The Two-Income Trap (4 page)

This book will tell the story of how having children has become the dividing line between the solvent and the insolvent, and how today’s parents are working harder than ever and falling desperately behind even with two incomes. It is also the story of how this state of affairs is not some unavoidable feature of the modern economy, or, for that matter, the inevitable by-product of women’s entry into the workforce.

We write this book so that Ruth Ann and all the mothers like Ruth Ann, along with politicians and pundits, child advocates and labor organizers, pro-family conservatives and liberal feminists, will take a serious look at the economic forces that have battered the American family. We want them to see the hard numbers—and to gasp. But most of all, we want them to see that there is a way out. There are changes that can happen—real changes, practical changes, meaningful changes. Changes that can be made in Congress, in state legislatures, in school boards, and in families. Changes that can make it so that the average parent can once again spend her nights fretting about potty training and prom dresses, not about home foreclosures and overdrawn bank accounts. Changes that can make America’s great middle class secure once again.

D
uring the past generation, a great myth has swept through America. Like all good myths, the Over-Consumption Myth tells a tale to explain a confusing world. Why are so many Americans in financial trouble? Why are credit card debts up and savings down? Why are millions of mothers heading into the labor force and working overtime? The myth is so deeply embedded in our collective understanding that it resists even elementary questioning: Families have spent too much money buying things they don’t need. Americans have a new character flaw—“the urge to splurge”
¹
—and it is driving them to spend, spend, spend like never before.

The drive for all that spending is almost mystical in origin. John de Graaf and his coauthors explain in
Affluenza: The All-Consuming Epidemic,
“It’s as if we Americans, despite our intentions, suffer from some kind of Willpower Deficiency Syndrome, a breakdown in affluenza immunity.”
²
Economist Juliet Schor blames “the new consumerism,” but the results are the same. She points to “mass ‘over-spending’ within the middle class [in which] large numbers of Americans spend more than they say they would like to, and more than they have. That they spend more than they realize they are spending, and more than is fiscally prudent.”
³

Many maladies are explained away by the Over-Consumption Myth. Why are Americans in debt? Sociologist Robert Frank claims
that America’s newfound “Luxury Fever” forces middle-class families “to finance their consumption increases largely by reduced savings and increased debt.”
⁴
Why are schools failing and streets unsafe? Juliet Schor cites “competitive spending” as a major contributor to “the deterioration of public goods” such as “education, social services, public safety, recreation, and culture.”
⁵
Why are Americans unhappy?
Affluenza
sums it up: “The dogged pursuit for more” accounts for Americans’ “overload, debt, anxiety, and waste.”
⁶
Everywhere we turn, it seems that over-consumption is tearing at the very fabric of society.

The Over-Consumption Myth rests on the premise that families spend their money on things they don’t really need. Over-consumption is not about medical care or basic housing; it is, in the words of Juliet Schor, about “designer clothes, a microwave, restaurant meals, home and automobile air conditioning, and, of course, Michael Jordan’s ubiquitous athletic shoes, about which children and adults both display near-obsession.”
⁷
And it isn’t about buying a few goodies with extra income; it is about going deep into debt to finance consumer purchases that sensible people could do without.

The beauty of the Over-Consumption Myth is that it squares neatly with our own intuitions. We see the malls packed with shoppers. We receive catalogs filled with outrageously expensive gadgets. We think of that overpriced summer dress that hangs in the back of the closet or those power tools gathering dust in the garage. The conclusion seems indisputable: The “urge to splurge” is driving folks into economic ruin.

But is it true? Intuitions and anecdotes are no substitute for hard data, so we searched deep in the recesses of federal archives, where we found detailed information on Americans’ spending patterns since the early 1970s, carefully sorted by spending categories and family size.
⁸
If families really are blowing their paychecks on designer clothes and restaurant meals, then the expenditure data should show that today’s families are spending more on these frivolous items than ever before. (Throughout our discussion, in this chapter and elsewhere,
all figures will be adjusted for the effects of inflation.
⁹
) But we found that the numbers pointed in a very different direction, demonstrating that the over-consumption explanation is just a myth.

Consider clothing.
Newsweek
recently ran a multipage cover story about Americans drowning in debt. The reason for widespread financial distress and high bankruptcy rates? “Frivolous shopping is part of the problem: many debtors blame their woes squarely on Tommy, Ralph, Gucci, and Prada.”
¹⁰
That certainly sounds reasonable. After all, Banana Republic is so crowded with shoppers we can barely find an empty fitting room, Adidas and Nike clad the feet of every teenager we meet, and designer shops rake in profits selling nothing but underwear or sunglasses. Even little children’s clothes now carry hip brand names, and babies sport “GAP” or “YSL” on their T-shirts and sleepers.

And yet, when it is all added up, including the Tommy sweatshirts and Ray-Ban sunglasses, the average family of four today spends 21 percent
less
(inflation adjusted) on clothing than a similar family did in the early 1970s. How can this be? What the finger-waggers have forgotten are the things families
don’t
spend money on anymore. I (Elizabeth) recall the days of rushing off to Stride Rite to buy two new pairs of sensible leather shoes for each of my children every three months (one for church and one for everyday) plus a pair of sneakers for play. Today, Amelia’s toddler owns nothing but a pair of $5 sandals from Wal-Mart. Suits, ties, and pantyhose have been replaced by cotton trousers and knit tops, as “business casual” has swept the nation. New fabrics, new technology, and cheap labor have lowered prices. And discounters like Target and Marshall’s have popped up across the country, providing reasonable, low-cost clothes for today’s families. The differences add up. In 1973, Sunday dresses, wool jackets, and the other clothes for a family of four claimed nearly $750 more a year from the family budget than all the name-brand sneakers and hip T-shirts today’s families are buying.
¹¹

