The Two-Income Trap (27 page)

For some families, keeping a parent at home is at least possible. But is it a good idea, financially speaking? It isn’t a bad solution, if you can afford it. If you would prefer to have a parent at home full-time but were afraid that it would be too risky economically, then don’t worry. The idea that it takes two incomes to be financially secure is dangerously wrongheaded. The data in this book show that a family with a stay-at-home parent has an important source of economic security, a backup earner and caregiver who can step in if anything goes wrong. So long as you can get by on a single income and the stay-at-home parent can enter the workforce if the need arises, then go right ahead and quit your job.

What if both parents prefer to work? By all means, do it. Two earners does not mean an inevitable dive into the Two-Income Trap; it just means there is more risk and the family must plan accordingly. The financial planning books typically treat one and two-income families the same, telling you to add up your family’s income, divide by the expenses, and fill in the blanks. But they are not the same. Without a safety net, your two-income family must be careful not to budget as tightly as a one-income household. If at all possible, think of that second income as a safety net, a special reserve for bad times. When times are good, put something in savings, and spend the rest of the second paycheck on restaurants, nice clothes, and treats. If you can avoid committing it to the mortgage and the health insurance, you’ll get to enjoy the benefits of having two incomes while staying secure.

Some women have found another way to avoid the Two-Income Trap. It doesn’t involve loading up on insurance policies or conducting a financial fire drill; nor does it require you to keep a spouse at home full-time. And, unlike the other solutions we have presented, it is cost-free and highly effective. Their solution? Don’t have children.

Childlessness may not be a calculated economic strategy, but it has powerful economic consequences. By forgoing childbearing, a woman decreases her chances of going bankrupt by 66 percent.
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She reduces the likelihood that she will ever deal with a collection call or worry about a repo man, and she increases the chances that she will hold on to her home. And this improved financial security will last a lifetime: By remaining childless, a woman greatly improves her odds of having a comfortable retirement.
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A few generations ago, advising women not to have children would have seemed ridiculous. Not only would it have defied the social norms of the time (which assumed that everyone would become parents), but the advice would have been viewed as economically self-destructive. At one time, men and women viewed children as economic assets. Youngsters lent a hand on the farm or in the shop, they looked after their younger siblings, and, most important, they cared for their aging parents. Little wonder that parents were expected to shoulder the costs of bringing up those children. After all, parents reaped the rewards.

Children are still economic assets. Today’s children will build the economy of tomorrow, defend the nation in future wars, care for the sick, construct new buildings, repair the roads, and support the next generation of elderly through Social Security. But there is a key difference: These benefits will go to society at large, not to specific parents. Moreover, most of the contributions from today’s children will not occur until they have grown up and left home. In the modern economy, few children earn their keep by sweeping out the family store or gathering the next harvest; most will be a financial burden well into
adulthood. In just a few generations, the calculus of raising children has changed dramatically. Middle-class parents are investing more and more in their own children; at the same time, society at large claims an ever-growing share of the rewards of those investments.

A column in
U.S. News & World Report
observed wryly: “At the individual family level, a child, financially speaking, looks more like a high-priced consumer item with no warranty. . . . For economic man in the late 20th century, child-rearing has become a crummy financial bargain.”
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The authors were fundamentally right. Bringing up children has indeed become a crummy financial bargain. But they were wrong in another regard. Signing on to have children is quite different from buying “a high-priced consumer item,” with or without warranty. If having children were like buying, say, a Mercedes Benz, with a preset price tag that could be clearly accounted for, then prospective parents could make the usual set of financial choices posed by the typical economics textbook. They could choose among several options—the Mercedes, the BMW, or the pleasure of a tiny new person. Reasonable people could make informed choices, depending on their preferences, and they could abandon (or resell) their purchases if the costs got out of hand.

But the cost of a child is not so neatly packaged. It is not possible to calculate the eighteen-year (or twenty-two-year) price tag of an individual person, with her unique talents and needs, before she is even conceived. Nor does it matter that a prospective parent did not budget for the baby-with-asthma package or the costly diploma at a private college for the kid who was denied admission to State U. Parents make the commitment to meet their children’s needs long before they know the full price. And that commitment will color the parents’ financial prospects for the rest of their lives.

For a growing number of Americans, childlessness has become a serious option. Much has been made of the possibility of a looming shortfall in America’s birth rate.
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Over the past twenty years, the proportion of childless women has doubled, and demographers predict that as many as a quarter of today’s young women will never have children.
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If the word gets out that families with children are nearly
three times more likely to collapse into bankruptcy, will even more women decide not to have children? And what about the children who grow up today watching mom and dad work hard all day, only to weep in frustration when bill collectors call them ugly names or repo men circle the family car? Will these children have any interest in becoming parents themselves?

Our crystal ball is cloudy, and it is quite possible that the biological drive to pass on our genes will continue to win out over seemingly more rational financial calculations. We certainly hope so. Not just for sentimental reasons, but also for economic ones. Many view parenthood as nothing more than another “lifestyle choice,” not so different from joining a commune or developing a passion for windsurfing.
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And that may be true from the perspective of an individual choosing whether or not to have a child, but it isn’t true for society at large. What happens to a nation that rewards the childless and penalizes the parents? If middle-class men and women stop making that parental lifestyle choice, who will care for them in their old age? Who will pay taxes, build infrastructure, and keep the economy afloat? And most important, who will populate the great middle class of America’s future?

