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

by Elizabeth Warren, Amelia Warren Tyagi

More than two decades ago, the women's movement flung open the doors of the workplace. Although this social revolution created a firestorm of controversy, no one questioned the idea that women's involvement in the workforce was certain to improve families' financial lot. Until now.In this brilliantly argued book, Harvard Law School bankruptcy expert Elizabeth Warren and business consultant Amelia Tyagi show that today's middle-class parents are suffering from an unprecedented and totally unexpected economic meltdown. Astonishingly, sending mothers to work has made families more vulnerable than ever before. Today's two-income family earns 75% more money than its single-income counterpart of a generation ago, but actually has less discretionary income once their fixed monthly bills are paid.How did this happen? Warren and Tyagi provide convincing evidence that the culprit is not "overconsumption," as many critics have charged. Instead, they point to the ferocious bidding war for housing and education that has quietly engulfed America's suburbs. Stay-at-home mothers once provided a financial safety net if disaster struck; their move into the workforce has left today's families chillingly at risk. The authors show why the usual remedies--child-support enforcement, subsidized daycare, and higher salaries for women--won't solve the problem, and propose a set of innovative solutions, from rate caps on credit cards to open-access public schools, to restore security to the middle class.

Genres: Nonfiction, Economics, Politics, Finance, Personal Finance, Money, Business

272 pages, Hardcover

First published September 1, 2003

About the author

Elizabeth Warren (born 1949) is an American academic and politician, and the current senior U.S. Senator from Massachusetts and a Democrat. She is the Leo Gottlieb Professor of Law at Harvard Law School -- where she taught contract law, bankruptcy, and commercial law -- and devoted much of the past three decades to studying the economics of middle class families. In the wake of the 2008-9 financial crisis, she became the chair of the Congressional Oversight Panel created to investigate the U.S. banking bailout (formally known as the Troubled Assets Relief Program). In that role, she has provided a critical check on the U.S. Department of the Treasury and has been a leading advocate for accountability and transparency. Since 2007, she had advocated for the creation of a new Consumer Financial Protection Agency, which was established by the Dodd–Frank Wall Street Reform and Consumer Protection Act signed into law by President Obama in July 2010.

Reviews

[Jason Holt · Rating 2 out of 5]

I gained interest in this book, and with Dr. Warren's work in general, when I watched a lecture taped at UC Berkeley back in 2007 (see here). Her conclusion was that the common notion of explaining family bankruptcies and indebtedness on frivolous over-consumption was simply a myth. Needless expenditures, Warren contends, weren't a significant contributor to family indebtedness, but, instead, the cost of staples (like transportation, housing, health care, etc.) had increased to unsustainable levels without a corresponding wage increase. Warren's data demonstrates that families, now with two persons working on average instead of one, are becoming poorer through no fault of their own.

This is an interesting conclusion, and one which goes against virtually all of my pre-conceived notions. Warren does a great job in dispelling the myth of over-consumption; such a great job, in fact, that in my eyes the myth seems to have little basis at all.

So, you might ask, why have I given this book such a poor rating? I love Warren's work, but I am no fan of popular non-fiction. I find the conclusions, on average, to be overly-simplistic, and that works of pop non-fiction could easily be condensed into a few pages. Their main points are easy to understand, while the books, nonetheless, ramble on in redundant chapters; basically repeating the initial statement a hundred times over. This work was no different. If it weren't for the fact that this was the only book I had on me during a long lay-over at JFK, I don't think I would have finished it.

Luckily for you, however, if you haven't read this book yet, you can find a short paper that Warren wrote before the book was published which gave all of the same information in a condensed form. You can find the paper here. The aforementioned video, too, is a great resource for understanding Warren's project.

[Alexis · Rating 3 out of 5]

With all the talk about Elizabeth Warren running for president, I decided to revisit The Two-Income Trap, a book that has had a very mixed reception amongst my circle of friends. (Disclosure, in case you think I am personally biased: I am a stay at home mother of two.)

This was published in 2003, which presents a problem for a review: Was the assessment correct at the time, and how well has it held up since? The short answer is mixed, for both of them. Essentially, the premise is this: the two income trap is faced by dual income middle class families because both incomes are committed to basic, fixed expenses, but they face nearly double the level of risk of job loss or other crisis, meaning the loss of one income is financially devastating. This is neutral as far as it goes, and can be demonstrated statistically.

The first problem is that they frames it as a competition. In Warren and Tyagi's view, dual income families have driven up the price of middle class life, principally housing in good school districts. Two income families are able to outspend single income families, thereby driving up the need for two incomes. The sense is that they view families as being pitted against each other in a war for scarce resources.

For a pair of working women in the 2000s, their views of women's roles are surprisingly simplistic. They principally ascribe women's income as providing an "economic edge"--a surplus to the man's income.

It was refreshing to see an acknowledgement of the economic value of unpaid labor provided by stay at home mothers, but even here, the details were shallow. The value of a stay at home mother is principally in the labor she provides. Its absence creates a void that must be filled--as acknowledged in the discussion of caretaking, though not her other domestic labor--but also historically has enabled men to work more, knowing their wife will pick up the slack. While Warren and Tyagi are aware of the racial disparities in working women, it gets only a glancing mention, which would not be acceptable today.

