The Parent Trap
Lately my dearest friend has been wrestling with whether to have kids. Wanting like crazy for her to have everything life has to offer, I've tried my best to talk her through all the usual fears. That she might not be a great mom. That it might wreck her relationship with the prospective daddy. That she'll never again possess the mental stillness to write.
"I dunno," she said the last time we had The Exchange, "I think the truth might be that we just can't afford it, financially."
I'm not positive, but I think I mumbled something about not letting money dictate such a big choice, and how there were all kinds of ways to work things out. Whatever the precise soporific, I went home feeling like a big fat fraud. The truth is, they probably can't afford it. Not really, not unless they're willing to live like misers, pray that nothing goes wrong, and jettison the idea of ever being able to retire.
I can't talk my friend out of this particular fear. My household income is a lot higher than hers, yet I complain constantly about the costs of raising two kids. I used to feel guilty about the gulf between our incomes, but these days that shame seems naive. Instead, when we set aside our discomfort about talking about money, it becomes clear that the real problem is that both our perches in the middle class are increasingly insecure.
She and her sweetie earn almost exactly the annual income recent studies say it costs to meet the basic needs of a family of four with two working parents in Hennepin County: $51,684. That amount is far more than the federal poverty level of $18,400, but still provides a pretty meager living, according to the St. Paul-based nonprofit JOBS NOW Coalition. There'd be no room in my friend's budget for savings or debt payments, a down payment on a house, vacations, big-ticket purchases like a washer or a refrigerator, or an evening out.
And it's not just her, or folks at her income level. Given the skyrocketing cost of childcare, housing, and health insurance, families making far, far more than my friend are just one layoff or major illness away from bankruptcy court. In fact, having a child is the single biggest predictor of financial collapse, according to a recently published book, The Two-Income Trap: Why Middle Class Mothers & Fathers Are Going Broke. If my friend doesn't have kids, she reduces her chances of going bankrupt by 65 percent. Among the other statistics compiled by the book's authors, bankruptcy expert and Harvard law professor Elizabeth Warren and her daughter, Amelia Warren Tyagi: The parents of more than 1.8 million children will file for bankruptcy this year. That's more kids than will experience a parent's divorce.
My friend and I sat back down the other night and revisited our math and our apparently prosaic notions about having it all. In the end, all we came up with is a question: Since when is a kid a luxury item?
As for much of the country, 2001 was a pivotal year for my household. Having budgeted and saved and refinanced our way comfortably into the black, my husband and I were expecting a second child. And then September 11 occurred, and faster than you can say "shot to hell," corporate America retrenched for a recession. Both our employers froze wages, and my husband survived two rounds of layoffs. His company stopped contributing to 401Ks and announced that benefits would no longer be offered to employees' spouses if they were eligible for health care elsewhere. A memo followed a couple of weeks later announcing that as a consolation prize, the day after Thanksgiving was becoming a paid holiday.
With the recession obliterating jobs left and right, kvetching felt so unseemly. There was no getting around it, though--on New Year's Day, we'd be more than $700 a month poorer. Bye-bye budget line for daycare expense #2. We went back to the drawing board, rationalizing decisions that would send even a novice financial planner into an incoherent spasm of fear. We found the money.
But then, a few weeks ago, I sat down to look over some paperwork my husband brought home. It was open enrollment time for his company's health care program and we needed to figure out whom we wanted to insure him next year. We did a little math, only to discover that this year our family of four is paying almost as much for health care as we are for our mortgage--not counting the cost of prescription medications. If rates rise 25 percent next year as projected, we'll pay more for health care than for our house: upwards of $825 a month between premiums and co-pays.
Add to that a similar amount for our mortgage, almost $1,800 a month for daycare, plus other unavoidable, fixed expenses like taxes, utilities, homeowners' and car insurance, and, well, you can see where this is going. Before we can even contemplate such niceties as food, we need to bring in more than $60,000 a year. (We pay more for childcare and for health insurance than the JOBS NOW's average family, but less for housing.)
The good news is that we have no consumer debt (except for the $300 a month to service the student loans that bought us this perch in the middle class) and no car payments. The bad news is that we're one catastrophe away from disaster. Our rainy day fund wouldn't cover six months' expenses if one of us lost a job. We'd be ruined if either of us became disabled or if we got divorced. As it is, the daycare bill means we neglect our 401ks. We're putting away nothing toward our kids' college educations, so we're only half joking when we say they'll have to become national merit scholars.
