The Two-Income Trap: Why Middle-Class Parents Are Going Broke

学习到的: 每月只花一个人的收入



Title: The Two-Income Trap: Why Middle-Class Parents Are Going Broke
Authors: Elizabeth Warren, Amelia Warren Tyagi
Edition: 1
Finished Date: 2017-04-30
Rating: 5
Language: English
Genres: Finance
Level: Entry
Publishers: Basic Books
Publication Date: 2003-09-03
ISBN-13: 978-0465090822
Format: ePub, Pdf, Mobi
Pages: 255
Download: ePub Pdf Mobi

Ch 1: just the way she planned

few families have substantial savings, so they usually runout of cash within a month or so

Year women who had filed for bankruptcy
1981 69,000
1999 500,000

662%

characteristics of people who consistently rank in the worst financial trouble: patients with children at home => having a child is now the single best predictor that a women will end up in financial collapse

middle-class + determine to provide a decent life for their children

这个population也是最多的, 比老人和没孩子的年轻人要多得多. 若能计算每个population里的比例就好了

The authors study showed that

  • married couples with children are more than twice as likely to file for bankruptcy as their childless counterparts

    有可能是因为结婚后, 养小孩+房子贷款. 没结婚的连房子都不买
  • a divorced women raising a youngster is nearly 3 times more likely to file for bankruptcy than her single friend who never had children

In this age of nominal equality between husbands and wives, in the most intimate aspect of their lives—family finance—couples reveal a surprising traditionalism. Research shows that on average, a husband is three times more likely than a wife to take primary responsibility for managing the family’s money. But as a couple sinks into financial turmoil, this responsibility tends to shift. As families fall behind on their bills, it is wives who roll up their sleeves and do what must be done. Wives who deal with foreclosure notices, wives who plead with creditors for more time to pay, and wives who insist on seeking credit counseling or legal help.

having children, going broke

ch 2: the over-consumption myth

The Over-Consumption Myth rests on the premise that families spend their money on things they don’t really need.

  • clothes: 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.
  • food: The average family of four
    spends more at restaurants than it used to, but it spends less at the grocery store—a lot less

    Todays family of four is actually spending 22 percent less on food (at-home and restaurant eating combined) than its counterpart of a generation ago

  • Outfitting the home

    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.

  • Vacation homes

    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.

  • “home entertainment,” premium channels included

    They spend 23 percent more—a whopping extra $170 annually

  • Computers add another $300 to the annual family budget

Where Did the Money Go?

  • home

    • the most important purchase for the average middle-class family
    • 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.
    • the proportion of families living in older homes has increased by nearly 50 percent over the past
      generation
  • children

    • Data from the Federal Reserve show that the median home value for the average childless individual increased by 23 per-cent between 1983 and 1998—an impressive rise in just fifteen 30 years. (Again, these and all other figures are adjusted for inflation.)

      For married couples with children, however, housing prices shot up 79 percent—more than three times faster.

reasons

* safety

    * a premium for all sorts of amenities, such as a two-car garage, proximity to work or shopping, or a low crime rate

    * violent incidents in schools

        * shooting
        * gangs
        * dangerous drugs

        According to one study, the incidence of serious violent crime—such as robbery, rape, or attack with a weapon—is more than three times higher in schools characterized by high poverty levels than those with pre

dominantly middle- and upper-income children

States have fallen sharply over the past decade.

mask differences among communities, and disparities have grown over time. In many cities, the urban centers have grown more dangerous while outlying areas have gotten safer—further intensifying the pressure parents feel to squeeze into a suburban refuge. Baltimore and Philadelphia, for example, the crime rate fell in the surrounding suburbs just as it increased in the center city. The disparities are greatest for the most frightening violent crimes. Today a person is ten times more likely to be murdered in center city Philadelphia than in its surrounding suburbs, and twelve times more likely to be killed in central Baltimore

  • education

    • better public elementary school

      Schools that scored just 5 percent higher on fourth-grade math and reading tests added a premium of nearly $4,000 to nearby homes, even though these homes were virtually the same in terms of neighborhood character, school spending, racial composition, tax burden, and crime rate.

