The Two Income Trap: Why Middle-Class Parents Are Going Broke by Elizabeth Warren and Amelia Warren Tyagi

               This is a five-star book. The Warrens combine advice for politicians and advice for normal people in their explanation of a phenomenon that affects basically every American. The Two Income Trap asks one major question. Since women have joined the workforce, shouldn’t we all be much better off than we are now? It’s clear that women going to work did not make everyone rich, and the Warrens detail the reasons why, the main ones being that stay-at-home moms provided a crucial safety net and that household savings have been poured into homes in better school district as demand for education increases and the supply of good schools diminishes- parents need to get their kid into a good school and will pay a premium to move into its district. They also discus predatory lending practices that take advantage of people and they refute the myth of the immoral borrower.

               The book starts out by telling us that the people in the worst financial trouble generally have in common that they have kids. For a woman, having a child increases the likelihood of bankruptcy 66% in the United States. Women working outside the home has failed to improve the situation because parents don’t usually save the money from her paycheck. Generally speaking, they spend it as if it was the first salary. This is problematic because it doubles the chance of one parent losing their job (with two parents working its twice as likely) and raises their standard of living. While it is easy to say that thir spending is frivolous, it’s not usually so ridiculous. With a second person working a family needs another car plus insurance. They also need to hire someone for childcare. In addition, they are being pressured by the social force of worsening public schools to buy a house in a better school district (which comes at a huge premium) or pay to send their kids to private school. The authors point out that although a school may be public, parents pay for the tuition in housing costs in the district.

               An extremely problematic development in the last 40 years or so is that it has become more problematic to lend money to people who can’t pay it back than to loan money to people who can. That has literally turned the financial system upside down. Warren sort of predicts the housing collapse specifically when talking about subprime mortgages. While borrowers are not the same as they used to be- declaring bankruptcy with less shame than in the past (though still plenty of it) the lenders have changed as well. Since a wave of massive deregulations beginning in the 1970’s, lenders aggressively pursue people with bad credit. While your neighborhood bank or store would have loaned you money or put you on a tab years ago, they certainly would have cut you off if you couldn’t pay it all. Nowadays, they want to loan you even more money to put you in permanent debt slavery. Many people declaring bankruptcy receive dozens of offers for new credit cards and aggressive phone calls from companies that want to give them loans precisely because they are in such dire straits economically. That is the reverse of the way things work.

               The Warrens also go in on Hillary Clinton and Joe Biden for supporting further loan deregulations in 2001, a specific bill that even Hillary Clinton had called “awful” until she received over $100,000 dollars in donations to her senate campaign from big banks. I like that Warren doesn’t pull those punches and she really makes clear that its not the Republicans or the Democrats that are the problem, but the leadership of both parties that receives legal bribes from unregulated banks.

               The last chapter of the book is a “Financial Fire Drill” that gives advice to two-income families on how to best prepare for disaster. It recommends checking if you can survive on only one income, and if not, trying to cut fixed expenses now, before a crisis hits, and to create an emergency backup plan. The biggest weakness most bankrupt families had was hope that their bad situation would end soon, but hope is the enemy in these times. Because you never really know when things will get better or worse, the best thing to do is be prepared and to live within your means (which may mean saving most of one spouse’s salary) so that when crisis hits, you’ll be ready.

Miscellaneous Facts:

• Bankruptcy offers relief from credit cards, hospital bills, and electric and gas bills while offering no relief from taxes, student loans, alimony, and child support.
• 90% of families with children go bankrupt because of job loss, family breakup, or medical problems.
• When a person dies, no family member is responsible automatically for their debts. Only a cosigner is responsible. Many companies will call anyway to see if they can squeeze any money out of mourning family members.