The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke.

• Author: Dickerson, A. Mechele
• Position: Brief Article - Book Review

THE TWO-INCOME TRAP: WHY MIDDLE-CLASS MOTHERS & FATHERS ARE GOING BROKE (WITH SURPRISING SOLUTIONS THAT WILL CHANGE OUR CHILDREN'S FUTURES). By Elizabeth Warren & Amelia Warren Tyagi. New York: Basic Books. 2004. Pp. xv, 255. $26.00.

INTRODUCTION

In The Two-Income Trap, Harvard Law School Professor Elizabeth Warren and business consultant Amelia Warren Tyagi reach a startling conclusion: a two-income middle-class family faces greater financial risks today than a one-income family faced three decades ago. Middle-class families are caught in an "income trap" because they budget based on two incomes and face financial ruin if they lose an income or incur unexpected expenses. The authors suggest that most middle-class families cannot quickly adjust their budgets because their largest monthly expense is the fixed mortgage payment. The parents maintained that they had to allocate a significant portion of their income to housing expenses to ensure they could buy a home in a good neighborhood with good, safe schools (pp. 22-23, 29, 32). Moreover, because good schools are located in expensive neighborhoods, parents contend that they must participate in a high-priced bidding war for those homes. If their income declines or expenses increase, however, they are trapped: unable to pay the mortgage and unable to quickly reduce their living expenses (pp. 7-8).

The book never explains how parents determine what is a "good," "safe" neighborhood or school. Housing and school segregation patterns suggest, however, that some middle-class parents consciously or unconsciously use "good and safe" as a proxy for predominately or exclusively "nonminority." This Review suggests that middle-income parents can no longer afford these racial housing preferences. The Review summarizes the problems middle-class families face then argues that what is viewed as "good" and "safe" may be based more on racially biased perceptions than on reality. The Review concludes by arguing that the best way to help middle-class families avoid the income trap is to make school assignments without regard to the student's street address and to allow parents who live in integrated neighborhoods to participate in an auction to buy a slot in their first-choice school.

1. THE TWO-INCOME TRAP

   1. Summary

      The Two-Income Trap uses data collected in a consumer bankruptcy project and attempts to explain why the middle class is struggling financially. While some media reports negatively portray debtors as reckless or irresponsible, (1) the book contends that most financially beleaguered consumers are not "the usual suspects" and, instead, are middle-class parents with children (p. 6). The modern middle-class family differs from their middle-class counterparts three decades ago primarily because both spouses now work in the market. Notwithstanding those two incomes, the book stresses that modern families are at a higher risk financially because they lack the safety net of the stay-at-home mother's untapped income. This income could protect them if the sole breadwinner lost his job, or if the family needed extra income to pay for college expenses or unexpected medical expenses. (2)

      The book compares consumer spending data from the 1970s and 2000 and documents that, after adjusting for inflation, today's two-income middle-class family spends less overall on nonhousing expenditures than they did thirty years ago (pp. 16-17, 195-96). The book recognizes that some middle-class families may sometimes "fritter away" money (pp. 19, 21), but argues that the data show that most families do not face financial crises because they overspend and overconsume. (3) While nonhousing costs have decreased, housing costs increased dramatically largely because parents feel compelled to participate in a "bidding war" for homes in certain neighborhoods to ensure that their children attend a good, safe school (pp. 28, 31-32). Households historically spent no more than twenty-five to twenty-eight percent of gross monthly income on housing expenses. Currently, more and more families devote half of their combined income to housing expenses. (4)

      The authors note that societal changes, including increased job instability, the lack of comprehensive health insurance, and increased divorce rates (5) have dramatically increased middle-income families' financial risks. (6) The authors suggest that families resist radically reducing their monthly expenses if they face a financial setback because doing so would prevent them from having a "normal middle-class life," i.e., a good job, quality education for children (day care, pre-school, K-12 and college), owning an automobile (pp. 32-33, 52), and that it would deprive them of the primary symbol of "the good life," i.e., homeownership (pp. 8, 20, 23-38). The costs associated with a normal middle-class life prevent families from saving enough, which is okay if both parents remain employed, remain healthy, and remain married (pp. 66-67).

