Recently I blogged about the Broken Household Fallacy–the idea that the economy and families are automatically benefitted if both parents work outside the home.
Other folks have been talking about the same thing, and I’ve begun to run across references to them. For example, there is a book by Elizabeth Warren and Amelia Warren Tyagi called The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke.
I haven’t read the book, but it’s getting positive reviews from some prestitious places.
Such as . . . ?
How about THE HARVARD JOURNAL OF LAW AND GENDER (formerly the Harvard Women’s Law Journal).
Excerpt:
They offer a well-researched, three-part explanation for the growing financial troubles of the middle-class family: the rising cost of being middle-class, the increased risk faced by families without a stay-at-home parent, and the emergence of a deregulated credit industry have combined to dramatically increase the financial danger faced by the American family.
A number of factors explain the problem of rising costs, including a bidding war in the housing market, a marked rise in the cost of education, and the additional burden of providing a second vehicle for the working mother. With more money earmarked for the necessities of middle-class existence—house and car payments, insurance costs, educational expenses—there is less flexibility and freedom and a greater chance that expenses will outstrip resources and compel bankruptcy if disaster strikes.
“And so the Two-Income Trap has been neatly sprung. Mothers now work two jobs, at home and at the office. And yet they have less cash on hand. Mom’s paycheck has been pumped directly into the basic costs of keeping the children in the middle class.”
That means we need to make things easier by having federally-subsidized daycare, right?
Well, Warren & Tyagi say:
"[S]uch subsidies would make financial life more difficult for these families [with stay-at-home mothers], because they would create yet another comparative disadvantage for single-income families trying to compete in the marketplace. Every dollar spent to subsidize the price of day care frees up a dollar for the two-income family to spend in the bidding wars for housing, tuition, and everything else that families are competing for . . . . In effect, government-subsidized day care would add one more indirect pressure on mothers to join the workforce."
GET THE STORY.
GET THE BOOK.
A number of factors explain the problem of rising costs, including a bidding war in the housing market
I was actually thinking about this when you wrote your first post on this topic. Has the proliferation of two income families inflated housing prices making it more difficult for single income families to compete in the housing market?
This is all very depressing.
Housing in and of itself has gotten relatively cheaper over the decades. There are new cheaper materials and many portions of a house are constructed in factories.
Square footage has dramatically gone up. At one time in the not so distant past 900 sq. ft. was considered a large home. If you have ever been to Mount Vernon, George Washington’s home, you will be shocked at how small this ‘mansion’ is. The Homeowners Association would have a fit if you tried to place something that small in a subdivision today.
The primary factor in housing that has exploded is land values. Many lots in my area, Milwaukee, start at $60,000. In other parts of the country this is a starter home.
My wife has been reading this book and frankly we’ve been shocked that such a book has been published. It is something we’ve been seeing in our own lives.
My brother was just recently paralyzed below the waist and now I wonder how they can get by with one salary. And she wants to stay and take care of him.
We’ve looked at my wife being “insurance”. If something happened to me, she could get a job and essentially fill in. It would be tough with the children, depending on the situation.
Based on my wife’s comments, I recommend this book as well.
I’m actually encouraged that this is all being discussed openly now. For so long it was a social taboo to suggest that Moms might WANT to stay home.
This is related to the current controversy over remarks by the president of Harvard about differences in men’s and women’s brains. One thing I haven’t heard discussed is the possibility that women (in general) just plain don’t ENJOY math and the hard sciences like men do. Alot of it may simply come down to a question of preference rather than competence. Men may be just wired to enjoy complex, abstract problem solving more than women do.
The important thing to the authors is not that the wife specifically stays home, but the knowledge that the presence of 2 income earners means a family’s spending habits consumes more than one income. If one of the earners lose their job, they are immediately in a debt crisis situation because so many of their fixed expenses (such as mortgage payments) require 2 incomes. If their is only one income earner, the family’s spending reflects that. If someone loses a job, either person can get the job that puts them back on solid footing. The second income is not essential, but an emergency reserve.
Another important element in the book is the predatory practices of banks and credit card companies in providing loans at usurious rates.
The book also explains that the major reason housing prices are squeezing families is that the competition is not just for any house in general, but houses where there are good schools.
Both elements contibute to the need of families to have two income earners.
The lesson then is to 1) families should spend on the basis of one income earner, 2) improve schools so that competition for the few homes in good districts lessen, and 3) change the usury laws back to where they were before.
$60K for land? HA! HA! HA!!!!!! In California, even in the “smaller” markets like Sacramento, a 1/6 acre lot are upwards of $300K. That’s right, the LAND will cost MORE than THREE HUNDRED THOUSAND dollars.
It’s been my theory for a long time (as a life-long Californian) that the value of land has nothing to do with it’s intrinsic value, but with how much a family can morgage after that family has paid their other “necessary” expenses.
In other words, once most women are working, the cost of land will suck down that entire income, leaving us where we were before, but without someone at home to raise the kids.
If you look at the fact that the average white-collar Californian makes about $60K a year and the value of land has increased about $250K over the last 30 years, my theory seems to play out at least in California (the old rule of real estate: you can morgage 4 times your income for your house: 4*$60K = $240K).
I live in Souther Maryland, just outside of DC. Housing prices have been going up $5-10K per MONTH. We are the only family on the cul de sac that has a stay at home mom. We have 5 children, three in Catholic School. Tuition went up 10% this year. Property taxes went up 10%. Health insurance went up 6%. Because I got an “outstanding” on my evaluation, I got a 2.5% raise.
If my wife were to go back to work, we would need $300/week for the two little ones and about $100/week for before/after care for the three boys. So my wife would have to bring home $1200-$1500/month just to pay for day care.
We don’t “do” debt.
Something has to “give”.
Ya’ll need to move to Oklahoma. We are selling our beautiful, yet smallish (1544 SF not including a finsished basement) for 76,500. You can buy a mansion here for 300,000. That’s one advantage of being a Sooner–oh and there’s no traffic (probably because there aren’t any jobs).
A builder buys land, which, as you note, is expensive.
He builds something on it.
He sells the land and the house.
Because he’s not increasing the size of the land, he has to build a large house, to make a good profit. Otherwise he’s locked up a lot of money to little avail.
Wouldn’t federally subsidized day care mean more taxes just to cover costs? Plus…government doesn’t exactly have a stellar record in child care.
The primary factor regulating house sizes and such is the real fear of people that their property will be devalued by me building or moving next door. Nothing drops property values quicker than a $80,000 home in a $150,000 home neighborhood. Governmental regulation has been a contributing factor. Originally these regulations regarding size were put forth out of health and safety concerns. Those concerns have expanded beyond health and safety to valuation preservation concerns.
The AVERAGE home in Charles Co., MD is $375,000. Tha average household income is about $80,000 (almost ALL two incomes). Therefore, the average family cannot affort the average house. There are NO new homes for under $300-$350,000 being built.
Jimmy quoted Warren & Tyagi as saying:
“[S]uch (Federal daycare) subsidies would make financial life more difficult for these families [with stay-at-home mothers]
Well, daycare is hard on the kids too!