I added this book to my reading list after seeing Elizabeth Warren speak at the DNC. It appealed to my sense that the rules have changed out from under people’s feet, and that there needs to be a new way forward. I’m also a planner, so thinking ahead about owning a home and having kids appeals to me. (I’m likely the youngest person I know to have a notarized advance health care directive, but that’s for another post).
Before I share recommendations and stories from the book, it’s important to note that Warren and her daughter published this book in 2003. This information was prescient before the 2008 global financial collapse, and is even more on-point now. There is a lot of clarifying myths and giving suggestions. First, some background on bankruptcy:
One out of seven families with kids will file for bankruptcy. That’s a lot of people that we know, and that aren’t talking about it. And it’s not because they’re overspending. Warren calls it an arms race for quality education: families are sending both parents to work, and using the second paycheck to pay for the mortgage in a good neighborhood so their kids can go to good schools. It’s a sound investment, until the inevitable thing happens and the family’s income unexpectedly drops. Then they’re stuck with a mortgage they can’t afford on one person’s salary. There’s no amount of bringing your own lunch or cutting out the morning coffee run that is going to make that situation better. Families are going bankrupt because they did the right thing for their kids, and when disaster hit there was no safety net.
With that in mind, here’s a recap of the book’s recommendations, with my suggestions thrown in:
1. Don’t have kids.
You already know they’re wicked expensive. Some quick stats: remember how one out of seven families with kids will file for bankruptcy? Well, for every family who files, seven more are struggling so much that they would be better off if they filed. That’s more kids dealing with their parents going through bankruptcy than going through a divorce. Where is the awkward playground support group for that? So aside from kids no longer contributing to the family finances, now they’re going to be suffering and costing you future therapy bills. Plus there’s a college tuition bubble that isn’t looking to pop anytime soon.
2. Don’t get a mortgage.
Or any other fixed, long-term expense. If you have a mortgage, you can’t peace out on that expense quickly. You’re stuck with it. On the other hand, as a renter you can move to a less expensive place or move in with more people. The same idea can be applied to any other expense that lasts a year or longer: work out at home instead of getting a gym membership, drive your used car long after you’ve paid off your loan instead of getting a new one, borrow magazines from the library instead of getting a subscription…but the biggest expense for most families is housing.
3. Plan for the worst; hope for the best. (cue Jay-Z and Mr. Hudson)
I like planning ahead, so this part spoke to me. 87% of bankruptcies are caused by one or more of these three factors: family separation or divorce, job loss, or a medical problem. I’m not going to go into why we should have single-payer in this country, or why the public option is the way to go, but it’s infuriating that medical bills are even on the list. Health is a commodity in the US, no doubt. So, how do you protect yourself against getting a divorce? Don’t get married. What? Oh. Fine, relax. What I’m saying is: mixing up your finances with another person may seem like a great idea through the hazy rose-colored lenses of looooove, but in reality it’s hard to untangle and it’s even harder to get used to living on one income when you used to have two. Plus court fees are mad dollars, not to mention the wedding itself. Get your potluck on in your backyard, yo! How do you protect yourself against losing your job? Have 6 months of living expenses saved up in an emergency fund. Don’t let your skills atrophy. Warren suggests saving 100% of one of the incomes if you are in a two-income household, so that if one earner loses his/her job, you’ll be okay. Have a plan ahead of time, of big things you’re willing/able to give up in case you must cut back. If you’re getting close to bankruptcy, you’d rather make those decisions than have them made for you.
4. Have a three-income household (short-term solution)
This is not a suggestion from the book, rather it’s the direction I see us headed in. Since two incomes aren’t enough to safeguard a middle-income family, the next step is to have three-income households. Maybe grandparents will continue working and will live with their children, kids will find jobs as soon as they legally can to contribute to the family pool, or adultery will become socially acceptable as long as it comes with financial support. Check the stat: the two-income family earns 75% more than a single-income family a generation ago, but has less to spend. The advantage of having a three-income household would be temporary, until everyone had three earners.
5. Fix the system (long-term solution)
First, banks: the banks are out to screw you, and their practices should be illegal. They can offer “credit protection” where you pay more for protection you already legally have (your heirs won’t be required to pay off your balance if you die, even without credit protection). If you file for bankruptcy, they call and harass your family to pay back the debts you legally don’t have to pay back. One out of four families fall for this. It’s disgusting how unregulated and normalized these practices are. I also believe in “freedom from” alongside “freedom to”: families should be protected from offers for mortgages that balloon exponentially, that leave them homeless when the bank takes the house back. It’s not freedom to be offered a line of credit for something you can’t afford. That’s someone smiling sweetly while they rob you.
Second, education: Warren makes a compelling point that parents who can afford an expensive home in a “good” school district are paying for their child’s public education with their mortgage. She proposes a voucher system (breathe and stay with me here) which disconnects the neighborhood where a child lives from the school district s/he attends. Warren suggests a taxpayer-funded voucher that pays the entire cost of a child’s education (not a partial subsidy as has been suggested by others). The parents would send the child to the public school of their choice, regardless of what zip code the child lives in. Students could be admitted via a lottery system or on the basis of their interests or talents. It reminds me of the magnet school I attended for elementary school, where children from all over the city were welcome.
The two other book-ends of the education system – preschool and college – must also be addressed. We need taxpayer-funded preschool and daycare. It’s not in Warren’s book, but we need stringent requirements for who can work with young children, and we need to compensate them well. (You couldn’t pay me enough to be exposed to feces and crying all day; these people are saints.) On the other end, a college degree has become essential to landing even an entry-level job. To fix the college bubble, Warren suggests that public colleges need to specialize rather than trying to do it all. Not every college needs to have all of the best sports programs and teams, nor all the newest specialized equipment. Every college is trying to have it all, to be it all to each student, and that isn’t sustainable. It’s reasonable to expect one college to focus on engineering and another to focus on liberal arts.
Lastly, health: we need to remove that last reason for bankruptcy. It kills me that people are forced to make decisions about their health through the lens of money. It’s no longer about pride when refusing to go to the doctor’s office; it’s about money. Can I afford to find out what’s wrong with me? Does insurance cover my hospital stay? Due to our history, it’s nearly impossible to move to the public option, where healthcare is a right, is available to all, and is taken for granted. There’s no easy solution to this last one. PPACA, also known as Obamacare, is a step in the right direction. But it doesn’t begin to solve the problem of health insurance companies controlling access to healthcare.
In summary: it’s a quick read, with lots of examples and stories that demonstrate the economic arguments. I’ve heard couples say they read it before deciding to have children, or before merging their finances. It makes sense to read this both at the onset of home ownership and childbearing, as well as in the midst. It’s never too late to take care of yourself, your family, and your money!