Thursday, November 15, 2007

Interview with Elizabeth Warren, author of "The Two Income Trap"

Steve Walden found this great interview with Elizabeth Warren, author of The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke.

As Steve writes the interview is long, a full one hour; however, it is worth listening to. Even better - listen to it with any teenage children you have.

Elizabeth makes some interesting points. She says that over the last four decades the percentage of our income spent on food, clothing and appliances has gone down. I was surprised. It is the amount of of our income going to mortgages which has sky rocketed. I think she said that the average American family now spends 35% of their income on mortgages.

Elizabeth emphasized that one of the big problems with finances in America today is that so many people don't have reserves, so they have a hard time getting through a temporary dip in income. The point is made in The Richest Man in Babylon that you need to pay 10% of your income to yourself, building up your nest egg and reserves.

Another problem is when people are in hard times, financial institutions will offer to "help" people out. Elizabeth points out that credit card companies and other businesses are really just looking to milk people in trouble. They tack on fees (hidden in the fine print) and jack up the interest rates. The result is people in trouble slide out of their middle class life style even faster when they are "helped."

I found this interesting - Elizabeth says one solution is to have vouchers. This way parents would not have to compete for expensive houses in the "best" school districts. I think it would help, but I am afraid vouchers are not going to happen, maybe ever.

I disagreed with her premise that we need more laws. Elizabeth wants more regulation of the loan industry. I think the real solution is for people to be educated, and then learn some discipline. There are way too many people who spend like there is no tomorrow and when tomorrow comes they are sunk. More laws won't fix bad behavior.

The book sounds worth reading and I plan to check it out of the library the next time I go.

Technorati tags: Elizabeth Warren, finance, education

1 comment:

Crimson Wife said...

Healthcare is a big issue too. We've always been lucky to have employer-subsidized insurance but many jobs these days don't provide coverage. To buy non-group insurance is $400+ for an individual and $1000+ for a family per month and that's before all the co-pays, cost-shares, & deductibles. I'm no fan of socialized medicine but something needs to be done about the situation.