This info comes from Elizabeth Warren, Harvard Law School: Leo Gottlieb Professor of Law and author of The Two Income Trap: Why Middle Class Parents Are Going Broke.

I clipped most of this from a Salon.com article. You can read the full thing here. http://www.salon.com/tech/feature/2003/10/13/bankrupt_parents/index_np.html

In the 1970’s US family savings was 11% of income and their personal debt was 3%. Today average family savings is 0% and personal debt is 13%.

Some critics like to say that this is because of over consumption. They claim that people are choosing to go to the mall, out to eat, and buy designer clothes and sneakers instead of save.

The data show, however, tells a different story. Today's families are actually spending less on consumption that their parents spent a generation ago: 22 percent less on clothing, 21 percent less on food, including eating out, 44 percent less on appliances, less on furniture, less on floor coverings.

Today's families are in financial trouble, because they're spending so much more on big fixed expenses -- mortgage, health insurance, car, preschool, after-school care and college. What has happened is that the cost of being middle-class has shot out of the reach of ordinary families over the past generation. Today's two-income family has 75 percent more income than the one-income family had a generation ago, but by the time they make four basic payments and their taxes they have less money to spend than their one-income parents.

Once a family builds a budget around two incomes, once they count on having both paychecks 52 weeks out of the year in order to be able to make the mortgage payment and the health insurance payment, they have a problem.

Because they have twice as many chances to get laid off, twice as many chances for someone to get too sick to go to work, and if grandma breaks a hip, or a young child becomes seriously ill, one of those two wage-earners will have to quit work to take care of the family member. So that means that they have more income, but they're actually more at risk.

A stay-at-home mother a generation ago not only took care of the children and tended the home fires, but she acted as an economic safety net for the family. If Dad lost his job, or was too sick to go to work, Mom could go to work, and could bring in a new source of revenue to the family. She might not make as much money as he made, but the combination of her new income plus unemployment would often keep the family at about the same total income level. And if she stayed at work after he went back to work, they had extra income for a few months and could boost their earnings. The same thing if they were hit with an unexpected expense, anything from a child going to college to uninsured medical bills. They had a second source of revenue, someone who could work whose salary hadn't already been figured into the family budget, and could add that extra shot of income to the economic mix.

That made a two-parent family with one parent in the workforce and one parent at home a stronger, more secure family economically.

This is not an argument that women [or men] should stay at home. Today's mortgage costs and health insurance costs and day-care costs mean that today's families can't survive on one income and use the second income for extras. Instead, they have to commit both incomes just to making the basic payments.

Over the past generation mortgage costs have increased 70 times faster than a man's wages. Think about that. That means for many families in metropolitan areas throughout the U.S. the only way to buy a home is if both parents go into the workplace.

In 75 percent of the metropolitan areas across America, a police officer cannot buy a house on one income. The same is true for a teacher or a firefighter. In other words, a one-income family in most of the United States cannot afford to be middle-class homeowners.

This is not about spa bathrooms and granite countertops. The average family in the U.S. today lives in a house that is 6.1 rooms. That's only SLIGHTLY larger than the average family in the early 1970s -- they lived in a house that was 5.7 rooms.

As more and more families desperately cling to an American dream that is already over lenders are laughing all the way to the foreclosure.

Alan Greenspan says that the fastest growing part of the lending industry is the sub-prime market. The notion is that the credit card company offers you a credit card at 6 percent interest, but if you lose your job and miss a payment, then the interest jumps to 29 percent. Or, you have a mortgage at 5-1/2 percent, and when you miss a mortgage payment, there's an industry that descends on the homeowner offering to refinance to give some cash to the strapped family, but doubling or even tripling the interest rate on the payments.

Don't try to borrow your way out of debt. It never works. A family in financial trouble should never, underline never, take out a second mortgage or refinance the mortgage on their home. Companies are making billions in profits by talking families into putting their homes on a roulette wheel, and the companies come out the winner. Home mortgage foreclosures are up more than 300 percent over the past 22 years. It's really scary.

# posted by Jon Easton : 5:52 PM  14 comments