Wednesday, July 13, 2011

Book Review: The Two-Income Trap by Elizabeth Warren and Amelia Warren Tyagi

I've had a number of people recommend The Two-Income Trap to me over the past few years. Even though it's technically a little bit dated (it was published in 2003), I nevertheless found it quite relevant. The authors' thesis is simple: that families relying upon two incomes to meet fixed expenses are at a much higher risk of financial collapse than those that rely on only one. It makes perfect sense: if I have a job making, say, $50,000 a year while Matt parents the kitties and then lose said job, Matt would theoretically be able to get a job and help out with expenses until I get a comparable job (or, worst-case scenario, we both have to work crappy jobs but would still be able to pay the bills). However, if he and I are both employed and are spending all of our combined income on fixed expenses and one of us loses our jobs, we'd be boned pretty quickly. And that's exactly what's happening to a number of families.

It's something of a novel concept, and the authors devote quite a bit of time to explaining how they came by the evidence that led to their conclusions. They also spend a few chapters debunking myths about overspending, credit card debt, and other forms of financial irresponsibility that too many believe are the cause of families' financial ruin. Ironically, families who live off one income and fritter away the other are more financially stable than those who spend both incomes "responsibly" (provided that the two incomes are roughly equivalent, of course), because if the person making the "living" income loses their job, the one making the "fritter away" income could start paying the bills, as opposed to bills going unpaid. What really leads to families getting in over their heads, as it turns out, is America's screwed up way of funding public schools.

No, seriously.

The better a school district is, as a general rule, the more expensive housing in said district will be. This phenomenon also exists within school districts, as parents jockey for houses that are zoned for more desirable schools, driving the prices of said houses higher and higher. This, in turn, funnels more money into the school/school district in question, making it even more attractive, which, again, drives up housing prices in the area. It's a huge vicious cycle. High prices combined with unethical and predatory lending practices (I find it so crazy this book was published before the bubble burst; it's eerily prescient on the subject) can have devastating effects on families when they fall on hard times. Warren and Tayagi go into great detail in their discussion of the role that unethical corporate practices play in families falling into financial ruin.

Thought-provoking. 4 out of 5 stars.


  1. Sounds really interesting. Some of it seems kinda common sense - i.e. if you rely on two incomes then it's risky because you don't have a fall back person to work if needed, but still, lots of good stuff sounds like.

  2. Wow, this sounds fascinating. I wouldn't have come to this conclusion myself, since I'm still a single person dealing with my own bills, but it does make a lot of sense.