Jewish World Review Dec. 9, 2003 / 14 Kislev, 5764
Time for middle class to fight back
Drowning in debt? Loathing yourself for spending six bucks on a fancy sandwich? Wondering how you ended up becoming exactly what your parents railed against - an overspending, self-indulgent, credit-sucking greed machine?
Hey. Me too.
Then again, so are millions of American families. And the sort-of good news is: It's not our fault.
So says Elizabeth Warren, co-author of the terrifying new book "The Two-Income Trap: Why Middle-Class Mothers & Fathers Are Going Broke." The problem, she says, is simple: "The cost of being middle-class has jumped out of the reach of the middle class." (Click HERE to purchase. Sales help fund JWR.)
In just one generation, the price of a decent home, health insurance and schooling has so outstripped the average paycheck that - incredibly - a family with two earners today ends up with less discretionary income than a family with one earner back in the 1970s.
This explains why so many American families are going into debt: They can't afford the necessities. The situation has gotten so bad that American children now are more likely to see their parents file for bankruptcy than divorce.
Oldsters may harrumph that, well, in their day, families didn't spend money they didn't have. They didn't blow their bucks on Nikes and Nintendos! They didn't ... yada yada yada. But guess what?
It is not the Nikes and Nintendos that are doing us in. Warren did the research. Adjusted for inflation, families today actually spend 21% less on clothing than they did a generation ago. They spend 22% less on food, not just at home but including all the meals out. They even spend less on home appliances, except for computers. So it is not that we families are frittering away our fortunes.
No, our fortunes are being frittered away for us. And while several major forces are at work, including the cost of health care and college, the most serious blame, Warren says, must go to bad schools and easy credit.
Bad schools? Indeed. Just a generation ago, most people thought their local public schools were fine. Today ... well, you know what's up today. Desperate families are willing to pay almost anything to live where the schools are good. This has driven up housing prices absurdly.
As middle-class families overextend themselves to pay for these hideously expensive (formerly reasonable) homes, there's little cash left for everything else. That's where the easy credit comes in.
Most credit cards promise great terms - 6% or 8% a year. But if you are late on a payment, even by an hour, that rate can soar to 30%, with whopping penalties. We'll pay $7billion in late fees this year. How did the slope become so slippery?
Blame the change in banking laws. Until the 1970s, these laws set a ceiling on the interest and fees credit card companies could charge. Then the laws were lifted, and lenders went trolling for the customers, hoping they would borrow, slip up and pay loads of interest.
Good strategy. Banking profits have grown $50 billion since 1970. That's where the middle class' money is.
What can we do to help that class get back on its feet? The solutions are obvious - and hard.
First, we have to improve all our schools so that families need not move to Scarsdale to get their kids a decent education. Then we have to bring back the usury laws, to get credit card rates down.
Problem is, we can't insist our politicians do any of this if we are too embarrassed to mention our angst. "So long as Americans can be persuaded that families in financial trouble have only themselves to blame there will be no demand to change anything," writes Warren.
So let's quit blaming ourselves. And start demanding some changes.
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JWR contributor Lenore Skenazy is a columnist for The New York Daily News. Comment by clicking here.
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