"The Two-Income Trap -- Why Middle-Class Mothers and Fathers are
Going Broke," the ground breaking 2003 book by Elizabeth Warren and Amelia
Warren Tyagi, describes a disturbing and little discussed trend in American family
"The people who consistently rank in the worst financial trouble are united by one
surprising characteristic. They are parents with children at home."
Their research shows the costs associated with raising kids-- good public schools
(i.e. expensive homes in good neighborhoods), health insurance, day care, and college
educations -- these days REQUIRE two incomes.
Mom HAS to work.
Not only does she have to work, but working doesn't provide the financial buffer
expected of an additional household income...
"Today, after an average two-income family makes its house payments, car payments,
insurance payments, and child care payments, they have LESS money left over," than
their single income counterparts of the early 1970's.
Mom's take home pay barely covers household debt payments.
Divorce, Illness, and Layoffs cause 87% of family financial disasters. Moreover,
two working spouses doubles the odds of a layoff, making two-income families MORE
risky, not less!
Historically, mom was a sort of financial safety net. If dad became ill or lost
his job, mom could go to work to bridge this income gap. But now, because there
is no extra "woman power" to deploy in times of financial emergency, and there is
no 6-month Rainy Day fund safety net, one laid off spouse can lead to bankruptcy.
Fixed costs -- mortgages, car notes, credit card payments, health insurance, etc.
-- requiring two incomes cannot be paid by one.
The trap is sprung!
Financial "experts" suggest a way out of this trap: Replace the lack of a backup
worker safety net with a budget and a 6-month Rainy Day fund.
Well... easier said than done!
If two-income families are already spending every cent they make to pay their current
expenses, how will they create their Rainy Day fund?
Where will they find this money?
And, if the experts believe squeezing the family budget to collect a few cents of
savings will create 6 TIMES THE TOTAL of all of their monthly expenses in any reasonable
period of time, then why does practically NO ONE have this much cash available?
Let's be specific... do you?
Of course not! Six TIMES THE TOTAL of all of your monthly living expenses is a LOT
of money. Saving this much money takes years. By the time you get a sizeable chunk
saved, something comes along and drains your fund, and you're starting over again.
Escaping this trap requires you to be more creative and less imprisoned by conventional
Take another look at your monthly living expenses. Debt payments consume 30-40%
of the typical family's paycheck(s).
Suppose you implemented a plan to rapidly pay off all family debt, every penny,
your mortgage too. How would recapturing 30-40% of your family's income -- while
cutting your living expenses by the same amount -- affect your ability to create
a true Rainy Day fund?
Pretty obvious, isn't it?
You can save 30-40% more money. Your monthly expenses are 30-40% less. You'll create
your Rainy Day fund in months -- not years!
Now you are better positioned to survive the predominant maladies which are driving
two-income families into bankruptcy: Layoff, Illness, and Divorce.
And, if mom chooses to continue working, her income becomes a powerful strategy for ensuring a comfortable retirement as well.
As you can see, this isn't really a "Two-Income Trap" after all. It's a Debt Trap
enabled by two incomes.
Escape your creditors and you will escape this trap.