Worse, the other economic arguments of women's decisions to work are breezed over in ways that were a problem 16 years ago. They extol the potential of a stay at home mother's ability to act as a safety net in times of crisis, because her economic potential is still untapped. But you can't do that without considering how likely it is that she'll be able to bring in income. Similarly, the value of building a career is waved off because being a working woman doesn't protect you after divorce.

The proposed solutions for dealing with housing simply don't meet the smell test after the past 15 years. While middle class parents still chase desirable schools, it's also become clear that a major issue is the basic supply of housing and the overall inequality of American schooling. The problems here cannot be solved, as they suggest, by vouchers or a public school choice system.

The basic analysis that the trap is driven by spending on essentials, not luxuries, is sound and has been borne out since--even more so, given wage stagnation and rapid increases in the prices of housing, healthcare, and education. If the book were written today, more attention would be paid to the role of healthcare expenses and medical debt in driving families into bankruptcy.

There are some errors that really puzzled me--for example, stating that America "cannot afford huge subsidies for middle class housing," which ignores that we do just that through the creation of the 30 year fixed mortgage and the mortgage interest deduction on taxes. There's also a dismissal of government funded daycare because it "only helps two income families", ignoring the impact of price on quality. To their credit they later do briefly mention quality and that childcare is inherently valuable, but it's a bizarre thing to say. They encourage tax breaks for saving, but don't pay enough attention to the fact that middle class families don't have enough to save.

The work on bankruptcy and credit is, unsurprisingly, the strongest, and holds up the best, despite changes in laws and trends. This was Warren's core work, and she knows it well. She's clear about what drives personal bankruptcy (not irresponsibility) and the danger done by predatory lenders. The origins of the CFPB are clear here, though her proposed regulations may lean a little to the paternalistic and her proposal to restrict mortgage lending requires a lot more analysis for impact. It would be very interesting to redo a lot of this research post subprime crisis, with the continuing spiral in house prices in competitive markets that appears to be a supply issue, not just a credit issue.

Overall, the book is a really odd mix of liberal policy with surprisingly conservative analysis that doesn't go deep enough. Warren and Tyagi were clearly trying to write a popular book, not a scholarly one, but the thesis deserved a deeper treatment.

[Valarie · Rating 3 out of 5]

If you have two incomes in a home, make sure your life is such that you can live on one of the incomes and sock the other income away in savings and investments. Which is extremely good advice (and yes it can be done--you don't need half of that crap people tell you you need).

Don't have kids, but if you must, see if you can refrain from vastly overleveraging yourself to keep your kids competitive in some future labor marketplace. If the houses in the neighborhoods with excellent schools are far too expensive to pay for with one income, don't buy one! Very, VERY simple (and...yes...it...really...is...that...simple).

Stop assuming that the future is constantly bright and nothing bad will ever happen to you. The second thing, behind having kids, that leads you to brokeville is stuff that people don't foresee--namely a job loss or an illness. This is why it's so important to live as if you have one income because if a spouse loses a job or has an illness, the savings and the other income is there.

Whether you're in a marriage, building a life with someone or single, it's past time to pick up this book. It'll help you avoid the traps that send people to bankruptcy every year.

[Mehrsa · Rating 5 out of 5]

Great myth-busting book by Warren and her daughter. Some of it bit dated now, but the message is still important: people blame debtors for their bad behavior and bad decisions. This is easier than realizing that things are much harder for certain people and life is hard and gets even harder when people are just skating by. I thought their focus on the loss of stay at homes moms as insurance was fascinating. It steps away from the culture wars to discuss what it means economically for families to rely on moms' salary.

The most important part of the book is the end when she talks about what it takes to win legislative battles--we need women and people of color coalitions to beat back industry. Debt is a race and gender issue.

Also, her critiques of democrats is priceless. I think she is still one of the least "bought" senators out there.

[lindsay · Rating 1 out of 5]

This book had the potential to be SO interesting, with a lot of thoughtful points about middle class families. Instead, it's a pompous piece of self-indulgent writing from a pair of know-it-alls. I tend towards liberalism and this book still pissed me off. If they're not insulting conservatives and making snide remarks about those of us who believe in concepts like personal responsibility, they are advocating for a paternalistic government that tells us what we can and cannot do because we're incapable of making decisions for ourselves. (Must legislate against credit card interest rates because people can't control themselves enough not to spend money they don't have! People NEED a suburban because how could they possibly fit two whole carseats in a family sedan!). Feh. Someone should muzzle these two before someone takes them seriously. Unfortunately, I think it's already too late for that.

[Umm Isa]

The Two Income Trap: Muslimah in the Monetary Maze

This book focuses a lot on policies and ideas to help middle class families in the United States. It does not focus on – or even mention – Muslim women at all. And yet, it is extremely relevant to us. Who has been more systematically targeted and deceptively drawn into the Two Income Trap, but us? That is why for me, the value of this book lies in three other aspects: the myth that having two adults in the workforce is somehow better than one, the value of the stay-at-home mother, and the critique of the banking system.