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.

Ch 3: Mom: the all-purpose safety net

welfare is for poor, not for middle-class

Middle-class safety net is private money, not built with taxpayers’ dollars.

作者认为男的失业了, 家里的女的就能立马找工作上班赚钱. Amazon上好几个评论都写, 说得好像找工作不需要有工作技能,工作技能需要培养, 除非做最底层的工作 作者最本质的观点就是, 即使双职工家庭, 家里的花销预算只用1个人的工资能cover的, 否则就是花得太多,没有safety net

但没有考虑到, 若妈妈也去工作, 若妈妈也被裁员了话, 整个家还是没有足够的收入

backup必须要有2个才能真正的是back up的
  • backup earner
  • backup caregiver

2-income family depends on in large part on how they spend the second salary.

  • spend one paycheck
  • keep the second on in reserve

In the reality, man two-income families used the second income to purchase opportunities for children: long term payment

  • a home in a safe neighborhood with good schools
  • a comprehensive health insurance policy
  • 2 reliable cars
  • preschool
  • college intuition

Ch 4: the Myth of the Immoral Debtor

myth about financial failure

  1. spend more on unnecessary stuff
  2. the Immoral Debtor
    • no proof for no shame in failure

they believed they had no other choice => families file for bankruptcy even if they felt ashamed

bankruptcy for individual

  • repay

    • bank accounts must be emptied
    • stock portfolios must be sold
    • jewelry or newer appliances should be auctioned
    • exceptions: permitted to keep some clothes, furniture, and a few household goods
  • home equity: the value of the home that exceeds the mortgage

    • Some states permit families to keep all their equity safe from other creditors, no matter how valuable the home

      example

      • Florida
      • Texas
    • Some states force families to give up any equity in their homes, no matter how small

      • Delaware
      • Maryland
  • Some debts are never forgiven, no matter what.

    • taxes
    • student loans
    • alimony
    • child support
  • The rest debt is paid proportionately from whatever property was sold off

    • credit cards
    • hospital bills
    • the electric and gas bills
  • Individuals must wait until the 7th year after filing for bankruptcy before they will be permitted to file again.

  • forms of bankruptcy

    1. Chapter 7: permit a debtor to wipe out his debts in just a few months
    2. Chapter 13: the debtor files for bankruptcy in order to buy some time to pay what he owes, rather than to get rid of debts altogether

      a repayment plan

      • live on a sharply restricted budget for the next 3-5 years
      • hand over the remainder of each paycheck to a trustee who distributes it among the creditors
  • for 10 years

    • credit reports will document bankruptcy
    • => everything from car insurance to house payments more expensive
    • their names will be published in the newspaper
    • future employers will discover the bankruptcy if they run a credit check

big 3 reasons to file bankruptcy

  • job loss
  • medical problem
  • divorce or separation

insurance

  • the exclusions
  • copayments
  • caps on health insurance
  • whether cover
    • physical therapy
    • mental health

Health insurance is no guarantee that a catastrophic illness won’t send a family into a financial tailspin

insurance that is important

  • health insurance
  • disability insurance

    every worker in America has long-term disability coverage through the Social Security Disability Insurance (SSDI) program

    SSDI disability benefits are available to those whose condition is expected to

    • result in death
    • last at least 12 months

      also require: the disability must be so severe that the individual is unable to perform any job anywhere in the entire country

      5 months waiting period after the onset of permeant illness

  • long-term-care insurance

  • purchase insurance in the private market through employers or on their own

other problems of insurance

  • not cover those who must take time off to care for other family members

Ch 5: going it alone in a two-income world single parent

  • before divorce

  • single mother: mothers who get children after divorce

    • 2部分收入

      • working salary
      • 来自前夫的抚养费
    • Single mothers are more likely than any other group to file for bankruptcy

    • difficulties

      1. bring up children without a father around
      2. usual approach is far too late

        • Financial problems start back when single mothers are married (couples commit both of their paychecks to cover monthly expenses)
      3. divorce related