OK, so if Americans aren’t blowing their paychecks on clothes, then they must be overspending on food. Designer brands have hit
the grocery shelves as well, with far more prepared foods, high-end ice creams, and exotic juices. Families even buy bottles of
water,
a purchase that would have shocked their grandparents. Besides, who cooks at home anymore? With Mom and Dad both tied up at work, Americans are eating out (or ordering in) more than ever before. The authors of
Affluenza
grumble, “City streets and even suburban malls sport a United Nations of restaurants. . . . Eating out used to be a special occasion. Now we spend more money on restaurant food than on the food we cook ourselves.”
¹²

They are right, but only to a point. The average family of four spends more at restaurants than it used to, but it spends less at the grocery store—a lot less. Families are saving big bucks by skipping the T-bone steaks, buying their cereal in bulk at Costco, and opting for generic paper towels and canned vegetables. Those savings more than compensate for all that restaurant eating—so much so that today’s family of four is actually spending 22 percent
less
on food (at-home and restaurant eating combined) than its counterpart of a generation ago.
¹³

Outfitting the home?
Affluenza
rails against appliances “that were deemed luxuries as recently as 1970, but are now found in well over half of U.S. homes, and thought of by a majority of Americans as necessities: dishwashers, clothes dryers, central heating and air conditioning, color and cable TV.”
¹⁴
These handy gadgets may have captured a new place in Americans’ hearts, but they aren’t taking up much space in our wallets. Manufacturing costs are down, and durability is up. When the microwave oven, dishwasher, and clothes dryer are combined with the refrigerator, washing machine, and stove, families are actually spending 44 percent
less
on major appliances today than they were a generation ago.
¹⁵

Vacation homes are another big target. A financial columnist for
Money
magazine explains how life has changed. A generation ago, the dream vacation was a modest affair: “Come summer, the family piled into its Ford country wagon (with imitation wood-panel doors) and tooled off to Lake Watchamasakee for a couple of weeks.” Now,
laments the columnist, things have changed. “The rented cabin on the lake gave way to a second home high on an ocean dune.”
¹⁶
But the world he describes does not exist, at least not for the middle-class family. Despite the rhetoric, summer homes remain the fairly exclusive privilege of the well-to-do. In 1973, 3.2 percent of families reported expenses associated with owning a vacation home; by 2000, the proportion had inched up to 4 percent.
¹⁷

That is not to say that middle-class families never fritter away any money. A generation ago no one had cable, big-screen televisions were a novelty reserved for the very rich, and DVD and TiVo were meaningless strings of letters. So how much more do families spend on “home entertainment,” premium channels included? They spend 23 percent more—a whopping extra $170 annually. Computers add another $300 to the annual family budget.
¹⁸
But even that increase looks a little different in the context of other spending. The extra money spent on cable, electronics, and computers is more than offset by families’ savings on major appliances and household furnishings.

The same balancing act holds true in other areas. The average family spends more on airline travel than it did a generation ago, but it spends less on dry cleaning. More on telephone services, but less on tobacco. More on pets, but less on carpets.
¹⁹
And, when we add it all up, increases in one category are offset by decreases in another. In other words, there seems to be about as much frivolous spending today as there was a generation ago.

Yet the myth remains rock solid: Middle-class families are rushing headlong into financial ruin because they are squandering too much money on Red Lobster, Gucci, and trips to the Bahamas. Americans cling so tightly to the myth not because it is supported by hard evidence, but because it is a comforting way to explain away some very bad news. If families are in trouble because they squander their money, then those of us who shop at Costco and cook our own pasta have nothing to worry about. Moreover, if families are to blame for their own failures, then the rest of us bear no responsibility for helping those who are in trouble. Their fault, their problem. We can join
the chorus of experts advising the financial failures to “simplify”—stay away from Perrier and Rolex. Follow this sensible advice, and credit card balances will vanish, bankruptcy filings will disappear, and mortgage foreclosures will cease to plague America.

Reality is not nearly so neat. Sure, there are some families who buy too much stuff, but there is no evidence of any “epidemic” in overspending—certainly nothing that could explain a 255 percent increase in the foreclosure rate, a 430 percent increase in the bankruptcy rolls, and a 570 percent increase in credit card debt.
²⁰
A growing number of families are in terrible financial trouble, but no matter how many times the accusation is hurled, Prada and HBO are not the reason.

If they aren’t spending themselves into oblivion on designer water and DVDs, how did middle-class families get into so much financial trouble? The answer starts, quite literally, at home.

We could pile cliché on cliché about the home, but we will settle for this observation: The home is the most important purchase for the average middle-class family. To the overwhelming majority of Americans, home ownership stands out as the single most important component of “the good life.”
²¹
Homes mark the lives of their children, setting out the parameters of their universe. The luck of location will determine whether there are computers in their classrooms, whether there are sidewalks for them to ride bikes on, and whether the front yard is a safe place to play. And a home will consume more of the family’s income than any other purchase—more than food, more than cars, more than health insurance, more than child care.

As anyone who has read the newspapers or purchased a home knows, it costs a lot more to buy a house than it used to.
²²
(Since the overwhelming majority of middle-class parents are homeowners, we focus this discussion on the costs of owning, rather than renting.
²³
)
What most of us have forgotten, however, is that today’s home prices are
not
the product of some inevitable demographic force that has simply rolled its way across America. Quite the opposite. In the late 1980s, several commentators predicted a spectacular collapse in the housing market. Economists reasoned that the baby boomers were about to become empty nesters, so pressure on the housing market would undergo a sharp reversal. According to these experts, housing prices would reverse their forty-year upward trend and drop during the 1990s and 2000s—anywhere from 10 to 47 percent.
²⁴