For as long as I can remember, I have heard bigoted rhetoric about the traditional Muslim family model where the father is the breadwinner and the mother stays at home, tending to the house and children. Muslim women who are stay-at-home-mothers have been called uneducated, stupid and backwards, and their husbands have been labeled toxic, oppressive, misogynistic abusers by people from all sides of the political spectrum. These comments are not limited to Twitter discussions or café talk, but are said by journalists, politicians, academics and teachers alike. Simultaneously, the idea of the perfect Western, secular family, one with a “strong, independent” working mother, has been propagated as the ideal. This has led some Muslims to develop an inferiority complex, and along with other factors, contributed to a big amount of Muslim women entering the workforce. Consider the gender wars for example. Many women are now made to believe that “all men are evil”, and therefore all women should work in case their wicked husband decides to not give them (enough) money or decides to leave her once and for all.

“Two-income families are more likely to file for bankruptcy than their one-income counterparts.”

But the Two Income Trap proves that dual-income families are less financially secure than one-income families, so these modern Muslim families are following Westerners into a downward spiral, not an upward one. Another interesting point the book mentions is that dual-income families use both incomes to pay for fixed costs. This means that the woman works to co-pay the housing, car and other bills. In the Islamic marriage model, aside from the woman most likely not working, these fixed costs are the man’s burden to carry. On top of that, the husband is also obliged to spend on his wife, even if she is rich. But somehow the Islamic way of marriage is the one that oppresses women?

There is one cause for the financial problems of modern families which I had in mind, but did not expect to find in this book: the evils of the banking system. Claiming that greedy lenders often use sly and unjust tactics to drain the common people of their money and make as much money as possible is something one would normally get called a conspiracy theorist for. But this book provides enough evidence to prove the truthfulness of this claim. Just take a look at one such example:

“In 2002, Citibank's subprime lending subsidiary was prosecuted for deceptive marketing practices [...]. A former loan officer testified about how she marketed the mortgages: If someone appeared uneducated, inarticulate, was a minority, or was particularly old or young, I would try to include all the [additional costs] CitiFinancial offered.” In other words, lending agents routinely steered families to higher-cost loans whenever they thought there was a chance they could get away with it.”

Or this example:

“In many cases, these lenders don't just want families' money; they also want to take people's homes. Banks have been caught deliberately issuing mortgages to families that could not afford them, with the ultimate aim of foreclosing on these homes. This practice is so common it has its own name in the industry: ''Loan to Own."”

Another tool which these greedy lenders use is usury. The authors in this book suggest that regulations of interest/usury rates would be of great benefit to American families. But usury, no matter the amount or percentage of it, will always cause economic injustice, for example by widening the gap between rich and poor. Therefore, the ultimate solution would be to get rid of interest completely, as Islam suggests.

“But those who take usury will rise up on the Day of Resurrection like someone tormented by Satan's touch. That is because they say: “Trade and usury are the same,” but God has allowed trade and forbidden usury. Whoever, on receiving God's warning, stops taking usury may keep his past gains – God will be his judge – but whoever goes back to usury will be an inhabitant of the Fire, there to remain.”

— The Holy Qur’an, Surah Al-Baqarah, verse 275

[Brian Hodges · Rating 4 out of 5]

This book was a real eye-opener to the common credit and real estate mistakes that people (especially married couples) have been making ever since we switched over to a two-income nation. I didn't realize it at the time, but this book was oddly prescient in regards to the current housing and financial crisis we're in now and I thank god I read it when I did. It seriously "scared me straight" in regards to buying a house. And while all my friends and family were leaping head first into the housing boom, my wife and I held back, refusing to cave to the peer pressure and the "keeping up with the Joneses" attitude until we were TRULY ready. And as a result we are in much better financial shape.

This book has such great advice and points to ponder for any married couple, whether you're renting, buying, thinking of buying, and whether you are a single or a dual-income household. Can't recommend it enough.

[Ross · Rating 5 out of 5]

This book is now five years old, longer than the shelf life of most “policy” books -- most personal finance books, too. So I was fully prepared to find the facts stale, the predictions obsolete. Wrong. Even though it was written before the term subprime entered the lexicon, this book explains why those mortgages were bound to cause problems: Families fail financially when they commit themselves to mortgages and other long-term fixed costs that they won’t be able to pay during the bad times. And today is a time of particular hardship, as the soft housing market means that families that go underwater can’t downsize from their house to an apartment even if they wanted to.

The book is based on the largest-ever study of why Americans go bankrupt. The study's headline finding is that most personal bankruptcies are due to a job loss, health problem, divorce, or combination of all three. Two-earner families are particularly vulnerable because they don’t have the safety net of a stay-at-home parent that can enter the workforce to make up for lost income. (This is the titular, counter-intuitive trap.) Having children and a mortgage makes families more vulnerable to financial distress because they lead to relatively high fixed costs that can't be reduced to accommodate a drop in income.

It gets worse. Average fixed costs take up a much larger portion, on average, of middle class incomes now than they did a generation ago; accordingly, the middle class is now, on average, more financially vulnerable. Finally, as the authors describe, today’s easy access to consumer debt -- how many “convenience” checks did you get in the mail this month? -- allows financially distressed families to dig a deeper hole than ever before.

