The Two-Income Trap
By Nancy Moffit
A new book co-authored by Amelia Warren Tyagi, WG'96, examines
why middle-class families are going broke.
Amelia Warren Tyagi assumed that her freelance
gig running numbers for her mother's research
project would be an interesting, if somewhat routine
bit of work – a great way to ease back into the professional
world after the birth of her daughter. Her
mother, Harvard law professor Elizabeth Warren, was
continuing an earlier research stream on personal bankruptcy
in America and asked Tyagi to help her run some
analyses of several federal databases.
But as Tyagi began working through 30 years of bankruptcy,
U.S. Census and Bureau of Labor Statistics data,
a pattern began to emerge that was anything but routine.
"As we worked through the analysis together a story began
to take shape that wasn't just about macro economic
trends," says Tyagi, WG'96. "It was about how much
things have changed for middle-class families with kids,
from my mom's generation to mine – a story of how these
families are struggling, quietly, just to provide their kids
the basics."
Warren and Tyagi published their findings in the
book, The Two-Income Trap: Why Middle-Class Mothers
and Fathers Are Going Broke, released last month to a
flurry of attention from national media and presidential
hopefuls eager to capitalize on findings that reveal that
all, in fact, is not well.
Families with children, the book reveals, are nearly
three times as likely to go bankrupt today than those
without. The nation is now on a trajectory where one in
seven families will go bankrupt by the end of the decade.
And while the modern, two-income family earns 75
percent more (inflation-adjusted) than the one-earner
family of a generation ago, it actually has less discretionary
income and far more financial instability.
"We are talking about issues that are invisible," says
Tyagi. "When you tell somebody that more children will go
through their parents' bankruptcy than their parents' divorce,
people stop in their tracks. When you say that one in seven
middle-class families will go bankrupt by 2010, people
wonder how this can be."
How this can be in fact has little to do with big screen
TVs, weekly jaunts to the mall and too many family dinners
at The Olive Garden, Tyagi and Warren demonstrate in The
Two-Income Trap. What's happened, they say, is that a decline
in public education has bid up the price of housing in the
best school districts. Parents overextend their mortgages to
buy homes near good schools, a trend that's flourished as
deregulated lenders have continued to relax down payment
standards from 20 percent a generation ago to 3 percent or
less. And today, in a single year, more than five billion pre-approved
credit card offers, totaling $300,000 of credit per
family, pour into mailboxes across America. Credit card debt
has increased accordingly, Tyagi and Warren write, from
under $10 billion in 1968 (inflation adjusted) to more than
$600 billion in 2000, an increase of more than 6,000 percent.
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