Fixing The Financially Fragile US Household Forever.

American families are economically fragile.   If we look into the rear view mirror, here’s what went wrong.

In the 1970’s most families had a single wage earner.  The median income in the 1970’s was about $38k a year (in 2000 dollars).   The cost of a home and other fixed expenses (mortgage, taxes, car, etc.) were about $20k a year.  That left $18k a year in disposable income.

Today’s family has two incomes.  The median family income is now about $67,000 (in 2000 dollars).  The cost of a home and other fixed expenses are about $50k a year.  That leaves $18k a year in disposable income (the same as the family in the 1970’s).

Here’s a chart that depicts it (via Elizabeth Warren’s analysis in the The Two Income Trap — a great book btw).



The key to this analysis is that the amount of fixed expenses relative to income.  That ratio puts today’s family at grave risk since even a minor financial shock can cause financial ruin.  For example:

  • If either spouse loses a job, the family bleeds red ink as fast as if the single wage earner lost a job in 1970.
  • It takes a modern family nearly 4 times as long to save enough money to cover fixed expenses as in the 1970’s, assuming the same percentage of discretionary income was saved.  That means financial reserves are much lower today than they were.
  • A financial disruption — health to stock market fiasco — can wipe out more years of savings faster in today’s scenario than in the 1970’s.

In short, an American family is financially fragile (the opposite of resilient).

That reasons we became fragile

Lots of reasons.  First off, it’s not due to overspending on homes or consumables.  All of the data shows that this isn’t the case.   The size of the median American home only grew by about 0.5 rooms (half a room) since the 70’s and we collectively pay quite a bit less for nearly all consumables (from clothes to food) than we used to.  Instead, the big reasons are:

  • Incomes stagnated.  The median income is less than it was in the 70’s despite a more than doubling of American worker productivity (which means we produce more than twice as much as we did in 1970 per worker, but all of the gains from that extra production went to companies instead of salaries).  Even if only half of that productivity gain was plowed into salaries as it did in the past, we’d see median family incomes well over $100k now, and the economic outlook for the US would be considerably different now.
  • The cost of housing skyrocketed.  Why?  US families bid up the prices of homes that were towns that were safe and had good public schools, in order to launch their kids with as much of an advantage as possible.  Simply, when it comes to housing, you get much less (60% of American households live in homes that are more than 25 years old) for much much more today.
  • The costs of sending two people to work are very high.  Everything from a second car to daycare.  Extra costs = extra stress.

So, what’s the best way to fix this disaster?

There aren’t an patches or small fixes that will do the trick despite what Washington and Wall Street tell us (they are dinosaurs, dangerous and due for eventual placement in a living museum like european royalty).

There is one major change in approach that would fix everything.   A change that hits at the heart of the problem and fortuitously is in line with nearly every tech, social, and economic trend that’s headed our way.

The change is to turn the American home into a place that pays for itself.  A place that isn’t a black hole of expenses, but rather a place that helps us along economically and in new ways yet to be found.

Assuming that we can do this, it should be possible to return fixed expenses to the levels they were in the 1970’s.  If that occurs, the stagnant $67k family income generates $47k in discretionary income.  3 times what it was in the $70’s.  It would also make it possible to bounce back from nearly any and all financial and economic shocks, from the loss of a job, health issues, and worse.  Finally, it would make retirement possible, since the home would not be a draw on income, but a source.

Is this possible?  I think it is more than possible, it’s inevitable.

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Discussion — 10 Responses

  • LP November 9, 2013 on 6:42 am

    I would sure like to see how that might be possible. I hope you write on this in detail soon. We’re doing okay right now, but others are not. I’m at a loss to understand how the home could do this for family finances.

  • James Bowery November 10, 2013 on 7:07 am

    Elizabeth Warren is a giant in the public discourse — or at least was until they neutralized her by getting her involved in attacking a symptom (regulatory capture by financial institution) of the problem. I say she is a giant because no one else in the among “the great and the good” came close to talking about the problems facing the family as “a little business unit” that simply couldn’t responsibly bear children. Of course not even Elizabeth Warren talked about the demographic collapse that resulted. Nor did she talk about the fact that the onset of this struck particularly hard at the same few years that the peak of the boomers were settling into their first post-college jobs — a time when they should have been forming families. The spike in fixed rate mortgages circal 1981 was followed several years later with a spike in foreclosures — an event that is _never_ talked about by those supposedly concerned about “the family” — not even Elizabeth Warren. But then, what can you expect of even the giants among “the great and the good” who presided over the destruction of the American dream during generation with the greatest potential in human history?

  • Penses November 10, 2013 on 3:23 pm

    A few quick thoughts:

    – The “0.5 rooms” stats – is that literally using room count as a measure of size, or is it stated as symbolic representation of square footage? It seems like actual square footage would be the better proxy for house size, and other sources indicate that our houses have, in fact, grown considerably larger over the years in question. (cf )

    – Why do we always presume a mortgage (“dead pledge”)? Many folks presume two debt-based car payments as well. Neither has historically been as consistently pervasive as they are now. Do they really need to be? Much of what oppresses is just the basic bondage of debt. Less debt = more freedom.