There is a silver lining. As long as your fixed costs are low enough that you can weather the (potential) hard times ahead, it’s perfectly fine to spend on discretionary purchases today, since you can always scale back on those if needed.

[R.J. Gilbert · Rating 2 out of 5]

I read this book in 2003 and was disappointed then. I was only reminded of reading it when the eldest author appeared in the news recently. It still sits on my shelf with my notes inside it from the research I have been doing on the same problem. While it is true that this book somewhat predicts the housing crisis that came about in 2008, I was not surprised since I had been studying the "double-income economic disorder" since 1999. While some might say that it is a shame more people had listened to her, I say it is a shame she did not say more.

The author might have had better luck in helping to avert this nation's financial disasters had she put more spine into her warnings. She vaguely mentions the law, passed in 1975, that caused the current housing crisis (The Equal Credit Opportunity Act--I'll show my spine and name it). She also offers some solutions, but most of them are diaper-democracy (government takes the place of mommy in cleaning up our messes). This book does offer a lot of good advice for families (who, unlike government, actually have the power to fix this problem) but when I tried to pass it on to those I knew who were caught in the double-income trap, they could not pull away from their lifestyles of spending long enough to give consideration to the warnings.

[Mary · Rating 5 out of 5]

This book does an excellent job explaining the squeeze on the middle class since the 1970s. It dispels the myth that Americans just spend too much and instead points to real change that makes it much harder for middle-class families to stay afloat: rising health care costs, and college tuition and the lack of "insurance policy" formerly provided by a stay-at-home parent.

But the trap is really sprung when two-income couples have children. When buying a house in America, you really buy a school. And if it takes all of your income to afford that school, parents make the sacrifice. But if something bad happens (usually job loss, divorce, or medical emergency) the lack of a second income hurts and bankruptcy often results.

It sounds bad, but a lot of the problems are solvable if the brainwashed conservatives would just get out of the way and let government do its job to protect people. I also applaud the authors for decrying the credit spree in the 2000s that has wreaked such havoc with the economy. However, now that home prices have declined is it any easier or is the premium on good schools still unaffordable for middle-class families? Time to gather some more data...

[Donald Powell · Rating 5 out of 5]

The rules we live by are written and enforced by us. Governance, by politicians, local, state and Federal define how our life must be managed. This book, while it is seventeen years old, is just as valid now as before. It is based upon study, real gathered information, and a thorough analysis of how things actually work. Until we get money out of the control of our governance we will continue to have gross and indefensible inequality, sometimes worsening inequality. Money controls those who write and enforce the rules. This is NOT about socialism vs. capitalism, the labels those in power propagandize us to think about. Now Senator Warren is a capitalist. Just like Robert Reich is a capitalist. They both constantly reveal in their thoughtful scholarship, analysis and writing, the system is rigged.
True capitalism makes some assumptions about competition, informed buyers, informed sellers and other factors which do not truly exist in the real world, especially in how it operates under our existing rules. Monopolies and combinations are the enemy for which pure capitalism has no real answer but abiding consequences for the average member of an economic system.
This is an important book that was hard to finish because its truth constantly evoked my feelings of despair, frustration and disgust. The truths of this serious analysis will not reach the average member of our economic system so we just keep rolling along, caught in many traps over which we are powerless unless we insist on getting money out of governance. Even the most fortunate American has scant ability to track the implications of the actions of those governing us. The media will not take us very far though an enlightened media is critically important. A perfect example is MSNBC, the purported megaphone for the progressive American, who exists on advertising for over priced automobiles and drugs for which a consumer has grossly inadequate information to evaluate and needs a doctor prescription to buy anyway. In other words the media is controlled by the monied interests too.
Thank God for Elizabeth Warren and her daughter, Amelia Warren Tyagi. I pray their wisdom continues to infuse us.

[Katie · Rating 5 out of 5]

"The Two-Income Trap" is a book I've been meaning to read for years. I discovered it in college when I read the first fifty pages or so in a Barnes & Noble between classes. I found it fascinating, and vowed to eventually read it in full. And now I have!

There's so much in this book that its hard for me to know where to start. Written by the mother daughter team of Elizabeth Warren and Amelia Warren Tyagi, "The Two-Income Trap" examines the current financial weaknesses of the middle class, and there are many. But the most surprising for me is the weakness that gives this book its name: having two incomes instead of one does not necessarily make a family's finances stronger. In fact, according to the Warrens, but putting themselves in a position where they need two incomes to cover their fixed expenditures (housing, car, health insurance, etc.), families are making themselves weaker than they were in the 1960s and 70s.

"The Two-Income Trap" examines the middle class by looking at families and individuals who have filed for bankruptcy. When beginning a study on bankruptcy, they were shocked to learn that there was one trait that an overwhelming majority if bankruptcy filers shared: have a dependent child present in the home. What, the Warrens wondered, is it that makes parents - and especially mothers - so financially vulnerable? What is going wrong?

