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What do you think of the idea of a two-income trap?

post #1 of 234
Thread Starter 
I'm curious about what you think of the idea, or theory, that there is a two-income trap?

In another forum on MDC, this theory came up, and the more I think about it, the more I think there is no "trap" that we can avoid falling into by simply learning to live on one income instead of two.

Basically, two income trap is an idea, put out in a book of the same title, "The Two-Income Trap: Why Middle-Class Mothers & Fathers Are Going Broke by Elizabeth Warren and Amelia Tyagi. The book talks about how, as an article in Mother Jones magazine wrote,

"many families have sent both parents into the workforce to try to make ends meet. After all, surely if both parents work full-time it shouldn't be hard to ensure financial security, right? Wrong, say authors Elizabeth Warren and Amelia Tyagi, in their book, The Two Income Trap. Two-income families are almost always worse off than their single-income counterparts were a generation ago, even though they pull in 75 percent more in income. The problem is that so many fixed costs are rising -- health care, child care, finding a good home -- that two-income families today actually have less discretionary money left over than those single-earner families did."

I think it is a valid point that a generation ago (actually, I think it was more like two generations ago), it was much easier for a family to make it on one income. And, yes, that most certainly was the norm.

The book points out, accurately I think, that the reasons for this change is because of the changing economics.

Inflation has far outpaced the rise in personal income, so families' money stretches less and less. In recent years, I think it's gotten worse due to the housing baloon, the rising cost of health care, and job instability (downsizing, outsourcing, lay offs in what historically had been pretty safe fields to work in).

Anyway, my point is I don't think it's a "trap" that we fall into by having two incomes instead of one. It's not so much that people get used to having more money, and buying expensive things, with two incomes and set up their lives as such (although there will be some anecdotes about this).

I don't think for the majority of us it's a matter of just living more frugally and "learning" to live on one income instead of two.

There really is no way to get back to the previous generations' ability to live on one income until we address national and global concerns such as housing baloon, the rising cost of health care, and job instability (downsizing, outsourcing, lay offs).

I know for my own family, we can not live on one salary. We need one spouse's full salary and about 1/3 of the other spouse's salary to pay basic expenses. With one income, we don't make it. On two incomes, we have 2/3 of the second income as discretionary funds. It gives us a lot of cushion and freedom. Health insurance and retirement are whole other issues.

I feel, for us, in the current economic times, it's not just an issue of income. If one of us lost a job due to downsizing, outsourcing, or lay-offs, our family would have a back up job to get us through the leaner times.

Is there a two-income trap, or is it just the forces of our economic reality? I feel like there are more options, and safe guards, with two incomes instead of one.
post #2 of 234
for us, there is a trap. its much more comfortable for us to live on 2 incomes. however, we can live on one income and still contribute to retirement and manage to save a little. w/ 2 incomes, we can afford to take alot more vacations, purchase a lot more consumer goods (not a big objective of mine but its one of the traps i found w/ being a WOHM).

i think every family is different and of course it depends on the one income that is being depended upon...but i do think the theory holds water today. Its much more difficult, at least it was for ME, to be frugile when working. I am sure there are some more disciplined ppl out there than me, but when I was working, i would consume more (tired and didnt get a lunch packed, or stressed and went shopping at lunch time, etc. etc. etc.).

plus, there are just so many expenses i had when working that i dont have when not (gas, clothing, wear and tear on vehicle, child care, food, etc.etc. etc.).

as with any theory, there are exceptions. If my DP made 50% of his salary, tehn we most certainly wouldn't be able to live off of it alone and I wouldnt have a choice put to re enter the marketplace.
post #3 of 234
Quote:
Originally Posted by That Is Nice View Post

I feel, for us, in the current economic times, it's not just an issue of income. If one of us lost a job due to downsizing, outsourcing, or lay-offs, our family would have a back up job to get us through the leaner times.
Exactly.
post #4 of 234
Thread Starter 
Quote:
Originally Posted by PassionateWriter View Post
for us, there is a trap. its much more comfortable for us to live on 2 incomes. however, we can live on one income and still contribute to retirement and manage to save a little. w/ 2 incomes, we can afford to take alot more vacations, purchase a lot more consumer goods (not a big objective of mine but its one of the traps i found w/ being a WOHM).