And still, part of me feels I should shut up because we're so much better off than so many. Of the 1.4 million Americans who lost their health insurance in 2001, 800,000 earned more than $75,000, according to the New York Times. And a lack of health insurance coverage causes some 150,000 families to declare bankruptcy each year, according to The Two-Income Trap. Just as surprising, the authors claim a quarter of a million families "with continuous medical insurance file for bankruptcy every year at least in part because of outstanding medical bills."
It turns out my family isn't unique at all. More and more employers are pushing spouses and other dependents off their health care plans. And little wonder: According to the Kaiser Foundation, premiums for family coverage have jumped 41 percent since 2000. In California, the skyrocketing number of firms that have sharply curtailed or eliminated family coverage led the state legislature to pass a law requiring businesses with 200 or more employees to cover workers' dependents starting in 2006.
It's the tip of the iceberg, too. According to the Wall Street Journal, Wal-Mart--the nation's largest private employer--has begun curtailing coverage of basic and preventive medicine, including visits to the doctor's office and even childhood immunizations, for most of its workforce. The idea, apparently, is to begin selling the workforce on the notion that employers should provide catastrophic coverage only. I can only imagine that every other employer in the country is watching with bated breath.
If the analysts are right, it's not just parents who are going to pay. As costs escalate to the point where middle-class families are foregoing insurance, the cost simply gets shifted onto taxpayers. In some states, uninsured kids and spouses are ending up on state stopgap plans; in others, they're ending up in emergency rooms. And even if hospitals relax their standards of care, those costs are going to be passed along, whether it's because private hospitals will charge higher rates to insured patients or property taxes will have to go up to keep public hospitals open. (See Britt Robson's recent City Pages cover story, "The Hospital of Last Resort," 11/ 12.)
Indeed, universal health care's proponents now include some very large corporations. Far from being altruistic, it appears that a decade after managed care finished pushing providers into draconian contracts, they simply have run out of people to squeeze.
Earlier this year, as he was campaigning to gut what remained of Minnesota's social safety net, Republican Rep. Fran Bradley was fond of insisting that there were too many comfortable people stuck on the public teat. Chief among the leeches, in his eyes, were working parents receiving childcare subsidies. His favorite whistle-stop speech involved a family of four that earned $50,000 and had half its childcare costs subsidized.
At first blush, Bradley's case sounds so reasonable, especially to a voting public that's been conned into thinking that you have to earn less than the federal poverty level--less than $19,000 a year for a family of four--to be "poor." (Never mind that the feds' calculations are made according to an archaic formula that's based on the cost of food. And never mind that Bradley represents Rochester, which has a poverty rate of seven percent.)
Bradley got his way, of course, and a family of three now qualifies for childcare assistance if its income is $26,700 or less, as opposed to $38,100 before. In the last five months, more than 1,300 Minnesota families have lost their childcare subsidies. There are now 7,500 families on waiting lists for assistance, many of them headed by single parents who were bounced off welfare rolls with the promise that we'd be there to help with childcare and health care while they got up to speed.
Remember JOBS NOW's calculation that a family of four needs about $52,000 to make it? That was based on an average expenditure of $773 per month for childcare, which is less than half what a family in the central cities probably pays if those two kids need full-time care in a licensed center. You'd need another $9,300 a year, or more than $61,000, to actually pay the bill. (If one parent stays home with two kids, the other would need to earn $37,100, or $17.00 an hour, to keep the family at a subsistence level, according to JOBS NOW).
Cheaper childcare isn't the answer. Three-quarters of Minnesotans with children under 14 use childcare, and most of their providers are already notoriously underpaid and overworked. Paying caregivers less will only drive out good, experienced teachers. (Would Bradley actually go so far as to argue that subjecting kids to substandard care is good for any of us?)
Yet something has to be done. Full-time childcare or preschool costs more than tuition at the University of Minnesota. Correspondingly, parents can now take out loans to pay for preschool. Imagine, in several years, even as we are still writing checks for the loans left over from our own educations, my husband and I could also be paying to service our kids' kindergarten readiness debt and talking to the bank about financing college, since we obviously earn too much to qualify for financial aid.
