walls. Learning how to control some of these traps through financial knowhow also helps.

The basic problem is that with the inflation-adjusted twenty to twenty-five fold increase in productivity per capita since 1900, why don’t we have an economy where one working person per family can sustain a middle-class standard of living? Why indeed are there any working poor families in our country? Where is this massive increase in per capita productivity going, in addition to sharper disparities of wealth between the few at the top and the rest of America?

Those questions may become the next stage of research by the Warrens and other scholars sensitive to economic injustice.