i think every family is different and of course it depends on the one income that is being depended upon...but i do think the theory holds water today. Its much more difficult, at least it was for ME, to be frugile when working. I am sure there are some more disciplined ppl out there than me, but when I was working, i would consume more (tired and didnt get a lunch packed, or stressed and went shopping at lunch time, etc. etc. etc.).

plus, there are just so many expenses i had when working that i dont have when not (gas, clothing, wear and tear on vehicle, child care, food, etc.etc. etc.).

as with any theory, there are exceptions. If my DP made 50% of his salary, tehn we most certainly wouldn't be able to live off of it alone and I wouldnt have a choice put to re enter the marketplace.
Yeah, I agree. Some of the variables are, obviously, how much income your household makes, and also what the income split is per spouse.

But I think even bigger than income is cost of living, and when and if you bought into the housing market.

Housing has gone up so much in the last 10 to 15 years. As the authors pointed out, you can not buy a home on one income, generally, in 75% of American cities.

That wasn't the case before the housing baloon. So, if a couple bought a house initially pre-1990s, or even early 1990s they can probably more easily make it on one income. Or, if a couple had a substantial downpayment for whatever reason, that would offset some of the market impacts.

Maybe I am the exception. I don't know. I came from a pretty poor family growing up. I put myself through college using student loans. So, I graduated with debt right off the bat. I never was a big spender. I worked in my career for about a decade to get my financial ducks in a row before having kids, paying down debt, living frugally, saving.

I deliberately saved up to have the option of being a SAHM for a few years. I knew going into parenthood that it would be a bit of a challenge since I have no family to help and my husband has a very inflexible job, and travels, etc.

I don't know...I never had the option of just being a SAHM. We can't make it on one salary. And benefits and retirement play a big part too...it's not just income.

And we're college educated, make good money, live frugally, and save. We were never spending money on vacation or fancy funiture or expensive cars. That is why I could be a stay at home mom for a few years, but it won't last. We need two incomes. It's not a trap for us.
post #5 of 234
Thread Starter 
Quote:
Originally Posted by A&A View Post
Exactly.
:

Yeah, I really feel that way. I feel I have less options to deal with economic curve balls as a SAHP than the options I have as a working parent.



My DH and I have careers in pretty good fields, although I am currently a SAHP living on DH's income and savings. But outsourcing, downsizing, and lay offs have impacted so many blue collar and white collar jobs. This market is fickle.

I feel we had more options when I worked, and it's one of the most compelling reasons for me to go back to work. I don't like the gaps on my resume.
post #6 of 234
I read the book and I seem to remember they never meant to suggest we should all live on one income - I think they were just trying to illustrate how the modern family is much more vulnerable. The trap is when your basic expenses require *all* of both incomes - add a bit of debt and you're one emergency away from bankruptcy. That would make you more vulnerable...if there are two breadwinners, a job loss/medical emergency is twice as likely to impact the family's income and there is no back-up, i.e. a SAH spouse who can go to work.

What you're describing, living on 1 1/3 incomes, doesn't seem like it would fall into the danger zone, as long as you have an emergency fund in the banks should one of you be unable to work temporarily. The same authors wrote a financial management book about what to do about the two-income trap - it's called "All Your Worth" and I thought it was amazing.
post #7 of 234
Thread Starter 
Quote:
Originally Posted by PassionateWriter View Post

plus, there are just so many expenses i had when working that i dont have when not (gas, clothing, wear and tear on vehicle, child care, food, etc.etc. etc.).
I am currently a SAHP. But I worked for nearly a decade before being a SAHP. Anyway, I always hear from other people that it costs money to work.

But, I honestly haven't noticed this myself. Yes, there is the obvious expense of child care. That is a big one. But my full time salary minus child care still leaves enough to make it financially lucrative to work.

