The Two-Income Trap

The Two-Income Trap: Why Middle Class Parents Are Going Broke by Elizabeth Warren & Amelia Warren Tyagi9780465090907

publication date: 2003
pages: 253 (including notes etc.)
ISBN: 10-0-465-09090-7

In The Two-Income Trap, written in 2003, Warren and Tyagi attempted to explain the financial problems facing the middle class. The main thrust of the book was that several factors came together to make middle-class families worse off financially than they were in previous generations.

In the first chapter, the authors demonstrated that families are currently worse off financially. At one point, they claimed that 13.5% of American families would declare bankruptcy between 2003 and 2010. This was also where they introduced their concept of the Two-Income Trap. The trap comes from the seeming security of a household that has two wage earners when, in actuality, a household with two wage earners is actually more financially vulnerable. Two-income families might have used both incomes to pay their fixed costs, so if a layoff or injury happened, then a two-income family would be less able to pay their bills. The two-income trap was further discussed in Chapter 3.

In the second chapter, the authors introduced the Over-Consumption Myth. According to Warren and Tyagi, middle-class financial problems are not caused by over-maxed credit cards, swiped for things like new TVs, vacation homes, and designer bags. Instead, the cost of housing, medical care, and childcare has increased exponentially, and it was those things that families accumulated debt for.

The authors introduced the Myth of the Immoral Debtor in Chapter 4, which stated that any idea we might have about a lack of honor or code among current American spenders and debtors is a misconception. Borrowers in 2003 were no less honorable than borrowers in the 50s, or the 30s, or the 1760s. This was probably the book’s most convincing chapter, with discussions on the lengths that banks, credit card companies, and other lenders will go to get people to borrow money. The authors continued this theme in Chapter 6, which contained their discussion of the de-regulation of the credit industry and the abuses that followed.

Chapter 5 discussed the problems facing the single-income family. The book concluded in Chapter 7 with the Financial Fire Drill, a set of questions and suggestions designed to protect a family from financial collapse. The Fire Drill didn’t contain anything revelatory: basically, try to decrease your expenses and investigate buying certain insurance policies.

The book was very prescient in some ways. It predicted the sub-prime mortgage collapse and the problems that would come from rampant lending. I am no expert on the American financial system, but there might be some things about the book that are no longer relevant, because the bankruptcy, banking, and credit industries look somewhat different now than they did in 2003.

There were some problems I had with the book. First of all, the authors never defined what made a family “middle class.” And why would I only care about this “middle class”? Why wouldn’t I be interested in the undue financial misfortunes of every type of family, especially the lower class? Using the undefined phrase “middle class” seemed to me like a move to endear themselves to people who think they are middle class – which is everyone!

Also, although the end notes were generally thorough and clear, sometimes the data did not support the authors’ conclusions or their numbers didn’t make any sense.

Overall, this was a better book than I was expecting, especially because one of the authors is in politics. Generally, political authors use more rants than facts. Although Warren and Tyagi peppered the book with hyperbolic language, they usually backed it up with data and some logic.

4/6: worth reading (I was close to giving this a 3/6, but it did contain some interesting points and facts)

other reviews:

The Finance Buff
Publishers Weekly
Mother Jones

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