A Fighting Chance (50 page)

solid, comfortable, growing middle class of my generation:
For example, we found that a modern family spends an extra $290 per year on telephone services compared with its counterpart of a generation earlier (all numbers are inflation adjusted). On the other hand, the average family spends nearly $200 less per year on floor coverings, $210 less on dry cleaning, and $240 less on tobacco-related purchases. Similarly, today’s family spends 44 percent less on major appliances today than a generation ago. For more, see
The Two-Income Trap
, 17–19 and 196–97.

remained stagnant for an entire generation:
We note that the typical, fully employed male earned $38,700 in 1973 and $39,000 in 2000 (adjusted for inflation), less than 1 percent real increase in nearly thirty years. See
The Two-Income Trap
, 50. More recent evidence indicates that median male incomes declined slightly between 2000 and 2012 when adjusted for inflation. Women have fared somewhat better, as the income gap between men and women declined over the past generation and real median incomes climbed for fully employed women. However, women’s economic progress seems to be slowing, as median earners have only gained 1 percent in real income over the past decade, and fully employed women continue to earn 21 percent less than their male counterparts. Calculated from US Census, Table P-36: “Full-Time, Year-Round All Workers by Median Income and Sex: 1955 to 2012.”

Similarly, the Center for Responsible Lending reports: “When controlling for inflation … the typical household really had less annual income at the end of the decade than it did at the beginning [2000–2010].… And though workers made less as the decade progressed, their productivity increased by 20% (Jank & Owens, 2012). Workers appear to be benefitting less from productivity gains than in prior periods.” M. William Sermons, “The State of Lending in America and Its Impact on US Households,” Center for Responsible Lending, December 2012, 9.

live without, like health care and education:
In
The Two-Income Trap
we compare health care costs for a typical insured family of four and found that the average family was paying $1,650 more for insurance in 2000 than in the early 1970s, adjusted for inflation (51).

The cost of college at a public university nearly doubled during this period, adjusted for inflation (
The Two-Income Trap
, 42). Note that college costs have continued to climb even faster over the past decade. In addition, in
The Two-Income Trap
we discuss the growing importance—and the growing costs—of preschool education (37–38).

The Center for Responsible Lending reports that over the past decade, the trends we noted in
The Two-Income Trap
continued to worsen, as costs for many basic expenses continued to climb relative to incomes for middle-class families: “The declining real incomes of the last decade would not have been so hard on families if the cost of maintaining a household had also remained unchanged. While families would not have had resources to improve their standard of living, they would have at least been able to consume at the same level year after year. Instead, families were faced with increases in basic non-discretionary expenses like food, housing, transportation, medical care, and utilities with no growth—or sometimes even decreases—in income to pay for these items.” “The State of Lending in America and Its Impact on US Households,” 10.

loans appeared, and families grabbed hold:
See note,
“
prepayment penalties
,”
for more on the emergence of dangerous and predatory mortgage products.

get a good education or to live in a nice neighborhood:
In
The Two-Income Trap
we discuss the role of public schools in driving housing choices for families with children (28–36). We also note that the rise in home prices during the ’80s and ’90s was disproportionately born by families with children.
The Two-Income Trap
, 32.

huge, new homes remained the domain of the wealthy:
In
The Two-Income Trap
, we found that the size of the average middle-class family home had increased only modestly: The median owner-occupied home grew from 5.7 rooms in 1975 to 6.1 rooms in the late 1990s—an increase of less than half a room in more than twenty years. The data show that the room was typically a second bathroom or a third bathroom. We also note that the proportion of families living in older homes increased by nearly 50 percent during the same period (21–22).

I had made a generation earlier: they took a job:
In the mid-’70s a married mother was more than twice as likely to stay home with her children as to work full-time; by 2000, those figures had reversed: Today a married mother is nearly twice as likely to work full-time as to stay home.
The Two-Income Trap
, 30.

one-income family of a generation earlier:
In
The Two-Income Trap
, we show two budgets for middle-class families, one median single-breadwinner family from 1970, and a second median two-earner family in 2000. We calculate the average earnings, and the cost of fixed costs such as housing, health insurance, car, taxes, and child care. We found that the modern two-income family has less money left over after paying their basic bills than the one-income family of a generation ago, when adjusted for inflation. We also note that the modern one-income family that tried to live a typical middle-class standard of living had a significant gap compared with a generation earlier (50–53 and 207–8). We note that because the modern two-income family owns a more expensive home than their one-income counterpart of a generation earlier, and because they have added a second earner, their tax rate has increased (206–8).

the savings rate for the average family was approaching zero:
The Two-Income Trap
, 113.

sucked in people who were in a crunch:
Borrowing from payday lenders, virtually non-existent twenty years ago, has grown tremendously. One study estimates that ten million households borrow from payday lenders each year, with more storefronts in the United States than McDonald’s and Starbucks combined. Paige Skiba and Jeremy Tobacman, “Do Payday Loans Cause Bankruptcy?”
Vanderbilt Law and Economics Research Paper
No. 11–13 (2009). Payday lenders typically charge “10–20 percent interest for a one-to-two-week loan, implying an annualized percentage rate (APR) between 260 and 1040 percent.” Neil Bhutta, Paige Skiba, and Jeremy Tobacman, “Payday Loan Choices and Consequences,”
Vanderbilt Law and Economics Research Paper
No. 12–30 (2012). Similarly, credit card debt increased by 570 percent in a single generation.
The Two-Income Trap
, 20.

