The Two-Income Trap (25 page)

There is a lesson here. To put sound economic policies on the political agenda, families also need to find a face. So long as they are “debtors” or “bankrupts,” their needs can be dismissed. Instead, they need to be seen as members of powerful constituencies, members of
groups that command the respect—and the fear—of the political elite. Families in financial trouble must be depicted as they really are: “parents of young children,” “nonresident fathers paying child support,” “suburban homeowners,” “African-American middle-class families,” “single mothers,” “families sending a kid to college,” “multigenerational Hispanic families.” Most of all, the groups that defend these people need to organize against those who are picking their constituents’ pockets.

The case is not hard to make. Consider the circumstances of African Americans. For decades, the National Association for the Advancement of Colored People (NAACP) and other minority rights groups have lobbied to expand African-American home ownership, and they have been at least somewhat successful in their efforts. Now predatory and subprime lenders threaten to unravel those hard-won gains. Every year, more than 300,000 black and Hispanic homeowners file for bankruptcy in a desperate attempt to hold on to their homes. Hispanic homeowners are nearly three times more likely than white homeowners to file for bankruptcy, and black homeowners are more than
six times
more likely.
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The same signs of distress are evident outside the bankruptcy courts. When we analyzed unpublished data from the Department of Housing and Urban Development, we found that among families who had purchased a home with an FHA-backed mortgage, African Americans were twice as likely as white homeowners to lose their home in foreclosure.
¹⁰⁵
Payday lenders and subprime mortgage companies deliberately target minority neighborhoods, confident that they can get away with fleecing these families.
¹⁰⁶
Billions of dollars are flowing out of the communities that can least afford it, directly into the pockets of giant lenders and their shareholders.

We are not the first to document these problems; minority rights groups are well aware of the dangers of predatory lending. There is, however, an important question of how high economic issues should rank in their list of priorities. When Senator Trent Lott seemingly expressed his nostalgia for a segregated America, minority groups
around the country barraged the talk shows and newspapers, and Lott was ultimately stripped of his powerful position as majority leader of the Senate. Similarly, when Texaco executives were accused of using racial slurs to refer to African Americans, the company was boycotted, sued for millions of dollars, and forced to adopt new practices to ensure that its black employees had better opportunities.
¹⁰⁷
But when a Citibank official said in sworn affidavits that she regularly added extra fees to a home mortgage “[i]f someone . . . was a minority,” there was little response. Citibank quietly agreed to a cash settlement with the FTC, and there were no press releases from the NAACP, no interviews on the evening news, no calls for Citibank’s highly visible CEO, Sandy Weill, to resign.

Subprime lending, payday loans, and the host of predatory, high-interest loan products that target minority neighborhoods should be called by their true names: legally sanctioned corporate plans to steal from minorities. Many years ago, a host of community groups worked together to oppose discriminatory lending and to help pass the Community Reinvestment Act despite stiff opposition from the banking industry. It is time for these groups to come together again to eliminate the modern version of economic discrimination, which parades under different names but has the same devastating effects.

A Woman’s Issue:
Minority groups should not be asked to bear the burden on their own. Women’s groups also need to pick up the mantle of economic reform. Middle-class financial distress may sound like a gender-neutral issue, but it is not. In just two decades, the number of single-filing women declaring bankruptcy has grown by more than 600 percent. Women with children are more likely to lose their homes and more likely to be late on their bills. And single women with children are now
three times
more likely to go bankrupt than men without children.
¹⁰⁸

The notion that women should fight for economic reform is hardly new. From the early days of the struggle for “Equal Pay for Equal Work,” women’s groups have protested for financial justice. But the issue of economic reform for middle-class women is often shunted
aside by other priorities. For example, the NOW Legal Defense and Education Fund vigorously opposed the credit industry-backed bankruptcy bill, doing the painstaking legwork to convince nearly thirty other women’s groups as disparate as Church Women United, Hadassah, and the YWCA to join the fight.
¹⁰⁹
Yet NOW Legal Defense also offered its very public support to Senator Joseph Biden, featuring him as women’s strongest ally in the Senate because he supported the Violence Against Women Act.
¹¹⁰
Apparently, his support of this bill trumped any concerns the group might have had over the fact that Senator Biden is “the leading Democratic proponent” and “one of the . . . strongest supporters” of the very bankruptcy bill against which NOW Legal Defense had fought so hard.
¹¹¹

Women’s groups have too few dollars and too little (wo)man power to fight every injustice. But there is another lesson in the tale of the bankruptcy bill. Women’s issues are not just about childbearing or domestic violence. If it were framed properly, middle-class economic reform just might become the issue that could galvanize millions of mainstream women to join the fight for women’s issues. The numbers are certainly there. This year, more women will file bankruptcy papers than will receive college diplomas. More women with children will search for a bankruptcy lawyer than will seek subsidized day care. And in a statistic with special significance for Senator Biden, more women will be victimized by predatory lenders than will seek protection from an abusive husband or boyfriend.
¹¹²

The point is not to discredit other worthy causes or to pit one disadvantaged group against another. Nor would we suggest that battered women deserve less help or that subsidized day care is unimportant. The point is simply that family economics should not be left to giant corporations and paid lobbyists, and senators like Joe Biden should not be allowed to sell out women in the morning and be heralded as their friend in the evening. Middle-class women need help, and right now no one is putting their economic interests first.