The answers are complex, and not necessarily what you'd expect. The Warrens dismiss many of the common myths surrounding bankruptcy - that those filing for bankruptcy are immoral spenders, that they bought themselves into dept with meals out and designer jeans, or are committing fraud. What the Warrens find is that in 90% of the bankruptcy cases studied, filers were hit by one (or more) of the following three crises: medical bills, job loss, or divorce. Middle Class families, the Warrens find, have already stretched their two-income budgets so far that they cannot accommodate any disasters. Why are middle class budgets stretched to so thin? There are many reasons. The Warerns look at the relationship between schools and housing prices, and the second income that allows middle class families to enter bidding wars for houses in good school districts; they look at how the current school system fails parents of young children by not offering pre-school; they look at how single mothers in the 1960s and 70s provided a safety net for families during times of crisis; they also look at how deregulation of the finance industry in the early 1980 has changed the way banks operate, and how these changes hurt consumers.

This book was great. It is well researched, easy to read, and really help gave me an understanding of household financing.

I also like that the solutions Warren offers in this book all deal with changes to our financial law, education system, disability law, and other policy changes rather than suggesting a that families simply revert to the one-income model (though she does briefly talk about that in chapter seven). The world isn't going back to one-income households, probably ever. What the Warrens focus is that middle class families need more social safety nets to help in an emergency. They also need to eat out at restaurants more when things are going good, so that they actually have luxuries to cut when things are going bad. Ha. How many finance books are going to tell you to eat out more? :P

[Ryceejo · Rating 3 out of 5]

I am glad I read this book, if only to solidify the intuition I already had about our family’s finances as a SAHM. The book offers a lot of policy suggestions (fix public education so the bidding war on real estate ends, reregulate banks/loans), and finally the last chapter offers the solutions I was looking for in the book. However, this book was published almost 15 years ago and could really use an update in statistics. Most numbers compared late 1990s data with 1970s data, and I imagine things have only changed for the worse since. Since the majority of the book is numbers and polls and percentages, the author would do well to publish a new edition.

[Virginia · Rating 4 out of 5]

A Harvard economist's take on rising rates of bankruptcy among middle class couples. Interesting read, especially since it was written a few years ago now and foreshadowed some of the present problems in the housing market. I particularly liked that it justified my suspicions that couples today are having a harder go of it than our parents did, despite greater levels of education and two steady incomes. Includes good tips for how to stay financially solvent.

[Sanjida · Rating 4 out of 5]

So, I'm going to vote for Warren and no one else in the upcoming primary, and you should too! This book is bit dated, but still charming and full of wit and lovely jabs at Clinton and Biden hypocrisies. It's educational too!

[Eric · Rating 3 out of 5]

I've argued for some time that feminism was a bad deal economically for the average American family. Over time, it roughly doubled the pool of available labor, halving wages. It also put families that tried to rely on one breadwinner at a competitive disadvantage for purchasing certain assets - homes for example. The Two-Income Trap explores some of these ideas, but glosses over others, all the while exempting families from poor decisions and blaming them solely on macroeconomic forces. I expected a more thorough review from such accomplished writers.

Relying on incomes from two spouses to cover the "fixed" costs associated with supporting a family - such as mortgage and car payments, insurance, or "minimum" levels of grocery, electric, and water expense - puts families at risk. If one income is lost, the minimum level of income necessary to support the family is compromised. This is the most important take-away from the book, because it is so counter-intuitive. Do not assume that adding an extra income will make you more financially secure - if you behave like most American families by leveraging your income to support higher fixed costs, it actually increases risk.

If you read this book, I strongly recommend reading "America's Financial Apocalypse" immediately afterward, as the author includes well-researched contradictory information that makes for a clearer overall picture. I recommend The Two-Income Trap with reservations, but it is a quick read and worth the afternoon it takes to finish.

[Foppe · Rating 4 out of 5]

This book provides support for a lot of intuitions I've had for a while now. Put briefly, the book shows that the believing in the 'small government' meme is extremely dangerous, because it provides "intuitive" support for the progressive dismantling of all the useful parts of government, while all the parts that aren't useful are certain to be maintained by politicians who know where their next campaign finance check comes from.
Elizabeth Warren attacks this idea pretty successfully. She explains how it is possible that even though most families, even though both parents are working, can on the whole be worse off than 30 years ago, when only one of them needed to work. She shows how this is not because of irresponsible spending on food, appliances, vacations, computers or whatever, but because of being enormously increased mortgage costs, health care insurance costs (for people who can get insurance at all), education cost, and the risks associated with having a mortgage that is only affordable as long as both parents work. Together, these things ensure that as soon as something goes wrong, everything will go wrong.
Recommended because it 'nicely' shows how the problems that are troubling "middle class" (working class) families these days are in no way new, but simply happening at an ever larger scale.

[Siyu · Rating 4 out of 5]

This was early 2000s (sub prime mortgages). Sets out to explain why bankruptcy filings are disproportionally by two-income families with children, and even though women are much better educated/participate in the workforce and child support payments are better enforced, single mothers are not better off financially than a generation ago.