I'm not going to tell you how much money I make. As for most Americans, talking about my own money makes me uncomfortable. If we aren't making ends meet, most of us were raised to think, we haven't done everything right. Besides, there's always someone who has less, which makes it easy to write off virtually anyone's complaints as so much privileged hand wringing.
Like pretty much everyone else, though, I am convinced I am middle class. And yet until I started writing this article, it never occurred to me that I have no idea what the boundaries of that class are. An informal canvas of my co-workers and friends suggests that most people would consider the prospective-parent friends I referred to earlier as solidly middle class, whether their $52,000 a year can stretch to support kids, a house, and a nest egg or not.
The upper boundary of the middle, however, seems to hover somewhere between $75,000 and $100,000. People with that kind of money, popular reasoning holds, don't have anything to worry about. If they're whining, we are sure it's because they've frittered their lucre away on SUVs and lattes. Never mind that for families with kids, fixed expenses run so high that such hallmarks of the middle class as retirement accounts and a rainy-day fund have become luxuries.
It's increasingly clear that those fixed expenses are a financial setup. According to The Two-Income Trap, by the end of the decade five million American families with children will have filed for bankruptcy, bringing the total to one in seven. And for all but a fraction of those families, the problem isn't overconsumption; 87 percent of those bankruptcies will be because of a job loss, a medical problem, or a divorce or separation.
Bankruptcy expert Warren and her co-author have earned their share of criticism for making some screwball policy recommendations. For instance, they advocate school vouchers as a way to keep people from taking on overly large mortgages so they can live in better school districts and, oddly, give the nod to universal preschool but not public subsidies for daycare. But even given those quibbles, it's hard to argue that things are all right in this country when such a large chunk of the middle class simply can't make it.
"There is a lesson here," Warren and Warren Tyagi write. "To put sound economic policies on the political agenda, families also need to find a face. So long as they are 'debtors' or 'bankrupts,' their needs can be dismissed. Instead, they need to be seen as members of powerful constituencies, members of groups that command the respect--and the fear--of the political elite. Families in financial trouble must be depicted as they really are: 'parents of young children,' 'nonresident fathers paying child support,' 'suburban homeowners,' 'African American middle-class families,' 'single mothers,' 'families sending a kid to college,' 'multigenerational Hispanic families.' Most of all, the groups that defend these people need to organize against those who are picking their constituents' pockets."
About those pickpockets: According to "The Class Wars," a two-part series published last year in the New York Times Magazine, the ranks of the middle class are dwindling, and fast. Recent years have seen an unprecedented transfer of wealth in this country, as the middle class has been fleeced to the benefit of a small number of mega-rich. Between 1979 and 1997, after-tax incomes of the top 1 percent of families rose 157 percent, while the incomes of the families near the middle of the spectrum rose just 10 percent, according to the Times. The country's richest 13,000 families have incomes 300 times that of average families--and that's to say nothing of the accrued wealth many of them already possess.
The heyday of the middle class, defined by Princeton professor and Times columnist Paul Krugman, began in the 1930s and has been marching inexorably toward its conclusion since the 1970s. "By most measures we are, in fact, back to the days of The Great Gatsby," Krugman reported. "After 30 years in which the income shares of the top 10 percent of taxpayers, the top 1 percent and so on were far below their levels in the 1920s, all are very nearly back where they were."
And the social attitudes of employers are, if anything, even more retrograde than they were then. Henry Ford was a bigot, a moralizer, and a Nazi sympathizer. He didn't want to have to live with the blacks or poor whites that flocked to Detroit to build his cars, and he'd have liked to make sure there were no libertines among their ranks. But his outlook was in one sense less draconian than that of today's captains of industry. Ford understood, bottom line, that a worker who didn't make a fair day's wage couldn't buy his product. And thus, his contempt for the hoi polloi notwithstanding, he took pains to pay his workers enough to buy the cars they were building. One can only hope the same insight eventually occurs to our latter-day plutocrats. I'm not holding my breath.
The JOBS NOW Coalition's complete report on the true cost of living in Minnesota is abailable at www.jobsnowcoalition.org or by calling 651.290.0240. The website also features an interactive budget calculator, information about the group's political activities, and reports on its other research initiatives.
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