    – Our culture seems, from my view, to have hugely expanded its “consumer” (as opposed to “producer”) bent this past 60+ years. What we assume to be “normal” may, arguably, be *appropriately due* for a pretty massive correction. i.e. Not just a rigged system (which we clearly have, in many respects), but also poorly calibrated expectations, based on that, and its (related) culture of debt.

    – Vocational education; out of vogue, and largely decimated. Manufacturing and general production; almost entirely out of sight. Both relate to the producer/consumer mindset thing, IMO.

    Much more to say, but I’ll resist taking over your comments thread. ; )

    Thanks for your postings — they are reliably interesting.

    • James Bowery Penses November 10, 2013 on 9:35 pm

      Penses, please take the 1 hour required to watch Elizabeth Warren’s Jefferson Lecture:

      Not only will it disabuse you of your beliefs about “consumerism” as the root problem, it will let you feel a bit better about yourself for holding those beliefs since, as Elizabeth Warren herself admits, it took her several “takes” on the data before she believed it herself. She describes this bigoted posture of hers as “terrible”.

      What’s really “terrible” is that this “narrative” about “Spoiled Boomers vs The Greatest Generation” was promoted by The Great and the Good even though it resulted in the equivalent of a massive genocide — 10s of millions of demographic collapse that is now being justified as the reason for expanded immigration. Imagine if the KKK took over the US government, gassed all the blacks and then said we needed more immigration of whites to make up for the demographic vacuum — acting like the whole thing was “on an accident”.

      • Penses James Bowery November 13, 2013 on 5:27 pm

        James: You sound testy from this end. I may reply to you later.

    • John Robb Penses November 11, 2013 on 2:47 pm


      Thanks for the comment.

      That data is for “new” homes sold recently and “ideal” homes (what people in the market would like to own). A couple of things.

      The vast bulk of the homes in the market place are older, smaller homes (50% more of us live in these homes now vs. a generation ago, and that’s a big number). A couple of million new, larger homes doesn’t change that size ratio much. Further, the size trend on larger homes was in response to a crest market demand = specifically, maturing families at the crest of the baby boom with cash to spend on good homes in good school districts. Those families are now downsizing, so the trend will reverse. Remember, Baby boomer demographics distort everything.

      Agree with the view on debt = bad decision and consumerism. Love vocational ed. It’s on the rise again, but not through traditional public school venues (YouTube videos and local meetups for training on nearly everything are available).


      • Penses John Robb November 13, 2013 on 9:03 pm


        Thanks for the reply.

        I do know Baby Boomer demographics distort everything — I come from the generation immediately following, and we’ve been dealing with the messes they’ve left behind our entire lives. ; )

        That said, interesting re: the “downsizing” aspects you keep hitting on, particularly with respect to neighborhoods, etc.

        I’m also interested in land use, particularly as it relates to mass suburban development vs. arable land. Infill development fits into that conversation somewhere. What to do with decaying areas does as well.

        At the risk of offending James’ sensibilities again, and even overemphasizing my own feelings about a particular cultural perspective, the “consumer” view on “decaying areas” seems essentially to be “not my problem” (e.g. let’s just leave suburban Detroit and forget about it; “white flight” etc.). The mindset seemingly underlying that view reminds me a bit of those who leave trash when visiting somewhere, for others to pick up later. One of the things I appreciate about your writing in general, is that you seem to appreciate systemic perspectives more than most, and pragmatic sustainability in more than just “environmentalist” forms.

        I find myself thinking a lot about the “fabric of society” as it relates to these dynamics. Locally, I recently worked on a yard project with a young man who lives with 12 other family members (two sibling families + one aging parent) all together in a rented 1000 square foot house. He has a felony on his record, but is observably respectful, seems eager to work and serve, and works as hard as the job requires. “Having a record” is making finding a conventional job near-impossible for him.

        I know others who wall themselves off in gated communities. Still others live in suburban neighborhoods where having a well-edged lawn is apparently important, and CC&R’s are taken very seriously.

        It’s notable how little these groups speak with each other.

        Individual, household, family, community, collective, nation state. Which problems are solved at which levels? It’s a parallel conversation to these more practical “on the ground” ones you often write about — and your “unbundling” observation seems connected to all of it.

        So, those are some musings. You seem genuinely interested in input, so I’m inputting. ; )

        Lastly, trade skills / Vocational Ed. — the “maker” movement is a great development on this front, in my opinion. More recently, I’m seeing that invade some of our schools (both public and private) in some very interesting life-trajectory-changing ways. It’s encouraging.

        Thanks again,

        • John Robb Penses November 14, 2013 on 6:26 pm


          All great observations. One of the keys to remaking this fabric is to reignite the American Dream in a way that is accessible — the bootstrap that lets you build a household that endures.