NCPA - National Center for Policy Analysis

Having a Child is a Predictor of Bankruptcy, Say Researchers

September 10, 2003

Personal bankruptcies are skyrocketing and a record 1.5 million people have filed this year alone. This is more than will suffer heart attacks, cancer diagnoses or graduate from college, say authors Elizabeth Warren and Amelia Warren Tyagi, in their new book, "The Two-Income Trap: Why Middle-Class Mothers & Fathers Are Going Broke."

According to the authors, record bankruptcies have occurred despite the fact 2-wage earner families bring in 75 percent more (inflation-adjusted) income than a generation ago. Almost 90 percent of those who now file for bankruptcy qualify as middle-class by virtue of income and education.

The authors lay much of the blame on the decline in public education. Supposedly, competition for houses in "good" school districts has dramatically raised the price of housing, prompting parents to take on big mortgages so their children will get a good education. Indeed, having a child is the single biggest predictor of future bankruptcy:

  • One in six single mothers will go bankrupt by the end of the decade.
  • Not having a baby will reduce a woman's changes of bankruptcy by two-thirds.
  • Indeed, college educated females are 60 percent more likely to end up bankrupt than less educated females.
  • Lending companies are allowing 120 percent mortgages (compared to the industry standard of 80 percent a generation ago).
  • Moreover, lenders have filled American's mailboxes with five billion pre-approved credit cards this year along alone.

The solutions, explain the authors, include policies that discourage debt and encourage saving (e.g. such as tax exemption for savings). They also suggest a school voucher program allowing parents to send their children to the school of their choice.

Source: Michelle Conlin, "Middle Class and Maxed Out," BusinessWeek, September 15, 2003; based on Elizabeth Warren and Amelia Warren Tyagi, "The Two Income Trap," Basic Books, September 2003.


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