The Collapse of the Middle Class

With mortage rates at 6%, it would be a stretch to make the payments on the house of their dreams. But they were young, full of dreams and determination. They were ready to start their family and could just see the big back yard filled with children and pets. Yes, it was perfect. This was home.

One income, one car, one payment. They clipped coupons, shopped sales, and raised 3 children in this home. It was 1952 and the house cost $12,500.  Twenty years later it was paid for.

Fast forward 1970’s:

With mortgage rates at 7.5%, it would be a stretch to make payments on their first house. But this was a handyman house. They were young, full of dreams, and determination and knew with a little sweat equity they could make this work. Ready to start their family, they could visualize the back yard as a family gathering place, filled with picnics, children’s parties, and dog. Yes, it was perfect. And home.

Dad had a full-time income. Mom had an ongoing part-time job, but work was flexible. She stayed home when the children were born. She stayed home when grandparents needed help. She went to work when dad got laid off. They clipped coupons, shopped sales, entertained at home. It was 1974 and the house was $22,500 with 5 acres of land.

Fast Forward Today:

The house was perfect. With the recent housing crisis, mortgages rates had come down to 6%. Yes, it would be a bit of a stretch, but they both had great jobs, were young, and full of dreams and determination. The back yard would be perfect for raising children.

Two full time jobs, two cars, full-time child care. They have no time to be sick and heaven forbid either of them should lose a job. It’s 2008 and the house was $210,000.

Author of the Two Income Trap, Harvard University Professor Elizabeth Warren believes the single most profound economic shift of the second half of the 20th century is the millions of mothers who entered the paid workforce. This is not a view against women in the workforce. It is an enlightened study as how we spend money.

The trap? More income equals more risk.

We’re working harder and have less. Although it is now more likely to have two incomes, we haven’t improved our financial strength. Instead of becoming wealthy with the second income, we not only have consumed the entire second income, but spent the 11% the one-income family was able to save back in the 1970’s and on top of that spend 15% of our annual income on revolving credit card debt.

If a household depends on 2 incomes to meet their housing obligations, what happens if one of them gets sick or loses a job?

The eye opening statistics show that we are not spending more on necessities of food and clothing, even considering how much we eat out or spend on designer clothing for our children.

Watch as Harvard University Professor Elizaeth Warren shares her insightful research and thoughts about the coming collapse of the middle class. It doesn’t have to be this way. I believe it’s not too late to change.

(Fast forward 5 minutes into the video to the beginning of Professor Warren’s talk.)