The problem is that two-income households commit both incomes to long-term fixed costs, mostly a suburban house with access to a good public school in a safe neighborhood, while the probability of job loss doubles. They lost the "safety net" of a stay-at-home parent: additional income to make up for a job loss by starting to work (since household was budgeted on a single income), and capacity to take care of a sick family member without taking time off. So contrary to the over-consumption myth, these families go bankrupt precisely not because they spent money on frivolous things that can be cut back easily. Advice for two-income families: budget fixed costs like a single-income family, and save some of the second income or spend it on "luxuries" that can be cut back in times of need.

[Ryan Matsumoto · Rating 4 out of 5]

A solid, well-researched economic policy book that draws upon the authors' research on bankruptcy cases of American families.

The basic idea of "the two-income trap" is that while improved opportunities for women in the workforce is a positive, it has also created unintended financial risks for families. When families mostly just had the husband working, the wife could serve as a backup and take a temporary or part-time job if the husband got laid off. With two parents working, there isn't a backup in place in case someone gets laid off. Although two parents working leads to a higher household income, families usually budget based on the higher combined income, leaving little slack in case someone loses their job. A layoff can cause dramatic budgetary problems with the mortgage, childcare, or car payments, even if someone is still working.

Another key point this book makes is that the increase in bankruptcy rate in recent years is mostly due to essential costs (e.g. housing, childcare, transportation) increasing rather than "over-consumption" and a decrease in personal responsibility. The authors present a compelling, data-driven argument here that was convincing to me. One interesting point the authors make is that while families could give their budget more breathing room by getting a smaller mortgage, this presents the family with a difficult choice because a lower value house could mean a lower quality school district for their children, since schools are predominantly funded by local property taxes.

I also found the discussion about credit interest rates to be fascinating. The authors argue that deregulation of the credit industry has led to increasingly high and predatory credit interest rates that families are unable to repay. I found myself agreeing with them that these credit interest rates should probably be regulated more - this would lead to fewer loans but would be a positive since it would prevent people from taking on debts that they realistically wouldn't be able to pay back.

Other potential solutions to the bankruptcy and two-income trap problems that the authors identify include school vouchers (allowing families to choose from a variety of public schools in their district, lowering the pressure to buy the most expensive houses), tuition freezes at public universities, universal preschool, and reforming mortgage policies. While some of these solutions seemed somewhat half-baked to me, I think that they are a good start to thinking about how we can address these major problems.

[Amanda · Rating 5 out of 5]

Family economics is of particular interest to me for two reasons: (1) I keep losing my job so it seems like we are always struggling, and (2) As a case manager, I work (when I am working) with mostly economically dis-advantaged people for whom I feel it is part of my job to educate for their own protection. So, I really loved this book.

In this book the authors point out that the disappearing middle class is a result of not over-consumption but our desire for safety and education coupled with the loss of our safety net - the stay at home mom. (She is very pro-feminism, so don't get the idea it's going to be sexist) It is very well written in that the authors provide researched based evidence of what has caused our current situation and then even propose solutions! (I know that shouldn't be too much to ask but this is the book I expected Nickled and Dimed to be- present a problem, offer solutions!) Not all of their ideas are an easy sell but everything they have to say is defiantly worth thinking about.

I found this book to be full of information to quote and share: On p. 131, they say, "No advertisements trumpet, "when your husband leaves you, there's MasterCard." nor do we hear: 'American express: don't lose your job without it.' but those slogans would be closer to the truth about how credit is used today. " (HA!, so true.) With anecdotes, wit, science and math they show that we can blame public policy and big business for creating the mess we are in today, NOT the average American family who is actually NOT "blowing their money on vacations and luxury items" as proponents of the over consumption myth (big business and their lobbyists) would lead us to believe.

Another quote I have to share is: "Sears reportedly earned more money from the interest and late fees the company charged it's credit card holders than it earned from selling merchandise." Wow. I had numerous moments with this book, those that Oprah would call my "ah ha moments," and this one stands out as one that really made me think: It's no wonder things aren't made as well as they used to be. Since companies do seem to be more concerned with huge profits than with providing a service to their customers it only stands to reason that they are more concerned with their banking business than appliance building. Also clearly explains why Wal-mart did away with their layaway...

Anyway, this is not a financial planning book, although she recommends you read one. But she does finish with a chapter of what we can do as individuals. On pg164 the authors advise NOT to cut back on frills but instead on fixed expenses during good times. Sounds counter intuitive, but is what I'm already figuring out for myself: if you are already squeezed during "good times" and can't afford ANY frills then "you have a much bigger problem than an occasional dinner at the Olive Garden." Also the authors say, "Never mind the looks from the over consumption camp as long as you are staying out of debt. If tough times come you can drop this expenditure in a heartbeat." This goes along with advise that any good financial advisor would give. Don't enter survival mode unless there is a real need to survive. (unemployment, illness, etc.) She advises cutting fixed expenses instead and avoiding long term commitments. For example you should only take out a 36 month car loan- if this drives the payment up too high then hear the warning that you can't afford it . "Think of every long term commitment (in borrowing) as walking a tight rope- so long as your family is on the rope, there is a risk for disaster. Take the shortest walks that you can." She also offers advice to people who "missed the fire drill" and are already in a financial disaster. For example, I did not know that, "It typically costs a creditor an average of $350 to send a truck to your house and cart something away and even more to resell it. " How great would that kind of information be to be armed with if the creditors come calling?

