The Two-Income Trap

Back when Elizabeth Warren was doing something useful, instead of being a Socialist pest, she wrote a book called The Two Income Trap. It was an investigation into how families ended up in bankruptcy.

Warren found that families were not, for the most part, spending money haphazardly or wantonly, on silly luxuries. Rather, their fixed expenses, especially housing, healthcare, and education (including daycare), chewed up all their income, before they even got a chance to squander it on silly stuff. Families were being pushed toward two incomes (working mothers) to pay for all this, and they were still barely able to pay the bills. But, with two working parents, if either of them lost their job, they were on their way to bankruptcy. Thus, it was actually twice as risky to have two working parents, than having one. This was true even of better-off middle-class families, often with a gross income in excess of $100,000 per year.

Around here, I promote the principle of the stay-at-home Mom, preferably one who homeschools. Warren found that one of the biggest things pushing families into bankruptcy was competition to get into the better school districts; which, in the United States, typically meant having to buy a big house. If we use the idea of a house that is 3x income, then even if a family has $200,000 of income, they would be stretched to the limit with a $600,000 home, which is not uncommon these days. Plus, that second income (the working mother) comes with a lot of extra expenses, including daycare, a second car, a lot of take-out food, and other afterschool activities to keep the children busy while Mom is working, or needs a break.

A family that wants to have a Stay-at-Home Mom is going to have to get by on a lot less income. You are going to have to take the load off. I have suggested that a young family look for much cheaper housing, than the typical single-family house. Probably, this means a one or two-bedroom condo. With a one-bedroom, you could probably split it up into two small bedrooms, without too much difficulty (you can do this when you own the condo).

Miami is not the cheapest city in the U.S. But, you can live in a two-bedroom condo in Miami, pretty comfortably. Here is a two-bedroom condo for sale today for $135,000.

There’s a nice interior courtyard with a pool, and also you are on the water. That is bigger than any suburban backyard. And — you don’t have to take care of it! Someone else mows the lawn and cleans the pool. Do something fun on the weekend.

It is a little bit older building, and a little dingy. But, it would clean up nicely.

Good enough.

The total housing costs are estimated at $1,112 a month. Remember, if you have a single-family home, you are going to have to do a lot of repairs and maintenance too. Those roof replacements, regular painting or heater replacements can easily come to $5000/year.

And, it is only $135,000. If you managed to pay off an extra $1000 a month of principal on the mortgage, you would be done in less than ten years.

You should think of 2x income as a good measure for housing costs, or less than this. 3x is “the limit,” but you don’t want to push things to the limit. So, you could afford a place like this with a $70,000 income from one working parent. The neighborhood looks decent enough. You should try to live in a good neighborhood. I would pay more per square foot/get a smaller place, in a better neighborhood.

Warren found that the main motivation pushing parents to buy too much house was an attempt to get into the better school districts. One reason for this is because parents were entirely dependent on the public schools. Since they work all day, they would have little time with their children.

We can skip all this by homeschooling. We still want to live in a better sort of neighborhood, but we don’t care about the schools. Today, even the best public schools are pretty dubious.

Besides housing and education, the big expense for many families is healthcare. Healthcare in the US is a disaster. In other countries, free-market healthcare is very effective and cheap — about half the price of “socialized” healthcare systems. Singapore, for example, with its free-market healthcare system, spends only about 5% of GDP on healthcare, compared to 10% in France and 18% in the U.S. But, Singapore (which is wealthier than the US) is considered to have one of the best healthcare systems in the world.

Today in the U.S., a new “free market” healthcare system is beginning to peek through the cracks. This includes the recent spread of “urgent care” clinics, where you can walk in with no insurance. You get 20-30 minutes with a doctor/nurse practitioner, with some tests, diagnosis and prescriptions if necessary, and you are back out the door only $80 poorer. This is not a copay, it is the full price. Recently, providers have been moving toward “online” solutions (basically, video like Zoom or Skype with a doctor). This is even cheaper: Here is one provider that charges $49 a “visit” (with no other insurance). Modern medicine is largely drugs and surgery. 90% of all drug prescriptions these days are for generics; and probably, some of the remaining 10% could be filled by generics too. Just insist that your doctor only give prescriptions for generic drugs. Then, go to GoodRx to find the cheapest prices. Often, the best prices are much, much, much lower than you might find elsewhere. Generic drugs generally don’t cost much more than Tylenol. Most of the cost actually goes to the pharmacist who fills the prescription. Usually, there is no reason to spend more than $100 a month or so on any drugs. Lipitor (Atorvastatin) is a common pill for heart issues. You can get it for $4.95 for 30 tablets.

For more serious surgery, “medical tourism” is a good solution. Whether it is a US hospital such as the Surgery Center of Oklahoma, or a hospital catering to foreigners in Mexico or Costa Rica (or Singapore), you can get top quality care for prices sometimes one-eighth of what US hospitals charge. As an American citizen without insurance, you can get on a plane and get a heart bypass surgery done in Singapore for about $25,000, compared to $135,000 in the U.S. If you go to Thailand (which has very nice hospitals), it’s more like $18,000. At Tan Tock Seng hospital in Singapore, you can get an appendectomy done for $1,727. Just show up with your Amex card. I heard of one man who had cancer treatments in Thailand over the course of a whole year. A whole year of cancer care, plus all living expenses for a year, cost him a total of $30,000. I bet he had a good time too. Another option is “concierge services,” which means: a private doctor who charges a small fixed price per month for healthcare services. It is usually pretty cheap, around $200 per month.

The point is: a young family today, especially one that aspires to have a Stay-at-Home Mom, needs to get their expenses way, way down. You can’t follow the example of typical families today that can’t get by even with two incomes. Read The Two-Income Trap for a good example of What Not To Do.

You can still have nice things, too. Actually, it doesn’t take many nice things to fill up a 900 square foot condo. $2000 spent at an antique store, or buying used quality furniture on Craigslist, would about do it. Nice things are very cheap these days, especially on the used market. Every day, Boomers are retiring or dying, and all the nice things they accumulated over a lifetime are sold. Too many people live like slobs, when there is really no good reason for this. Get a beautiful dining table, or bedroom set. Having a nice home, and all the work that is involved in achieving that, is one of the principal duties of the Stay-at-Home Mom.