Mothers Most Vulnerable

For some time I've tried to convince anyone who will listen that mothers -- including those who are educated and middle class -- are the most financially vulnerable people in the United States. Mothers of all races and income levels are less secure economically than comparable men or childless women, to such an extent that being a mother has become the single biggest risk factor for poverty.

Now along comes a book that confirms this view. In The Two-Income Trap: Why Middle-Class Mothers and Their Families Are Going Broke, co-authors Elizabeth Warren of Harvard Law School and her daughter Amelia Warren Tyagi, co-founder of the for-profit health-services company HealthAllies, argue that "having a child is now the single best predictor that a woman will end up in financial collapse." In 1981, about 69,000 women filed for bankruptcy. Twenty years later, that figure had jumped 732 percent to nearly 500,000 women, many of them married.

Warren and Tyagi discovered that mothers are 35 percent more likely to lose their homes and three times more likely to go bankrupt than fathers. Mothers are also seven times more likely to head up the family after a divorce, and trying to support their kids is a principal reason why they are in such straits. If a woman remains childless, she reduces her chances of going bankrupt by 65 percent. Moms may be holding the world up, but the world is letting them down, along with the 1.8 million children whose parents will file for bankruptcy this year.

The authors' principal explanation for all this is counterintuitive. They argue that the advent of the two-income family has enabled couples to spend most of their income on the things it takes to ensure their children a middle-class life, most importantly a house in a good neighborhood with decent schools and a college education for every child. As a result, the prices of these universally desired items have risen dramatically, eating up most if not all of that second income. Then, when an unexpected disaster strikes (85 percent of all bankruptcies are due to either a job loss, a health crisis or a divorce), the family has nothing to fall back on. It can't send one parent back into the job market to earn additional income because most mothers are already working. It can't easily cut expenses because parents' income goes toward the basic necessities of the middle-class life -- the mortgage, health coverage, preschool, automobiles and college tuition. For many, there is only one place to turn: their credit cards.

With all usury laws swept into the dustbin of history, credit-card companies and banks have every incentive to shovel credit at any warm body they can detect. Virtually anyone with a job can buy a house, with almost no down payment, and a family with two good earners can be living in a castle as quickly as a bank can say "Take my money and run."

Financial deregulation has not only contributed to the bubble in housing prices, it has worsened the debt load of those who stumble. In 1981, the median bankrupt family owed 80 percent of annual income in nonmortgage debt; by 2001, their total nonmortgage debt (which includes credit-card debt) amounted to 120 percent of annual income. But the worse it gets for the borrowers, the more money the banks and other consumer lenders, such as Sears, can make. When Warren suggested to some 40 senior lending executives at Citibank in 1990 that the company stop lending more money to families already in financial trouble, the most senior among them told her that the bank had "no interest in cutting back on our lending to these people. They are the ones who provide most of our profits." With that, the meeting was over.

The authors argue that reregulation of interest rates is the best solution to this epidemic of credit excess and distress. Strangely, though, they show little interest in policies that would speak more directly to middle-class women's economic interests, such as universal health coverage, pay and benefits parity for part-time work or fairer divorce laws, which they deride as merely "Share-the-Pain." Every divorce lawyer I've ever talked with agreed there would be far fewer divorces if the financial pain were shared equally.

Whether women will rally behind the banner of financial reform legislation is an open question. The ammunition is certainly there. More women are victimized by predatory lenders than seek protection from an abusive spouse or boyfriend. And more people will file for bankruptcy this year than earn a college degree. That's not any woman's dream -- or the American dream.

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