I had the day off from work today and Dr. Phil did a show about families in crisis. They were all suffering from financial difficulties.
The first family was African-American with several children and a baby. They bought desinger clothes and expensive cars. Their home was very luxurious. They had declared bankruptcy once and then fell worse into debt. The husband bragged about having a 13,000 dollar motorcyle. Their home was in the process of liquidation and their utlities were about to be shut off.
The second family was a white woman and an Asian man. They were in debt. They lived in a house that looked like a mansion. Their children were in private schools. They had to sell their clothes on Ebay to make ends meet. They had also bounced checks.
So then they invited Elizabeth Warren, the author of the Two Income Trap on. She tried to convince both families of their problems, but they both seemed to be in denial.
Anyway I had problems with some of her advice. She said that student loan debt takes precedent over credit card debt. I was confounded by that. Don't credit cards tend to have higher interest rates? Wouldn't it make sense to attack the higher interest debt? Don't student loans have deferments and forebearances?
Some of her other suggestions were to "move to a cheaper neighborhood" or "sell your car". But I take exception slightly. What I take exception with is that Dr. Phil is implying that any middle class family with financial problems is due to their own irresponsibility and bad choices.
While both of these families have severe emotional issues that a psychologist needs to address, most middle-class families in danger aren't like that. Most of them don't overspend and I found that one implication difficult to agree with.
First of all, does it really save money to move to a "cheaper neighborhood?" When you move there are lots of transaction costs. At least in the short term these costs create more misrey. And even if you do move into a cheaper neighborhood, does that mean that the increased gas costs help you save money?
Also what about the schools? What if the "cheaper neighborhood" isn't safe and the family has to send the children to private or Catholic school because the public schools suck? Does that make moving cost-effective?
Or what about the fact that for many middle class families it is hard to get a job. And that in many cities salaries have not kept up with the cost of inflation. What about those families?
Since about 1973 wages have not kept up with inflation. And increasingly job security is an illusion. I'm 26 and realize that I will probably work at least in 10 different places, if not even more, before I die. What about that? What about the fact that it is hard to find a job and that benefits are not as good as they used to be?
Warren suggested that families "put away $1,000" for emergenices. Shouldn't it be more like $10000 or something? I'm single, but if I were in an emergency, like unanticipated job loss, that $1000 would evaporate in a month or two.
What is the solution for them? I've read the Two Income Trap and understand some of the solutions. I just don't think it is as easy as Dr. Phil and Warren make it out to be.