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The economic risks of the modern family

I was listening to NPR last weekend, and there was a bit about the changes in family economics in the past 30 years, and the squeezing of the middle class. The part that jumped out at me, however, was the increased economic risks that modern families undertook.

I think its pretty safe to say that up to a certain income level, Americans will spend approximately as much as they make. Some will spend more on credit, and some will actually save a little, but in general we're not known for saving money. The American Dream seems to equal consumption. In the piece on NPR, they claimed that the fundamentals had gone from 46% to 75% of a family's income, but thats actually fairly irrelevant to me: if people have money, they will spend more of it, they will buy more expensive cars, live in more expensive houses. The bigger issue they pointed out, to my thinking, was that over the last 30 years, most families have gone from one income to two. This has increased the economic risks, because if there is a surprise problem, such as one member being laid off, or being unable to work due to a health condition, there is no backup. Before, there was the possibility of the other spouse stepping in, even at a lower income level, to help the family out. Now, the family is used to surviving, and in fact has made economic obligations on the basis of the dual income. The risk that a family will have a major problem has doubled since they now require two incomes to survive. Ouch. Unintended consequence, that is.

A side note that amused me was that this person on NPR was commenting about how family incomes, adjusted for inflation, had gone up by a very good amount, almost entirely due to the addition of a second income. They then commented out the fundamentals made up a larger portion of that income now, as I mentioned above. Of course, inflation is basically the aggregate/average/indexed value of how costs of goods have increased, so what you're actually talking about there is how the cost of some things increased a lot more than the aggregate did. It might mean that the calculation of the aggregate isn't correct, actually, ie that housing and cars don't play a large enough role in the determination of calculated inflation. It should also be said that plain old economics will tell you that adding a second income will certainly put you at an advantage to those families who don't have one, but as soon as everybody's doing it, the playing field has been re-leveled, and scarce goods like real-estate and housing will certainly inflate to meet the purchasing power of the doubled available income.

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