Read Online The Two-Income Trap by Elizabeth Warren; Amelia Warren Tyagi - Free Book Online Page A
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you, the financial fire drill and some very angry calls to your senator are the best you can do.
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.
The Other Solution: No Children?
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. 11 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. 12
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
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.
The Other Solution: No Children?
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. 11 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. 12
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
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