   2. Solutions and Critique

      The book's greatest attribute is its comprehensive analysis of the financial plight of the middle class. The data and proposed solutions presented in the Two-Income Trap will help policymakers who seek both standard and nontraditional approaches to help the financially strapped middle class. (7) Certainly, some of the expenditures middle-class families may view as necessities might better be characterized as desires8 and economists may question whether middle-class families' mortgage payments are disproportionately large relative to their income. (9) Few dispute, however, that today's middle-class families face exogenous risks that were nonexistent a generation ago.

      The authors present a series of recommended actions to combat those risks and help families: save more (pp. 32-33); avert financial crisis (pp. 93-94); finance their children's preschool (p. 122) and college (pp. 45-46) education; and, avoid making unwise financial choices once they face a financial crisis (pp. 142-152). Because housing costs appear to be the primary reason families spend too much and save too little, the authors specifically urge them to avoid stretching to buy a home they cannot afford (p. 165). They then more broadly argue that a public school voucher program that allows parents to choose schools without regard to their home's location would de-escalate the bidding wars (pp. 34-36).

      The most provocative finding in this recent work, and one not discussed in detail in the authors' prior works, (10) is that two incomes are not necessarily better than one. The authors avoid making sociological conclusions about how children are affected by both parents working outside the home (11) and, instead, nonjudgmentally report that not having the safety net of the stay-at-home mother's unearned income hurts the modern middle-class family. The book adroitly links housing choice to school choice, something courts and government agencies rarely do. By linking housing choice to school choice, the book demonstrates that the problems associated with urban schools increase housing costs for suburban parents. While the data presented in the book demonstrate that making school assignments based on zip codes increases housing costs, it does not consider the racial implications of the contention that the housing bidding wars exist only because parents want to live in a "good" neighborhood that has "good" schools. The next Part of this Review provides a more racialized explanation for the suburban bidding wars. I suggest that parents often make educational and housing decisions based on perception, not reality. I then argue that at least some home purchases reflect the buyers' conscious or unconscious racial biases against living in racially integrated neighborhoods and having their children attend racially integrated schools.

2. MIDDLE-CLASS HOUSING AND EDUCATIONAL PREFERENCES

   1. Middle-Class Behavioral Biases

      The middle-class parents in The Two-Income Trap contend that they have two choices: live in an affordable (typically urban (12) neighborhood but have their children attend bad schools, or live in an overly expensive (typically suburban) neighborhood that has safe, good schools. Few dispute that the quality of public schools is capitalized into housing prices or that higher-income residents are targeted by advertising that markets the quality of the zoned public schools. (13) Some parental concerns about safety or school violence may, however, be distorted by a biased and flawed decisionmaking process. The law and behavioral choice literature suggest that people perceive that they face risks from events that are discussed frequently or are otherwise memorable because those events are flesh in their minds and, thus, "available." (14) This "availability heuristic" makes people believe that certain events are more common than they actually are. (15)

      The media tends to overreport violent incidents of crime that occur in urban areas (16) and to sensationalize incidents of school violence, even though crime rates have dropped sharply in the last decade. (17) Given this, it is not surprising that middle-class families (especially white parents who have little contact with urban school children) think that urban neighborhoods and schools are much more violent than they actually are, believe that violence in schools is increasing, and conclude that they must flee from heterogeneous urban areas to homogeneous suburban ones. Likewise, stereotyping (another behavioral tendency) also may cause middle-class parents to believe they must live in certain neighborhoods. Specifically, when the costs of deliberation are high, people tend to make decisions by considering the similarities between the facts involving the decision they currently face and the facts involved with prior cases. (18) If middle-class parents (or people they know) have had a bad experience with certain people in a neighborhood or school, they may decide to move away from...