Gas, clothing, wear and tear on a vehicle, and even food, have all been about the same costs when I was a stay at home mother and when I was working. Those costs didn't change. I'm not saving or spending more just because I'm at home or working.

I think it does depend on how much money you make though, especially in terms of child care. I remember reading the figure that if you make more than $30k per year, even with child care expenses, it makes sense to work. If you make less than $30k per year, it doesn't make sense to work, usually.

That figure was from a few years ago, so I don't know how it stands up with inflation or taxes.
post #8 of 234
Thread Starter 
Quote:
Originally Posted by nina_yyc View Post
I read the book and I seem to remember they never meant to suggest we should all live on one income - I think they were just trying to illustrate how the modern family is much more vulnerable. The trap is when your basic expenses require *all* of both incomes - add a bit of debt and you're one emergency away from bankruptcy. That would make you more vulnerable...if there are two breadwinners, a job loss/medical emergency is twice as likely to impact the family's income and there is no back-up, i.e. a SAH spouse who can go to work.

What you're describing, living on 1 1/3 incomes, doesn't seem like it would fall into the danger zone, as long as you have an emergency fund in the banks should one of you be unable to work temporarily. The same authors wrote a financial management book about what to do about the two-income trap - it's called "All Your Worth" and I thought it was amazing.
:

Yeah, that is what the authors were saying. And I agree with them on those points. Absolutely.

My point was that it's not so much a "trap" we fall into by choosing two incomes as much as it is the reality of the current economic climate necessitating two incomes.

I think it's less about consumer choices we make (although, to be sure, those certainly play a role) and more about teh economic forces of the housing market, health care costs, and job market that makes the most important choices for us.



On a personal level, no, DH and I are not in the danger zone. We are not maxing out our spending on two salaries. Never have. Never will. We're quite frugal and savers by nature. We like to be prepared and plan things out so that there are always options.

However, even with our good jobs, good careers, good degrees, good savings, good credit rating, good fiscal management, etc, etc, we can not choose to live on one income.

We need more than one income for basics. Like I said we need 1 and 1/3 salaries to pay the basics. The other 2/3 of salary is discretionary. Maybe we are atypical, though. I'm not sure. DH and I make close to the same amount. He makes a little more. Basically, he makes 55% to 60% of the family income, and I used to make about 45% to 40% of the family income.
post #9 of 234
Quote:
Originally Posted by That Is Nice View Post
I am currently a SAHP. But I worked for nearly a decade before being a SAHP. Anyway, I always hear from other people that it costs money to work.

But, I honestly haven't noticed this myself. Yes, there is the obvious expense of child care. That is a big one. But my full time salary minus child care still leaves enough to make it financially lucrative to work.

Gas, clothing, wear and tear on a vehicle, and even food, have all been about the same costs when I was a stay at home mother and when I was working. Those costs didn't change. I'm not saving or spending more just because I'm at home or working.

I think it does depend on how much money you make though, especially in terms of child care. I remember reading the figure that if you make more than $30k per year, even with child care expenses, it makes sense to work. If you make less than $30k per year, it doesn't make sense to work, usually.

That figure was from a few years ago, so I don't know how it stands up with inflation or taxes.
as i said, i think it depends on teh family. i had a pretty good salary...but one day i sat down and calculated how much my nanny made (we provided her w/ an apt. and a salary), and after substracting her salary, teh income we were foregoing due to her living arrangements, my costs in clothing, food, transportation, my taxes, and a few other things that were eliminated since i became a SAHM (only in teh last few years), she actually brought "home" as much as I did. I also added value to the fact that I was working 80 plus hours a week and unable to spend alot of time w/ my children (i had 2 at the time) and a few other intangible things.

As frugal as i thought i was being when working, i am definitely much much more frugal since becoming a sahm...we eat out much much less and things like that.

Having said that, if DP were to be laid off or lose his job, we would have a lot of issues in only a few months w/ the mouths we have to feed. And if he loses his job, the gaps in my resume would defintitely cause me some issues. I'm not too happy about the gap but the only way i can fix that is to return to work...and thats not something i want to do at this time.

