Bankruptcy has become deeply entrenched in American life. This year, more people will end up bankrupt than will suffer a heart attack. More adults will file for bankruptcy than will be diagnosed with cancer. More people will file for bankruptcy than will graduate from college. And, in an era when traditionalists decry the demise of the institution of marriage, Americans will file more petitions for bankruptcy than for divorce.
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Heart attacks. Cancer. College graduations. Divorce. These are markers in the lives of nearly every American family. And yet, we will soon have more friends and coworkers who have gone through bankruptcy than any one of these other life events.
And the lines at the bankruptcy courts are not the only signs of financial distress. A family with children is now 75 percent more likely
to be late on credit card payments than a family with no children.
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The number of car repossessions has doubled in just five years.
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Home foreclosures have more than tripled in less than 25 years, and families with children are now more likely than anyone else to lose the roof over their heads.
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Economists estimate that for every family that officially declares bankruptcy, there are seven more whose debt loads suggest that they
should
file for bankruptcy—if only they were more savvy about financial matters.
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Who are the families in so much trouble? Most are like Ruth Ann and James—ordinary, middle-class people united by their determination to provide a decent life for their children. Like James, many had been felled by a layoff or a business failure; someone who glanced at this year’s tax return might label them as poor. But very few were chronically poor. For most, poverty was only temporary, a setback in an otherwise solidly middle-class life. When membership in the middle class is defined by enduring criteria that don’t disappear when a pink slip arrives—criteria such as going to college, owning a home, or having held a good job—more than 90 percent of those in bankruptcy would qualify as middle class.
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By every measure except their balance sheets, the families in our study are as solidly middle class as any in the country. And they are united by another common thread: Most of these families sent two parents into the workforce.
By the usual logic, sending a second parent into the workforce should make a family
more
financially secure, not less. But this reasoning ignores an important fact of two-income life. When mothers joined the workforce, the family gave up something of considerable (although unrecognized) economic value: an extra skilled and dedicated adult, available to pitch in to help save the family during times of emergency. When Junior got sick, the stay-at-home mother was there to care for him full-time, without the need to hire a nurse. If Dad was laid off, Mom could enter the workforce, bringing in a new
income until Dad found another job. And if the couple divorced, the mother who had not been working outside the home could get a job and add
new
income to support her children. The stay-at-home mother gave her family a safety net, an all-purpose insurance policy against disaster.
If two-income families had saved the second paycheck, they would have built a different kind of safety net—the kind that comes from having plenty of money in the bank. But families didn’t save that money. Even as millions of mothers marched into the workforce, savings declined, and not, as we will show, because families were frittering away their paychecks on toys for themselves or their children. Instead, families were swept up in a bidding war, competing furiously with one another for their most important possession: a house in a decent school district. As confidence in the school system crumbled, the bidding war for family housing intensified, and parents soon found themselves bidding up the price for other opportunities for their kids, such as a slot in a decent preschool or admission to a good college. Mom’s extra income fit in perfectly, coming at just the right time to give each family extra ammunition to compete in the bidding wars—and to drive the prices even higher for the things they all wanted.
The average two-income family earns far more today than did the single-breadwinner family of a generation ago. And yet, once they have paid the mortgage, the car payments, the taxes, the health insurance, and the day-care bills, today’s dual-income families have
less
discretionary income—and less money to put away for a rainy day—than the single-income family of a generation ago. 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.
At the same time that millions of mothers went to work, the family needed the stay-at-home mom (or a costly replacement) more than ever. The number of frail elderly, most of whom must depend on family for daily care, spiraled upward. Hospitals began discharging
patients “quicker and sicker,” expecting the family to pick up the task of nursing them back to health. With Mom in the workforce, parents were faced with a painful choice between paying for expensive care and taking time off work. At the same time, the divorce rate continued its upward climb. This situation was compounded by a leaner-and-meaner business climate that closed plants and laid off workers with alarming frequency. In this tougher world, millions of two-income families learned the price of living without a safety net.
Inevitably, the Two-Income Trap affected the one-income family too. When millions of mothers entered the workforce, they ratcheted up the price of a middle-class life for everyone, including families that wanted to keep Mom at home. A generation ago, a single breadwinner who worked diligently and spent carefully could assure his family a comfortable position in the middle class. But the frenzied bidding wars, fueled by families with two incomes, changed the game for single-income families as well, pushing them down the economic ladder. To keep Mom at home, the average single-income family must forfeit decent public schools and preschools, health insurance, and college degrees, leaving themselves and their children with a tenuous hold on their middle-class dreams.
What about single-parent families, the group that has no choice about getting by on one income? Not surprisingly, they are in even worse shape than their married counterparts. But the magnitude of the problem for single-mother families shocked us. If current trends persist,
more than one of every six single mothers will go bankrupt by the end of the decade.