We wish we could offer some clever advice that would tell everyone how to sidestep the financial land mines associated with parenthood, but we can’t. The financial fire drill can help curb at least a few of the dangers of modern economic life, but it cannot negate the fundamental fact that having children has become an enormously risky undertaking. Nor can the financial fire drill protect an individual parent from the vagaries of the marketplace. So long as the only way parents can guarantee a decent education for their children is to buy an overpriced home in the suburbs, families will continue to take on ruinous mortgages. So long as the costs of preschool remain a family’s responsibility rather than a public duty, parents will continue to struggle. So long as colleges can get away with doubling tuition every generation to pay for sports teams and armies of new administrators, families will be stretched even further. And so long as Congress refuses to impose some basic interest rate regulations, credit card companies and mortgage
lenders will continue to drain tens of billions of dollars out of the pockets of middle-class American families each year.

Our advice here is born out of hope rather than sound financial reasoning. If you feel called to be a parent, we hope you will follow your heart. Yes, you may lose your home, and you may go bankrupt. We hope the joys will outweigh the financial pain. And besides, what other advice would you expect from two working mothers who believe in the great American middle class and who pray for its strong future?

But if you become a parent, we believe that you have an extra duty beyond providing for your child’s needs; you also have a duty to speak up. The data in this book show that families cannot protect themselves alone. So write your representatives in Congress, petition your school board, and speak out. There are 63 million parents in America, and with them, you are strong enough to make a difference. If you are to survive financially, you and other parents must band together for change. The survival of your interest group—parents—depends on it.

There is one more reason you should act. Not for yourself, or for other parents, or for future parents. You should take action on behalf of the children.

This book is certain to make some people angry. Those who are convinced that the problem with American families can be summed up by materialism and irresponsibility will denounce us as hopeless apologists. Spokespersons for the lending industry will puff about how much good all that debt has done for the American family. Politicians who have taken millions of dollars to protect the giant banks will pointedly ignore this book while they loudly reaffirm that they are “pro-family.” And there will be no shortage of people who will continue to denounce the financially unlucky as moral failures.

But there is one fact that will be hard for even our most vocal critics to ignore. This year, an estimated 1.6 million children will go along for the ride when their parents declare bankruptcy. That means
that more kids will be listed in their parents’ bankruptcies than will sign up for Little League. Or adopt a dog from the humane society. Or get braces on their teeth.
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If current trends continue, by the end of the decade
one of every seven children in the United States will have lived through their parents’ bankruptcy
.
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Much like divorce, bankruptcy is about a destabilized family. A whole nation has focused on the difficulties that children face when their parents divorce, while the problem of financial distress among middle-class parents is widely ignored. And yet, in any given year
more children will live through their parents’ bankruptcy than their parents’ divorce
.
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For these children, bankruptcy is not simply a matter of having less spending money or getting fewer new clothes. Like the children of divorce, the children of economic failure lose the life they once knew.

In some cases, the effects of deteriorating family finances are subtle, difficult for a child to comprehend. Mom cries a lot, Dad sits home all day, and the heat has been shut off. In other cases, the fallout is abrupt. A foreclosure notice stuck to the front door, a cramped apartment on the other side of town, a new school. And sometimes the spillover is totally unexpected. Sara Swerdling, a thirty-eight-year-old mother in California, tried to insulate her eleven-year-old son from the financial fallout of her husband’s job loss. She carefully hid the past-due notices, told him the telephone was shut off due to a “mechanical difficulty,” and said the car was towed away because the transmission was broken. But then came the phone call that forced her to admit that she and her husband could no longer shield him. “Our son has braces. When the dentist was informed of the bankruptcy, they called and said they wouldn’t see him anymore.” After a series of humiliating phone calls, she finally found an orthodontist who was willing to remove her son’s braces—for cash in advance. Then she had to explain to her eleven-year-old what had gone wrong in their lives, why a stranger would take off his braces while his teeth were still crooked, and how his life was about to change.

When a radical change occurs in a child’s life—divorce, a move to a new city, or even the birth of a new sibling—parents typically alert the
other adults in the child’s life, asking them to give additional support and to watch for signs of trouble. But middle-class parents don’t tell the teachers, the pediatrician, the school counselor, or the babysitter that their youngster may be experiencing distress because Mom and Dad are on the brink of bankruptcy. This leaves children isolated, confused, and conscious that something shameful is going on.

The code of silence makes it difficult for these children to seek out friends who have lived through the same experience. Children become more isolated, cut off from their peers. Over time, this can evolve into keeping secrets and telling lies. Professor Katherine Newman, in her book
Falling from Grace
, quotes the advice an unemployed father gave to his son: “In his school, everybody’s father is the head of this and that. So I said, ‘You just tell them your Dad was VP of a company and he just refused to go on an overseas assignment. . . .’ I told him if anybody asks, tell them I started my own firm.”
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When a parent advocates telling lies, what is a child to think? Politicians may contend that financial collapse has lost its stigma, but children living through it may not see it that way.

A handful of academic studies provides hints about the future these children face. The catalog of damages inflicted on children when their parents divorce—falling test scores, low self-esteem, discipline problems, depression—also applies for middle-class children whose parents are in financial trouble.
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Financial collapse has an additional wrinkle less common among children of divorce: It often sends a child into adult roles long before his time. Newman observes: “For downwardly mobile families, it is the parents who need their kids’ emotional support. . . . Their children want to be more independent, but a sense of responsibility and obligation pulls them back.”
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