        • 2 lawyers for a couple
        • court costs
        • document preparation fees
        • move out: cash for first and last month’s rent
        • phone installation charges
        • a separate checking accounts
        • furniture
        • more chores

          • eat out more
          • send out laundry
      4. fear that without their husband’s income, they will never get approval to buy another home

      5. split debt: face 100% responsibility for any debts they both signed their names to
      6. compete with married mothers
    • remarry

    • father
  • single father: fathers who get children after divorce

Ch 6: the cement life raft: lending industry

其实这一章才是所有的东西那么贵的原因。 若从事物发展的逻辑而言, 甚至是应该是第一章讲的内容

medication in the laws of consumer finance, a tiny change that transformed centuries of family economics in an instant

  • a generation ago: middle-class family could not borrow very much money.

    • in old days:

      • usury laws created ironclad limits on how much interest a bank could charge on a loan
      • => bank’s profit margins were modest
      • => families that wanted to borrow money had to prove they had a very high likelihood of repaying it

      • state government imposed limits on the interest that could be charged on consumer loads because state governments wanted to protect citizens from bakcalley load sharks and aggressive lenders who would cost families their home

    • 1978: the state’s authority was wiped out by an obscure federal regulation

      • a Supreme Court opinion interpreting some ambiguous language in a little-known federal statute opened the door for baks to “export” interest rates from one state to another

        example:

        Dakota (cap 24% interest) get 24% interest from families in New York (cap 12% interest)

      • => Local politicians across the country raised the interest rate ceiling in order to attract lending institutions to their states

        credit card公司赚钱方法: 虽然有人不还钱,但通过提高interest rate从 还钱的欠钱的人那得到利润 就是数学期望是大于0就赚钱

  • borrower

    • once family has paid the mortgage and other fixed expenses, families have little discretionary income left
  • lender target the almost-bankrupt for extra loans

    • mortgage lenders allow to issue unmanageable mortgage => 学区房越来越贵
    • The downpayment – once a critical device for screening potential borrowers – has virtually disappeared
    • subprime mortgage: issue high-interest mortgages to families with spotty credit who are unlikely to qualify for traditional, low-cost “prime” mortgages

      • standard mortgage loans: 6.5%
      • subprime: 15.6%

        Lenders’ own data show that many of the families that end u p in the subprime market are middle-class families that would typically qualify for a traditional mortgage

        Because families did not know they could get lower interest

      • families got an overpriced mortgage from

        • a broker
        • some other middleman who represents himself as acting in the borrower’s best interests

          In fact, 2 types of businessmen take big fees and commissions from subprime lenders

          Businessmen target

        • uneducated

        • inarticulate
        • minority

          example

          Residents in high-income, predominantly black neighborhoods are actually more more than twice likely to get a subprime mortgage than residents in low income white neighborhoods

        • particularly old or young
      • “Loan to Own”: in many cases, lenders want both families’ money and taking their homes

        issue mortgages to families that could not afford them => foreclose their homes

        because foreclosing can be more profitable than just simply collecting a mortgage payment every month <= the property can then be resold for more than the outstanding loan amount

      • when a borrower makes a partial payment, when he misses a bill, and when his credit rating drops, he actually gets more offers for credit => the Lending Industry’s Most Profitable Customers
* repo

    example: Sears add in the fine print: Whenever a customer purchases something on a Sears card, the goods become collateral against the loan, i.e., Sears is within its legal right to repossess (or to threaten to repossess) everything the family bought with the card if it falls behind on it bills

    **Sears earn more money from the interest and late fees the company charged its credit card holders than it earned from selling merchandise**
    in summary: lenders wins every possible way

    * high profits if the family manages to make all its payments
    * higher profits if the family does not
  • 财富转移: 从中低阶层家庭转到了银行

    • credit card companies basically have 3 costs

      • marketing costs
      • collection costs
      • the cost to borrow the money they will relend to consumers

        The Federal Reserve lowered interest rates 9 times in 2001, i.e., the credit card companies’ cost of borrowing fell considerably.

