Baby Boomers Need to Rethink Use of Dual Incomes

As a Baby Boomer born in mid-boom, I now realize what a trap the two income mentality has become in America.
Harvard lawyer Elizabeth Warren has written a great book called, "The Two Income Trap", which is on my must reading list for anyone looking for a better understanding of the current financial environment. Baby Boomers and couples of all generations really need to rethink how they use the two incomes that most earn.
Gradually we have moved to a point where both spouses in most marriages are working. I've heard that more than 70% of married women who can work, are working (at substantial wage parity) to their spouses. The other 30% are at home mostly for childcare or elder care reasons and there are a lucky few where the income of one spouse covers all needs. If the couples are not living on less than they earn (and who is?) they have created a recipe for natural disaster.
Wage parity for women is a tribute to equality and I would not go back to the way things were in the '50's, but I do want people to think about what has been lost along with what has been gained during the transition to a two income society. The sad truth is that for the last 25 years very few have taken a close, hard look at their financial lives and lived on a real (written down) budget. If we had, we would not be in the financial mess we are in now.

In 2005 people were spending 113% of their income (including dual incomes) and by 2007 had debts equal to 140% of their gross annual income and servicing that debt was 14% or more of their gross income (an all time record high). At the same time, personal savings was at an all time low, between -2% and -13% depending on who you listen to.

When you rely on two incomes, all hell breaks loose when you lose one, either through job loss, illness or divorce. No one plans for any of these to happen, but they do. The bottom line is, the finances of most marriages deserve careful study and budgeting and careful discussion between spouses before problems develop. For many in the current environment it is already too late, but some marriages could be saved by examination and careful discussion with a focus on financial reality and not emotion. This is easy for me to say, but divorced people know all about what is lost and what is gained only after they are divorced for a time.

Many "Stay at Home" (SAH) spouses now face the necessity of going back to work in a crappy job environment. If you are SAH, it would pay you to learn something valuable during the day or at night when your spouse is there to lend a hand with kids, just in case you have to re-enter the job market, or as a way to earn part time money at home.

Every couple (married or not) should discuss who would/should/will/can be working, earnings, how expenses split etc., particularly before they get married. The probable result of an effort like would be a lot fewer marriages and fewer divorces. Couples should also calculate what it costs to raise children and figure out what salary increases it would take over time to fund their kids educations and plan for retirement too. Going forward I believe we may well see a falling birthrate in America, simply because children are expensive!

Many of todays Boomers have never planned for retirement and with their kids through school now realize they can never retire (see my blog at http://selfdirectioncentral.com/ . Very few of our kids are preparing to help their parents in old age or have any interest in doing so plus they will have the added tax burden of Social Security and Medicare Shortfalls, and all the new bailouts to pay for.
It is up to us as parents (of any generation) to plan and provide for our own needs and create our own Sustained Abundance. No one else will do it and we cannot rely on our employers or the government.

My wife and I know of only one couple who really has planned their finances to the penny all of their married lives and one other couple who actually put money away to accrue for the costs of a new car purchase every 5 years and to replace a roof or water heater in their home in 5 or 10 years, but this is the way we should all be thinking. Cheap credit allowed us to stop doing this. If a water heater went out or the car needed a repair, we just charged it, right? Cheap credit and many credit cards are going away, Heloc's are unaffordable or gone. In fact, Citi just announced a huge increase in credit card rates for most borrowers to nearly 30% APR.
By the way, both of these couples have not suffered the least bit during this downturn and their finances remain secure.

With real wages stagnant since the 70's and more and more expenses for health insurance and retirement benefits being shifted to each worker, any couple considering marriage needs to realize that it is folly for the higher earner to SAH and they should plan for living on one income while earning two until their assets are substantial enough for one or both to SAH or go part time. (At least one years total expenses in the bank). They also need to look at the possibility that one or both may be forced to go part time and with no benefits. Continuation Health insurance for a couple with kids can easily be $1000.00 per month after a job loss.

People with recession proof jobs and good benefits should plan to keep them if they have a family and think about that "part time dream career" when all of their long term commitments have been met, or do not make long term commitments and live the way they want as a single person.
The biggest mistake we have all made, once we were in the two income mode, was and is to think that both incomes would be available forever and could and should all be used to fund current purchases. The few couples who have lived on one income and saved or invested the other are doing just fine. Many of those who justified the purchase of a larger home using a second income are in a living hell today because one or both incomes are gone. The single largest obstacle we face is our desire for instant gratification, (to have everything we want now) and an environment of easy credit along with two incomes has played right into our fulfilling desires. 

All of this sounds harsh I will admit, but look at all the current misery created by no planning or poor planning by young and old, single and married alike. It truly is time to change the way we live and remember there is a future to plan for.
Note: If you would like to participate in Webinars on topics related to Personal Finance, check out my 2009 Webinar schedule at Best of the Best Seminars on the web at: http://botbseminars.com .