Everyone has to chose carefully...b/c in this economy, i don't think anyone can just take a job, or salary, for granted. Planning in case of emergencies is one of the most important things i think families can do..and that gets harder and harder for many ppl to do w/ so many layoffs already happening.

i do think the theory has a lot of good points though.
post #10 of 234
Sure, I'd love to stay home and not have to worry about finances. But I don't live a generation or two ago, I live now.

For us, I work for benefits, stability, and having enough money to cover all our expenses. We work opposite shifts to avoid paying childcare. We don't see each other very much that way, though, so, yep, we vacation at least once a year - it's our only way to see each other 2 whole days in a row!

DH is self employed. We don't like the instability of income that provides, and we have little control over when he gets paid by the insurance companies. He could be super crazy busy all month long, but not see a dime in payment for 2-3 months. In addition to needing the mental security of my stable, predictible income, I work for the benefits. Health insurance out of pocket is INSANE in this country.

My mom stayed home when my sister and I were little, and it worked well. But that was a generation ago, when we (collective we) weren't paying 35% or more of our (2-salary) income toward a mortgage, and we weren't paying 4 bucks a gallon for gas, and the cost of everything was a lot cheaper.

I don't work so that we can have a Hummer and a yacht and Starbucks everyday. I work so we can have a roof over our heads.
post #11 of 234
For me, working does not cost me anything. I am not currently working, but when I did, it was free. I live 1/4 mile from the hospital. There was no wear and tear on a vehicle, no gas, etc. I wear the same uniforms I purchased in the year 2000. I rarely got a lunch break, and when I did get to eat, I had a lunch brought from home. I have to eat if I am at home, anyway. I did not need child care expenses, as I worked opposite my dh.

Right now, we are making it on one income. But not for long. We need me to go back to work soon so we can contribute to retirement more and savings. We are screwed if we have another major expense. (we just had our sewer line bust, insurance did not cover it, there goes $3,000!) So, I will be going back, not so much to pay the day to day stuff, but more so we have retirement, and a little safety net. One income just does not provide enough of a safety net or enough for retirement. And my dh makes very good money as an Engineer.

I really don't think it is a 2 income trap. I think it normally takes both parents working (at least one part-time) to have a safety net and be able to retire someday. Sure, we can survive on one income, but what happens when the house needs a new roof, the kids need school clothes, the old beater car breaks down AGAIN, AND there is a medical issue with someone all in the same month? We would be in major debt. I would like to prevent that by having a little safety net.
post #12 of 234
Thread Starter 
Quote:
Originally Posted by PassionateWriter View Post
Having said that, if DP were to be laid off or lose his job, we would have a lot of issues in only a few months w/ the mouths we have to feed. And if he loses his job, the gaps in my resume would defintitely cause me some issues. I'm not too happy about the gap but the only way i can fix that is to return to work...and thats not something i want to do at this time.

Everyone has to chose carefully...b/c in this economy, i don't think anyone can just take a job, or salary, for granted. Planning in case of emergencies is one of the most important things i think families can do..and that gets harder and harder for many ppl to do w/ so many layoffs already happening. .
:

ITA.
post #13 of 234
Thread Starter 
Quote:
Originally Posted by GooeyRN View Post
For me, working does not cost me anything. I am not currently working, but when I did, it was free. I live 1/4 mile from the hospital. There was no wear and tear on a vehicle, no gas, etc. I wear the same uniforms I purchased in the year 2000. I rarely got a lunch break, and when I did get to eat, I had a lunch brought from home. I have to eat if I am at home, anyway. I did not need child care expenses, as I worked opposite my dh.

Right now, we are making it on one income. But not for long. We need me to go back to work soon so we can contribute to retirement more and savings. We are screwed if we have another major expense. (we just had our sewer line bust, insurance did not cover it, there goes $3,000!) So, I will be going back, not so much to pay the day to day stuff, but more so we have retirement, and a little safety net. One income just does not provide enough of a safety net or enough for retirement. And my dh makes very good money as an Engineer.