        But banks held steady the rates they charged most of their cardholders

        => Banks have higher profit

  • Deregulation of the mortgage lending industry was supported by most Democrats as well

    Because they wanted to defend lower-income families

  • The major banks had a new strategy to reduce their bankruptcy losses:

    Rather than stop lending to families in financial trouble, the major banks had a simpler and more profitable solution – restrict the rights of consumers to file for bankruptcy

    • 还是需要还债
    • 继续积攒interest and penalties, 变成 lifelong profit wells

      If a family were not permitted to file for bankruptcy, it would be the lender, not the family in trouble, that would decide when the collection calls should stop.

      好帅。 如何阻止一个有好多有钱组织(比如银行)建议的法案, 里面加入堕胎的内容, 两党的人就都反对通过
作者的解决方法:议会通过议案:设置interest limit

Ch 7: the financial fire drill

Financial planning books mislead some aspects

  • aim for people who have steady work
  • everyone is healthy
  • no emergencies

example

  • lost job
  • new baby
  • a divorce

3 questions

  1. income

    • if 2-income: Can you family survive without one income for 6 months?
    • if 1-income: Could the stay-at-home parent enter the job market if something happened to the primary breadwinner?
  2. Can you downshift the fixed expenses?

    大多数书都说要减少impulsive shopping, 但是最大的问题是fixed expenses太高

    • the lower-cost HMO
    • less expensive preschool
    • move to a cheap house
  3. What is emergency backup plan?

    • What if your husband loses his job?
    • What if grandma’s health fails?
    • What if your own health fails?
    • What if you and your spouse split up?

      consider what could be done now to make that plan feasible.

      多个saving account,为了不同的目的
      In finances, long-term commitments are the most dangerous kind.这就是为什么我特别想可以用cash直接买下房子,而不是贷款

When shopping for a home: Don’t stretch yourself to buy a house you cannot afford: not commit both incomes. You have been approved for a mortgage is no guarantee that you can actually afford it

When the house is already on fire

  1. not blame yourself 放缓心情
  2. go easy on your spouse
  3. the greatest danger is false optimism: no response fast enough because they thought the bad situation will pass quickly.
  4. concentrate on preserving what matters most

    steps

    1. Which of your assets do you most want to hold on to?

      example

      • car
      • home
      • health insurance policy
    2. after decision, pay those bills first

    3. fight for the things you care about, not trying to satisfy the loudest or most aggressive creditor
    4. most important, do not, under any circumstances, put those assets at risk

      example: You will be bombarded by offers to “lower your monthly payment” by taking out a second mortgage or chasing out the equity from your home

      Don’t do it

  5. plan strategically

    Can you pay off your debts in the next 2 years? If no,

    • talk to an attorney
    • read a good book about your legal options
    • look into filing for bankruptcy
  6. If at all possible, wait until the crisis/the worst of problems has passed before declaring bankruptcy

    • If out of work, wait until you have found a new job
    • If you have a child who is seriously ill, wait until he is better and the health insurance has paid what it owes

      It can be extremely tough to hold on that long, especially if collection notices are stacking up and creditors are calling you every night. But if you wait, you minimize the risk that you will once again find yourself buried in debt after you file for bankruptcy

  7. guilt-free default

    do not pay off debts no longer owe after filing for bankruptcy

    example: Sears仍然想讨债, 但是是不合法的

  8. 不要相信申请破产了,就很难申请到credit card了

    Within 6 months of filing for bankruptcy, 84% of families had already received unsolicited offers for new credit

    Because lenders know that you cannot declare bankruptcy again for 6 years, and they believe you may still be under enough financial strain that you will soon end up carrying a balance and making minimum monthly payments

My summary

Chapter 6才是为什么双职工家庭更加容易破产的更本原因。

降低了贷款downpayment和降低贷款的条件,越来越多的人能贷到更多的钱买房子, 房价就开始网上涨

银行减少平民申请bankruptcy而带来的损失的方法: 增加申请bankruptcy的难度。 这就是为什么议员们总说是因为过度消费才导致bankruptcy的申请增加,其实他们自己心里清楚到底是什么原因。

细思极恐