Political groups on the conservative end of the political spectrum should step up as well. Groups such as the Family Research Council
and Focus on the Family organize their political and educational activities around the family. But economics are nestled at the core of family values. Any group that is serious about lowering divorce rates should focus on reducing the economic stress that strains a marriage. Any group that cares about children should be vitally interested in how home mortgages are marketed and how tens of thousands of kids are getting kicked out of their houses. And any group that thinks Mom ought to have the option to stay home with the kids should be powerfully concerned about the debt trap that chains millions of middle-class women to their offices.

A few religious leaders have involved themselves in family economics. In a recent letter to Congress, several faith-based organizations, including Catholics, Jews, and Unitarians, joined to argue that “[s]ocial justice for the socially and economically disadvantaged is part of the cherished moral tradition shared by all of our religions.”
¹¹³
Citing a passage from the Bible about forgiveness of debts, the group called on Congress to abandon the proposed bankruptcy bill because the hardship it would impose on families was out of line with their religious beliefs. When they saw that the vitality of the family was at stake, these groups mobilized their moral authority against those who would rob families of their economic independence. Other faith-based organizations should heed the call and follow their lead.

Liberal or conservative, faith-based or secular, any group that sees its mission as
families
should have interest rate regulation and bankruptcy protection at the very top of its agenda. Predatory lending is a family issue. Usury is a family issue. Bankruptcy is a family issue. These laws affect families—people with children—more than anyone else. There is likely no other issue—divorce, welfare reform, child custody—that will directly touch more middle-class families than the mortgage and credit card interest rates that drain away their economic viability and sap the intimacy and joy from family life.

H
ow should a family protect itself from the Two-Income Trap? The deck is stacked against today’s parents who struggle to solve financial problems on their own. A generation of bidding wars has launched an army of competing buyers against any family that tries to cut back on its spending. And a generation of layoffs, divorces, and spiraling medical costs has hit pretty much everyone. In the pages of this book we have offered suggestions for collective action—recommendations for Congress and state legislatures, political action groups and faith-based organizations, school districts and community institutions. We firmly believe that collective action is the most effective remedy and that it is essential for reestablishing the economic security middle-class parents so badly need.

But such changes take time, and families need to safeguard themselves now. So what should a family do? For starters, everyone raising a family should read a good book on financial planning. But be warned: The basic premise of most of these books can be misleading, even dangerous. They show how to draw up a budget or choose a mutual fund, but in most cases their advice is aimed only at those lucky families for whom work is steady, everyone is healthy, and there are no emergencies. Disaster—a lost job, a premature birth, a divorce—is the defining theme of the financial lives of millions
of families, but it doesn’t appear in most financial advice books—or in most families’ financial plans.

Any firefighter will explain that the time to prepare for an emergency is
before
the house catches on fire. Install smoke detectors, get the oily rags out of the garage, run through a practice fire drill—and do it now, when there is no smoke in the air. The same advice should hold for financial protection. In the same spirit as a fire drill for home safety, the clever parent should run her own financial fire drill.

A financial fire drill should pose three questions:

1. Can your family survive without one income?
If your family is like the average two-income family, then you face a one in sixteen chance that in any given year, at least one of you will lose your job.
¹
If you are a single parent, you actually face smaller odds of a layoff (because there is only one person at work), but the consequence of a job loss can be even worse if that sole income disappears. In either case, the litmus test is the same: Can you survive for six months without one of the incomes that you currently rely on? If you are a married couple with only one earner, then the question is easier: Could the stay-at-home parent enter the job market if something happened to the primary breadwinner? Regardless of your group, if the answer is no, then it’s time for some disaster planning.

2. Can you downshift the fixed expenses?
If you are having trouble making ends meet, the average financial planning book advises you to “pass up those impulse purchases or another dinner out” so that you can save more and get out of debt.
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But the experts have it exactly wrong. If you eliminate all the treats now, while times are good, then where will you cut back when a real financial crisis appears? Take another look at your budget. If you are feeling squeezed during ordinary times, it is likely that you have a much bigger problem than an occasional dinner at the Olive Garden. You have a problem with your fixed costs.

Now is the time to take a hard look at the necessities, not the frills. If you’re having a difficult time making ends meet, think about lowering your fixed expenses. Can you manage a few more years without a new car? Can you sign up for the lower-cost HMO, even if that
means shifting the kids to a different pediatrician? Would your toddler be all right in a less expensive preschool? And, toughest of all, should you move to a cheaper house, one you can manage on a smaller mortgage? These are obviously difficult decisions for any family. But it is better to confront them now, when you have time and flexibility to make reasonable choices, rather than later, when the creditors are calling and your back is to the wall.

Lurking in these words is a piece of corollary advice to the family shopping for a home:
Don’t stretch yourself to buy a house you can’t afford
. If the only way you can meet the mortgage payments for your dream home is to tighten your belt and commit both incomes, don’t do it. The fact that you have been approved for a mortgage is no guarantee that you can actually afford it. As painful as it may be, it is wiser to rent for a few more years or to buy a smaller home. That oversized mortgage will leave you with no room for error, no cash for even minor emergencies—let alone a real disaster.

There is a silver lining to all this abstemious advice.
It is okay to splurge on extras
. Never mind the dour looks from the Over-Consumption camp. So long as you are staying out of debt and putting something away in savings, you should feel free to buy the kids a new pair of Nikes or treat yourself to a night on the town. If the tough times come, you can drop those expenditures in a heartbeat. As long as your fixed expenses are low enough that you can manage during a crisis, then you can count yourself secure enough to go ahead and have some fun.