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The Two-Income Trap for Americans: Inflation Has Ravaged Household Incomes

Inflation-Theft

The two-income trap for Americans: How dual income households are a financial necessity in a time when the median per capita wage is $27,000.

Recent Social Security data released this month revealed that income disparity is only growing in the United States.  The released figures show that the median per capita wage in the US is $27,519.  Given the costs for college, healthcare, and housing many households are simply falling out of the middle class.  The two income household is now the common default for Americans.  However, in many cases the two income household has arisen primarily for economic necessity.  Many households today simply cannot get by on one income earner.  Especially if a family has children, childcare is expensive and a good portion of any additional income is diverted into this expense.  The decline of the middle class household would be more dramatic if it were not for the emergence of the dual income household.  Given demographic trends, it appears that we have peaked in this category and many young Americans have no choice but to live in households with multiple streams of income.  Many Americans learn the hard way that the two income household may actually be a trap.

 

Two income trap

Inflation is an insidious form of money destruction.  The Fed would like you to believe that there is only very little inflation going on but I would ask you to look at the costs of higher education, housing, cars, food, and healthcare and ask yourself if inflation is absent.  Primarily because of this destruction of purchasing power a single-income household in 1970s was better off than a dual-income household in the 2000s:

middle-class-trap

This is an interesting perspective.  While the nominal amount of income for a dual-income household is higher, fixed costs are also much higher.  In fact, the household in the 1970s had more disposable income adjusting for inflation than the dual-income household of today.  How is that possible?  You have to realize that many middle class families have gone into massive debt just to keep up with what they perceive to be a middle class life.  If both spouses are working and children are involved, childcare is not a cheap expense.  This can eat up a good portion of any additional earned income.  Also, children are not cheap and require added expenses (i.e., healthcare, school, food, etc).  So you are left with this situation where a household may be earning more but in the end, discretionary income is less after expenses are factored out.

Many of these dual-income households are now witnessing their kids going off to college.  There is a massive student debt bubble raging in this country.  Parents are largely unable to fund the cost of their kid’s college education so many simply go into massive debt.  Another trap given that many recent young graduates are finding it difficult to manage their large debt loads.

While the rise of dual-income households is not a new trend what is new is that we seem to be reaching a peak here.

Both spouses working

both spouses working

Of married couples, 67 percent are in dual-income households.  This is a large jump from the 1960s.  However as the chart above highlights this may have peaked sometime in the last decade.

Read the rest at My Budget 360

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