BY JEREMY BLACHMAN
This year, more adults will file for bankruptcy than will suffer a heart attack, be diagnosed with cancer, graduate from college or file for divorce. Quite a powerful set of facts, and they serve as the inspiration for a new book by Professor Elizabeth Warren and her daughter, Amelia Warren Tyagi, entitled, “The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke.” The first thing you should know about this book is that it’s not a casebook. The cover is bright orange, the typeface is readable, and there is not a single word of Latin anywhere to be found. This is a book written for a lay audience – for anyone worried about bankruptcy, or just interested in the market forces causing so many people to go broke, and what we – and our lawmakers – ought to be doing to fix things. If you’re looking for a treatise on current bankruptcy law, this is not the book for you. But if you’re looking to become educated on the debate, to be exposed to some thought-provoking insights and policy proposals and to be able to hold your own in a cocktail-party (or law firm interview!) discussion on the economics of the modern-day middle class, you may want to give the book a read.
The heart of the book is what the jacket flap calls “a startling paradox” that hasn’t before been articulated in the mainstream media: Building a budget around two incomes leaves a family without a safety net if something goes wrong – an illness, a job loss, a divorce – and makes these two-income families especially vulnerable to the possibility of financial disaster. To wit, with one parent in the workforce and one at home, the parent at home serves as a buffer: he or she can step in and take care of an elderly parent or child without a loss of family income, or step into the workforce and make up for some of the earnings loss if the primary breadwinner loses his or her job, or experiences a salary cutback. Meaning less of a chance of finding yourself in an economic hole you just can’t dig out of.
This “two-income trap” is further exacerbated by the realities of middle-class economics today. Families are desperate to get their children into the best schools, and so the housing prices in neighborhoods with the best schools have skyrocketed. In response to this particular problem, among the policies the authors propose is public school vouchers so you don’t have to buy a house in the expensive suburb to send your kid to school there.
Throughout the text, the book presents a compelling and thoughtful explanation of why the number of families filing for bankruptcy has risen sharply over the past generation, and what policymakers and families themselves must do to reverse the trend. Well-written, and a quick read – carried through by stories of real people in big trouble, fighting for their financial security – it really does reshape the way the reader looks at bankruptcy. Underlying the whole discussion is the authors’ lesson that financial bankruptcy does not mean moral bankruptcy, and is not in the vast majority of cases the result of rampant uncontrolled spending. They take pains to point out that Americans are not spending more on clothing, food and luxuries than before – and that it’s the rules that need to be changed to fix the problem, not the patterns of consumption.
Besides the stories of families in trouble, one of the strengths of the book is the personal anecdotes by the authors. We learn about Professor Warren’s chance to convince then-First Lady Hillary Clinton how damaging a bankruptcy bill being considered by Congress would be to working families – and how Hillary was moved to then convince her husband to veto the bill. Perhaps more interesting, we also learn that the following year, as Senator, Mrs. Clinton voted in favor of virtually the same bill, after receiving $140,000 in campaign contributions from banking officials. “The bill was essentially the same,” the authors write, “but Hillary Rodham Clinton was not.”
Bottom line? It’s a really interesting read, and definitely worth checking out. And there’s a lot more in the book than just the issues I’ve touched on – you’ll learn about usury laws, the economics of divorce, how much insurance you ought to buy, what families can do to protect themselves, and much more. At the very least, it’ll change the way you think about bankruptcy, give you some new understanding of a growing social problem and inform you on the issue. And stop you from ever, ever, ever taking out a second mortgage.