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The usual explanations for why these women are in trouble—“deadbeat dads” who don’t pay child support, discrimination in the workplace, and so forth—cannot account for the growing distress. Today’s middle-class single mothers have better legal protection, higher salaries, more child support, and more opportunities in the workplace than their divorced counterparts of a generation ago, yet they face a much greater likelihood of financial collapse. We estimate that over the past twenty years, the number of single mothers in bankruptcy has increased more than 600 percent.
So why are these women in so much trouble? We will show that changes in the family balance sheet
before
a couple divorces explain much about the vulnerability of today’s single mothers. Married parents are in trouble because they have spent every last penny and then some just to buy a middle-class life for their children. As a result, today’s newly divorced mother is already teetering over a financial abyss the day she signs her divorce papers. She has nothing in the bank, and the family’s fixed costs stretched the limits of
two
incomes, let alone one. She hasn’t a prayer of competing with double-income families to provide her children with what have come to be seen as the basic requirements of a middle-class upbringing.
Is the only solution for all the mothers to scurry pell-mell back to the hearth? It may sound like a tidy resolution, but it won’t work. Like it or not, women now need those paychecks to pay the mortgage and the health insurance bills. Their incomes are committed, and calling for them to abandon those financial commitments would mean forcing them to give up their families’ spot in the middle class. No, the real solution lies elsewhere—in addressing the reasons behind the bidding war and helping
all
families, both dual- and single-income, to get some relief.
The Two-Income Trap is thick with irony. Middle-class mothers went into the workforce in a calculated effort to give their families an economic edge. Instead, millions of them are now in the workplace just so their families can break even. At a time when women are getting college diplomas and entering the workforce in record numbers, their families are in more financial trouble than ever. Partly these women were the victims of bad timing: Despite general economic prosperity, the risks facing their families jumped considerably. Partly they were the victims of optimistic myopia: They saw the rewards a working mother could bring, without seeing the risks associated with that newfound income. And partly they were the victims of one another. As millions of mothers poured into the workplace, it became increasingly difficult to put together a middle-class life on a single income. The combination has taken these women out of the home and
away from their children
and
simultaneously made family life less, not more, financially secure. Today’s middle-class mother is trapped: She can’t afford to work, and she can’t afford to quit.
A Mother’s Story
Both mothers and fathers are trapped in the same sinking boat, but it is mothers who have been the special targets of change over the past generation. It is mothers who left the home en masse, transforming generations of family economics. It is mothers who must do it all, tending to home and children while managing full-time jobs outside the home. And it is nearly always mothers who preserve the remnants of the family in the aftermath of divorce.
Even for a married couple, financial failure is disproportionately a woman’s problem. A husband and wife who have been struck by financial disaster look more or less the same on paper. They share the same assets, they owe the same debts, and they have the same black marks on their credit reports. But behind the curtain of marriage, there are important differences.
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.
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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. And, like Ruth Ann, it is wives who ultimately decide when it is time to file for bankruptcy. Among couples who seek credit counseling or file for bankruptcy, the split over who was responsible for dealing with the bills was exactly reversed from that of secure families: three-quarters of the wives were exclusively responsible for trying to extract their families from their financial quagmire.
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This shift is not merely a mundane realignment of responsibilities within the household, a simple variation on the routine decisions that he will mow the lawn while she folds the laundry. Rather, it is a signal of serious discord within a marriage. In financially troubled families, women who managed the money alone were twice as likely to describe themselves as very dissatisfied with the arrangement than the men who took on that task. Many women, exhausted and frustrated by all that accompanies the descent into financial ruin, find that just when they most need help, their husbands have disappeared.
Men, for their part, often feel that their failure to provide for their families calls into question not just their abilities in the labor force but also their identities as husbands, as fathers, and as men. Perhaps it should come as no surprise to discover that financial problems and marital problems are statistically linked. Study after study shows that money is a source of contention in most marriages, but it is particularly problematic for couples that are financially unstable.
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For a family living on the edge, every purchase must be scrutinized, creating flash points for conflict in marriages that are already overly stressed. With no one close at hand to blame for layoffs at work or exclusions in the health insurance policy, it is all too easy to turn frustration and anger on one another. Couples slip into an endless round of “should haves,” second guessing themselves—and each other—for decisions long past. He should have worked the night shift when he had the chance, she should have kept driving the old car, he should have bargained for a better price on the home, she should have spent less on groceries. For some, words give way to physical blows in an ever-escalating battle to assess blame. A bankruptcy trustee we interviewed explains that by helping families use the bankruptcy courts to get protection from their creditors, “I’m in the abuse-prevention business. Every time I help a family get straightened out financially, I figure I saved someone a beating.”
Make no mistake: Financial distress is a problem for both men and women. Accordingly, we will tell the stories of both mothers and fathers in the pages of this book. But we do not want to leave the impression
that these phenomena are entirely gender-neutral. They are not. Mothers are 35 percent more likely than childless homeowners to lose their homes, three times more likely than men without children to go bankrupt, and seven times more likely to head up the family after a divorce.
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And so, in the pages of this book, we will tell a story about families, about children, and, especially, about mothers.