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September 23, 2003

Why Middle Class Mothers and Fathers Are Going Broke

While I read Ampersand's post about the wage gap between men and women and the subsequent intelligent comments that followed, some thoughts kept poking at the back of my mind. They just wouldn't go away. There are bigger issues buried somewhere in there. What about Bush's push to eliminate hour overtime? I thought about how McDonald's found a way to avoid paying its workers overtime by "promoting" them to manager. Managers are paid a salary, not hourly wages, so those employees ended up earning less money as managers than they would have earned if they had continued working those longer hours with an hourly wage. What about today's high unemployment rate? Bankruptcy filings are through the roof. I recall that the rules have been changed to make it more difficult for average folk to file for bankruptcy, but I don't have any sources handy. The more stringent rules haven't stopped people from filing for bankrupcty. Many American workers (especially families) are barely making it, yet corporate executives are reaping untold benefits.

I thought about strenuous disagreements at Calpundit over exactly what kind of household income indicated that a family was poor, working poor, middle class, upper middle class, and well-off. The comments that stood out for me were from people who fit into Kevin's middle and upper middle class categories income-wise but did not feel particularly well off. I had the same reaction when I read his list of categories. According to the list, we are upper middle class but we certainly don't feel that way. Not at all. Having a measure of wealth on top of a high income made a big difference. Kerim Friedman elaborated on the wealth issue. Without the measure of wealth, it only takes one major hospital bill, a job loss, a missed mortgage or rent payment, or even a significant car repair to sink a family. The wealth provides a buffer against the snowball effect of such monetary catastrophes.

While considering all of the above, I ran across this article about the new book "The Two-Income Trap: Why Middle Class Mothers and Fathers Are Going Broke", which is about "how the ferocious bidding war for housing and education has quietly engulfed America's suburbs." One story told is that of Ruth Ann and James Wilson, a typical middle-class family with two young children. Both parents work. They own a home. What set the snowball rolling for them was James's job loss. From there, the problems escalated.

As Ruth Ann and James learned, the dance of financial ruin starts slowly but picks up speed quickly, exhausting the dancers before it ends. Few families have substantial savings, so they usually run out of cash within a month or so. Soon the charges start mounting up for the basics of life — food, gasoline, and whatever else can go on “the card.” When there still isn’t enough to go around, the game of impossible choices begins. Pay the mortgage or keep the heat on? Cancel the car insurance or the health insurance? Meanwhile, interest and late fees have piled on, making everything more expensive. Ruth Ann and James got a small reprieve from family. James’s parents kicked in $4,000 and Ruth Ann’s brother lent them $1,500. But these temporary infusions of money were just that — they covered the minimum payments for a few months, but they didn’t begin to provide a way out of the hole. Before it was over, Ruth Ann had taken to parking the station wagon behind the elementary school and walking the six blocks home, figuring the bankers wouldn’t repossess her car if they couldn’t find it.

Ruth Ann and James thought they were the only ones with these problems. They "didn't know anyone at church or at work who couldn't pay their utility bills or make their car payments." In fact, they probably did know families who were experience the same problems but those people didn't say anything about it. This study found that "the people who consistently rank in the worst financial trouble" were parents with children at home: "having a child is now the single best predictor that a woman will end up in financial collapse." This study had shown that married couples with children were more than twice as likely to file for bankruptcy than those without children. A divorced woman raising children "is nearly three times more likely to file for bankruptcy than her single friend who never had children."

These figures coincide with existing research I've read and anecdotes I've heard, including stories from divorced moms I receive in e-mail.

Middle class families like Ruth Ann and James and their children are the ones in the most financial trouble today. These are ordinary people who want to live comfortably and provide well for their children. I now understand much better the "I don't feel middle or upper-middle class" and "wealth makes a big difference in determining class status" statements in Kevin's comments section. The article also made me think of a comment I made at Amp's blog: that one reason the wage gap has narrowed in some instances is that men's wages are dropping in some areas to be more on par with women's.

Posted on September 23, 2003 at 10:23 AM | Permalink


Of course we all know people like this. In some cases it is just impossible for a family to "get ahead" by saving, but it does bear repeating that it is extremely important to live within, and really, below, your apparent means if at all possible to do so, even if it means that you have to pretend that you make less than you do. My husband and I used to try to pretend that only one of us was employed and make a budget accordingly. I stress as I said above that I know this isn't always possible, but even engaging in this as an intellectual exercise can help illuminate how you might be able to cope in a crisis, and help you avoid taking on commitments that are too ambitious for your real financial position. In America, there is just no safety net. That is why it is so discouraging to see so many people "taking money out" of their house for consumption purposes. It's as if we have been consigned to willful oblivion in the pursuit of material comfort.

Posted by: Barbara at Sep 24, 2003 11:30:11 AM