I really don't think it is a 2 income trap. I think it normally takes both parents working (at least one part-time) to have a safety net and be able to retire someday. Sure, we can survive on one income, but what happens when the house needs a new roof, the kids need school clothes, the old beater car breaks down AGAIN, AND there is a medical issue with someone all in the same month? We would be in major debt. I would like to prevent that by having a little safety net.
:

I agree with everything you said. Everything. It never cost me any money to work either. Never. It wouldn't cost me money to work even with child care.

I think it really only costs money to work if you make less than $12 per hour or so, and have more high day care costs.

But, even then, there's still the retirement, health care, and emergency questions. There is a high cost to staying at home, aside from the money.

But then, like we know, there are compelling reasons to stay at home. For me, those reasons were more compelling during the breastfeeding years. Now that we've weaned, I'm definitely ready to return to my career.

(I'm glad you posted. Your posts always resonate with me.)
post #14 of 234
Thread Starter 
Quote:
Originally Posted by _betsy_ View Post
Sure, I'd love to stay home and not have to worry about finances. But I don't live a generation or two ago, I live now.
Exactly.
post #15 of 234
Thread Starter 
Quote:
Originally Posted by _betsy_ View Post

My mom stayed home when my sister and I were little, and it worked well. But that was a generation ago, when we (collective we) weren't paying 35% or more of our (2-salary) income toward a mortgage, and we weren't paying 4 bucks a gallon for gas, and the cost of everything was a lot cheaper.

I don't work so that we can have a Hummer and a yacht and Starbucks everyday. I work so we can have a roof over our heads.
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Exactly! This is us, too.

I think the two-income trap idea is relevant only when cross-comparing different generations and the opportunities they had/have. It's not relevant to us today. Not in real terms.

I can't just "learn to live" on one salary by living more frugally...cutting coupons, cooking from scratch, not buying unnecessary things is great, and I do that anyway, but it won't fund my retirement, pay my health care costs, or pay the bills if DH ever lost his job or became disabled, etc.
post #16 of 234
Quote:
Originally Posted by That Is Nice View Post
I can't just "learn to live" on one salary by living more frugally...cutting coupons, cooking from scratch, not buying unnecessary things is great, and I do that anyway, but it won't fund my retirement, pay my health care costs, or pay the bills if DH ever lost his job or became disabled, etc.
:

I do this too, but we still need both incomes to put a roof over our heads.

Well, I guess I should say that we could actually live on one income. We could sell everything, rent a tiny apartment, go to one car, and I could be a sahm. Of course, we would all be miserable. Or, I could go back to work full time and dh be a SAHD. Again, we would all be miserable. As it is, my girls have a nanny two days a week, and really seem to like the variety this gives them, esp. my older dd, so I don't feel bad about this in the least.

Also, like pps have said, I like having my income. I worked hard after dd1 was born to build my business, because we really had no other options for income (dh was working only sporadically at the time), and that business has seen us through one bout of unemployment for dh and is about to see us through a second, as he just got laid off last week. I am fortunate to have the option of increasing work hours to fill in gaps, and, because I work, we have been able to set aside savings specifically earmarked for emergencies, which will now go a lot further because we still have one income. If we were where we are now with dh being the sole breadwinner, I would not be sleeping much at night for worry.
post #17 of 234
Thread Starter 
Quote:
Originally Posted by Dena View Post
:

I do this too, but we still need both incomes to put a roof over our heads.

Well, I guess I should say that we could actually live on one income. We could sell everything, rent a tiny apartment, go to one car, and I could be a sahm. Of course, we would all be miserable. Or, I could go back to work full time and dh be a SAHD. Again, we would all be miserable. As it is, my girls have a nanny two days a week, and really seem to like the variety this gives them, esp. my older dd, so I don't feel bad about this in the least.