hanging on to the cliff by their fingernails:
For example, Michelle J. White estimates that 17 percent of households in the United States are in so much financial distress that they would have significant improvements in their balance sheets if they filed for bankruptcy. “Why It Pays to File for Bankruptcy.”

starting to climb, even back in the 1990s and early 2000s:
The rate of mortgage foreclosure more than tripled between 1979 and 2002.
The Two-Income Trap
, 78.

covered by CBS News, the
Boston Globe,
NPR, and CNN:
For examples of media coverage of
The Two-Income Trap
, see Daniel McGuinn, “Housebound: Young Families Always Stretch to Buy Their First Home but the Growing Ranks of the ‘House Poor’ Suggest Many People Are Stretching Budgets Too Far,”
Newsweek
, September 15, 2003. See also Christopher Shea, “Two Incomes, One Bankruptcy,”
Boston Globe,
September 14, 2003. See also Rome Neal, “Broke on Two Incomes,”
CBS News
, September 9, 2003. See also Jeanne Shahidi, “Are You Worse Off than Mom and Dad?”
CNNMoney,
September 11, 2003, and Michele Norris, “Two-Income Families at Risk of Financial Crisis,” NPR,
All Things Considered,
September 8, 2003.

in 2004 they stepped up to the plate again:
See, for example, Robert Zausner and Josh Goldstein, “Bush’s Largest Funding Source: Employees of Credit-Card Firm,”
Philadelphia Inquirer
, July 28, 2000. “By orchestrating mass contributions from its employees, the Wilmington-based company has become Bush’s single largest source of campaign money. MBNA employees and their families have given more than $250,000 to the Republican’s presidential bid, an
Inquirer
analysis found.” Christopher H. Schmitt, “Tougher Bankruptcy Laws—Compliments of MBNA?,”
Business Week,
February 2001, 43. Schmitt confirmed that MBNA was “the candidate’s single biggest source of cash” and added: “On the soft-money side, MBNA chipped in nearly $600,000.… On top of that, MBNA Chairman and CEO Alfred Lerner and his wife, Norma, each kicked in $250,000 to the Republicans. Charles M. Cawley, CEO of MBNA’s bank unit and a friend of Bush Sr., organized fund-raisers and gave $18,660 to Bush and the GOP.”

Similarly, in 2004 the Center for Public Integrity reports: “MBNA surpasses Enron as the president’s top lifetime contributor.” Alex Knott, “Bush Has a New Top Career Patron,”
The Center for Public Integrity
, March 11, 2004. The Center for Responsive Politics reports that MBNA slipped to ninth place in 2004, when it was outspent by employees of other banking giants like Citigroup, Lehman Brothers, Morgan Stanley, and Merrill Lynch. See analysis of Top Contributors by Center for Responsive Politics, at
OpenSecrets.org
.

law kicked in, bankruptcy filings dropped sharply:
In 2004, there were 1,563,145 bankruptcy filings. In 2005, that number shot up to 2,039,214. Then in 2006, in the wake of the new law, the number of filings fell to 597,965. See American Bankruptcy Institute.

charged more—sometimes a lot more—to navigate the more complex law:
One study found that attorney fees for the simplest type of bankruptcy filing—Chapter 7 with no assets—increased 51 percent after the new law. For more complex Chapter 13 filings, costs increased 24 to 27 percent. Lois R. Lupica, “The Consumer Bankruptcy Fee Study,” American Bankruptcy Institute, December 2011.

See also Robert M. Lawless, Angela K. Littwin, Katherine M. Porter, John A. E. Pottow, Deborah Thorne, and Elizabeth Warren, “Did Bankruptcy Reform Fail? An Empirical Study of Consumer Debtors,”
American Bankruptcy Law Journal
82 (2008): 349–406. Subsequent work demonstrates that the sharp increase in attorneys’ fees after the change in the laws resulted in smaller payouts for creditors. Lois R. Lupica, “Final Report: The Consumer Bankruptcy Creditor Distribution Study,” American Bankruptcy Institute National Conference of Bankruptcy Judges, 2013.

if they tried to use bankruptcy to clear their debts:
“Nearly a quarter [of families]—23.6%—said the debt collectors had raised the subject of bankruptcy explicitly, threatening what would happen if they filed. More than half who received such warnings recount being told by the debt collector that it was ‘illegal’ to file for bankruptcy, or that, if they filed, they might go to jail, the I.R.S. would audit them, or they could lose their jobs. The remainder received a mix of misinformation, including the oft-repeated ‘you won’t qualify.’” Robert Lawless et al., “Did Bankruptcy Reform Fail?”

or stopped taking their kids to the doctor:
In
The Two-Income Trap
we describe that “60% of bankruptcy filers went without needed medical care in order to save money” (77). Similarly, a study using nationally representative data from the Community Tracking Study found, “People in families with medical bill problems also reported much greater trouble getting care because of cost concerns—one in three did not get a prescription drug, one in four delayed care and one in eight went without needed care.” Jessica May and Peter Cunningham, “Tough Trade-offs: Medical Bills, Family Finances and Access to Care,”
Center for Studying Health System Change
, No. 85 (2004).

get more money for asbestos victims:
For more discussion of my work relating to asbestos victims, see note,
“
payment for their injuries
.”

families gain access to more affordable banking services:
Sheila Bair was a highly effective chairman of the FDIC. She reorganized much of the agency to make it more efficient and to put it on sounder financial footing. She also established the Committee on Economic Inclusion to explore ways to create alternatives for underserved families who used payday loans and money orders by bringing them into the banking system.