Very well rounded, well written, intelligent book. Highly recommend to those with families struggling on two incomes and to those to believe the myths that overconsumption and poverty have a causal relationship.

[Emily · Rating 3 out of 5]

he Two-Income Trap is a book about the economic pressures facing families today, but above all it's an indictment of an increasingly predatory credit-card industry. (One of the book's authors was prominently featured in the recent Frontline report about credit cards.) The authors show how having a second wage earner hasn't been the boon that families expected. Parents--crunched by a competitive housing market and expensive college tuition--devote 75% of their income to fixed commitments like the mortgage, all in the name of securing a middle-class lifestyle. But when something unexpected happens--unemployment or illness, for example--the family cannot meet its basic obligations, and many ultimately declare bankruptcy after running up massive credit card debt.

The authors describe how credit card terms and bankruptcy law have become increasingly incomprehensible and punitive. For example, many credit cards have a small-print policy of "universal default," which means that they can revoke your favorable but conditional APR if you make a late payment on an account totally unrelated to your credit card--a utility bill, for example. Banks want you to take out and use as much credit as you can, because they know that most people will kill themselves trying to pay it back rather than default; they make more money by getting lots of people to take large high-interest loans and suffering a few defaults than they do when everyone dutifully pays off their small balance every month. So when a family is in trouble and starts running up balances, they actually receive more credit card offers than a financially stable person does. Meanwhile, the banks are currently trying to rewrite bankruptcy law so that credit card debts don't have to be forgiven--adding them to a very short list of responsibilties (e.g. child support) that remain even after bankruptcy. In fact, one bill even puts credit card debt higher on the list of priorities than child support, so that MBNA would have a better claim on the wages of a deadbeat than a single mother would.

You might expect the authors to advocate that women stay home, but far from it--women's income is now needed to keep up with the cost of living. Their primary prescription is something most Americans seem to have forgotten how to do: save. If you can't do that, they say, better to spend all your second income on restaurants and clothes; at least that way the spending is discretionary and can be stopped in an emergency. I think the book is a useful and interesting discussion, but it's not really one for the ages, so I'm giving it a relatively low rating.

[Leila T. · Rating 4 out of 5]

I read this in 2007, around the time that I saw the documentary "Maxed Out" and also around the time my husband was reading several financial blogs that presaged the current recession(for e.g., Calculated Risk). Actually, the author, Elizabeth Warren, was interviewed on that documentary, and she was so compelling I sought out her book.

This book is very good, helping one understand how house prices became so insanely inflated---the bubble---and also giving reasons to be sympathetic, rather than judgemental, towards people who did buy property that they could not afford.

I remember there is a chapter on Hillary Clinton, her brilliance and also her choice of politics over integrity with regard to bankruptcy laws. There is also a clear description of the sub-prime mortgage situation and an interesting side-piece on how divorced fathers may not be able to pay child support.

I think that in this book there is a certain nostalgia, or preference for, or modelling of the way family finances used to be organized: one parent (father) working, while one parent (mother) stays at home, looking after sick relatives, able to step into workplace if other parent loses job, etc., and expenses are reckoned on a one-income budget. Thinking about this book now, the tension between this model and the model pursued by the authors themselves (E. Warren writes it with her daughter)---two-income, working-mother family---is never resolved satisfactorily.

I recall they suggest that even if your household is two-income, then to budget your expenses as though you rely on only one, in order to avoid being stretched out financially, especially when difficulties like lay-offs, sickness, stock-market crash, etc., occur. I think this sounds sensible in theory, but I can't imagine it in widespread practice in America.

But! It is really easy to read, concepts presented clearly and interestingly, and I am glad that I read it. Broadened my mind, and all that.

[Katherine · Rating 3 out of 5]

I was assigned this book for a seminar on work and economic security, but I'd been hoping to read it for a long time. The issues of family economics and gender dynamics seem to me a wellspring for interesting research and study, though not as much is done as could be (Arlie Hochschild's books on this subject are well worth reading, for those looking). To top it off, I took Elizabeth Warren's bankruptcy class in law school and wanted to see what kind of book she'd write.

Her book is very good, if at times not as detailed or analytical as I might have liked. The narrative was clearly Professor Warren's; she, and the book, are undeniably smart, thoughtful, and passionate about reform in these areas (specifically, policies surrounding debt, bankruptcy, and mortgages, particularly as applied to the poor and middle class). I think the Two Income Trap makes some very important points most people don't know about how bankruptcy laws are written, how the extension of credit and mortgages has changed, and how families and gender shape these experiences. These points are particularly important in light of the disaster that is the mortgage and lending industry today. Still, at times, I found myself looking for the other side of the argument, even though I agree with the conclusions of the book. I think the book would have been stronger if it had done more to combat counterarguments and expose the nuances of the problems facing American families. It is, though, still a very important study of these issues I would recommend to anyone thinking about buying a house - or about reforming how we all buy houses down the line.