Also, like pps have said, I like having my income. I worked hard after dd1 was born to build my business, because we really had no other options for income (dh was working only sporadically at the time), and that business has seen us through one bout of unemployment for dh and is about to see us through a second, as he just got laid off last week. I am fortunate to have the option of increasing work hours to fill in gaps, and, because I work, we have been able to set aside savings specifically earmarked for emergencies, which will now go a lot further because we still have one income. If we were where we are now with dh being the sole breadwinner, I would not be sleeping much at night for worry.
Line after line, I agree with your post! I nodded my head the whole way through as I was reading it.

Good luck as you navigate the lay off. It sounds like you bounced back once, and you're prepared for it. This is one reason I think it's more than just a money issue...it's also a security issue and a stability issue.

I want to be able to respond, without a lot of down time, if my DH ever has a layoff, becomes disabled, whatever life throws at us. And in this economy...well, I think it's more important than ever.

I don't want to have to be in a position where I suddenly have to get a job after not having one for years and years, dust off a very dusty resume and hope for the best. Most likely in that situation, I wouldn't be landing a job that would pay all the bills.

So, yeah, ITA with you.
post #18 of 234
For us we've always tried to keep our basic necessity costs in line with one salary, to give us that flexibility. The major decision in that equation (being Canadian) has always been housing and we have bought less house than we needed.

But in the US I think housing prices are often so tied into school districts that it makes sense that people with kids really do need to buy into a good area and that simply takes more money. (Here in Toronto there are neighbourhoods like that too, but the 'worse' or 'medium' neighbourhoods are generally perfectly adequate.)

For us though I went back to work despite daycare and commuting costs, after which I do actually only net about $4-600/month, because in the long term I will be higher on the grid, further along in my career, and have a job once our daycare costs ease up. Also, I love my job.
post #19 of 234
Just my two cents, but I've noticed that if I'm working or going to school, I buy more.
Even if it's just a latte or fast food in the morning on the way to school... I'm very much an impulse buyer and being at home (especially with no car access when DH is working) limits that drastically, which is really a good thing.

For me to go back to work, we would be in a negative-income situation. Period. We've worked it out on paper. Right now we are in the positives... barely, but we're there. If I went back to work, even making top dollar for my field, we'd dip into negatives. Daycare, extra gas, perhaps another car... uniforms, more health insurance, all that jazz... well, we'd be floundering.

So, yes, I feel it can be a trap. Especially for lower-income-earning jobs. However, I am taking the government's great Pell Grant to go to school, earn a higher degree, etc, because SAHM'ing is not my thing and I, personally, would flounder without some sort of 'self-worth' type thing. That way, when the kids are old enough to not need me as much, I can present pretty shiny new degree paperwork and say "hire me!".
post #20 of 234
Quote:
Originally Posted by riaketty View Post
Just my two cents, but I've noticed that if I'm working or going to school, I buy more.
Even if it's just a latte or fast food in the morning on the way to school... I'm very much an impulse buyer and being at home (especially with no car access when DH is working) limits that drastically, which is really a good thing.

For me to go back to work, we would be in a negative-income situation. Period. We've worked it out on paper. Right now we are in the positives... barely, but we're there. If I went back to work, even making top dollar for my field, we'd dip into negatives. Daycare, extra gas, perhaps another car... uniforms, more health insurance, all that jazz... well, we'd be floundering.

So, yes, I feel it can be a trap. Especially for lower-income-earning jobs. However, I am taking the government's great Pell Grant to go to school, earn a higher degree, etc, because SAHM'ing is not my thing and I, personally, would flounder without some sort of 'self-worth' type thing. That way, when the kids are old enough to not need me as much, I can present pretty shiny new degree paperwork and say "hire me!".
It's funny... I am not arguing, just sharing.

When I was a SAHM I spent more money on "little treats" because I was bored, out during the day, meeting people for lunch/coffee, and looking for spots my son and I could hang out. It's interesting how different everyone is.

That said, daycare right now DOES eat up a lot of my salary, no two ways around it... and is way more than the SAHM treats + daytime classes.
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