[Windelbo · Rating 4 out of 5]

I decided to read this book to find out why there is such a fuss in dc over Elizabeth Warren's nomination to head the new consumer protection agency. After finishing, I am convinced that she is the perfect person to head this agency. She seems to have devoted her career to thoughts on the economics of the American family. She does not just blame blame lenders or borrowers for bankruptcies and other financial hardships. Instead she lays out statistics and facts that describe how families find themselves in difficult financial situations. It is not until the final chapter that she starts to assign blame and get a little too preachy for my liking. Chapters 1-5 flow well and tell a convincing story that puts a face to individual families and what leads them into financial pain. Bottom line advice from this book-if you live in a two-income household, make sure that you could pay all fixed costs on only one of those incomes. This seems like good advice, but may not be possible due to a number of political issues also discussed in the book.

[Elizabeth · Rating 3 out of 5]

This offered a different perspective on why the middle-class has money issues than the affluenza-type books, so it was a good read, especially since I am not part of a two-income family (or have a family) so don't have first-hand experience.

[Leah · Rating 4 out of 5]

It feels dated now, and really drove home to me how milquetoast center left policy was in 2003. However, I also had to keep reminding myself when it was written because the warnings about the housing market are so eerily predictive. And overall she should definitely be president.

[Irene · Rating 3 out of 5]

A Harvard Law bankruptcy professor writes crisply about the fiscal rape of average Americans at usurious, yet legal interest rates by the credit card and/or mortgage divisions of the major banks.

[A · Rating 5 out of 5]

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[Rachel · Rating 3 out of 5]

3.5/5 - As this book was written in 2003, it is sadly a bit dated. Warren and her daughter gave a great background on subprime lending and bankruptcy, but in 2019 it feels a bit “been there, done that”.

I do think that the overall budgeting tips for dual income families are very smart, and something I will be considering in the future.

[Lawrence Grandpre · Rating 3 out of 5]

"When someone shows you who they are, believe them the first time". Maya Angelou

A text which attempts to eliminate the shame of people who have bankruptcy and reframe bankruptcy not as an individual moral failing, but as a social issue.

It's frame clearly shows the author believes in the justness of the rules of American capitalism, and sees the production of a strong middle-class base of one income homes in 20th century America as proof the value of American capitalism, and attempts to explain how this promise is increasingly failing Americas of the 21st century. The racially exclusive nature of the "broad" middle-class success and the necessity of strong labor unions to force corporations to create the conditions which allowed this success is not meaningfully addressed. While many argue the mid 20th century is a clear historical anomaly in terms of capitalisms' ability to produce (slightly) more equitable wealth creation, Warren sees it as the norm and seeks to recapture it. At the end of the introduction, the author literally says her goal is to "Make the American Middle Class great again".

In the process, the author deeply underestimates the levels of instability people are facing and fails to disaggregate data along racial lines, generally producing a somewhat superficial and capricious defense of the redeemability of American capitalism. The demand for homes in "good school districts" is seen as a key driver of the two-income trap, but the nature of white flight and the racist formula of funding schools based on property tax valuation is never questioned. A desire for strong family stability is affirmed without any real recognition of the need for the production of community, not merely a secure nuclear family, is a critical metric of quality of life for many people. Racist subprime lending is called out, but the prison industrial complex is ignored, Most damming is the author's complex lack of acknowledgment of the wealth gap between Blacks and Whites, a stunning omission given the critical role family wealth plays in determining who goes bankrupt.

Ultimately, the author's theory of change is centered on middle-class agitation around the increasing precarity of access to the American Dream. Restated, this could also be seen as an attempt to harness frustration around increasing difficulty to access what one could call American white privilege (house in the suburbs, nice schools, two cars, etc). Rather than a whole scale questioning of the historical inequity and violence which produces inequality in America, Warren defends reformist measures targeted at the middle class, and on page 94 explicitly states:

"We haven't suggested a complete overhaul of the tax structure, and we haven't demanded that businesses cease and desist from ever closing another plant or firing another worker. Nor have we suggested that the United States should build a quasi-socialist safety net to rival the European model. All of the solutions we have proposed thus far—creating tax incentives for saving, expanding state-funded disability coverage, and encouraging families to insure themselves against an uncertain future—can be implemented within America's current blend of public and private systems without drastic changes or massive tax increases."

This admission shows the reformist spirit of a former Republican which belies her claims, later in her career, to have been a consistent advocate of "Big Structural Change".

This reformism ultimately undermines the goal of the book. She argues debtors deserve respect because they played followed the rules of the game, and thus should get empathy and technocratic tweaks to the rules. This ultimately reifies belief in the fundamental justness of American capitalism and the book's individualist frame replicates an inward-facing, solipsistic way of viewing the world which ultimately promotes an atomized view of social change more amenable to family financial planning (which the book offers some decent advice on) than promoting fundamental structural change and collective action.

While the book does call for collective action, it is within a very narrow frame of limiting corporations to "fair profits" and promoting" school vouchers", a frame which is completely consistent with the market-centric, neoliberal world view which produces the very problems the book claims to want to solve.