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The Two-Income Trap

weather: mostly sunny
outside: 14°C
mood: humbled
We were hanging out at Chapters killing time before our movie began seating and I saw this on the shelf.

Middle-class American families are going broke and it's not for the reasons that you would think. People are not being "wasteful" in the way that you would think. People are not "lacking morals". It's not fair at all to judge people for buying SUVs, minivans and accuse them of "supporting terrorists". And the old adage of "staying together for the children" actually IS a smashingly good idea, from a financial perspective. "Dead Beat Dads" most of the time, aren't. Filing for bankruptcy is humiliating, most people won't admit it even anonymously and they won't do it even if it actually is the best thing to do. It's absolutely NOT "an easy way out" and it does NOT wipe the slate clean on all debts.

I'm constantly having to adjust the Americanisms in my mind for the equivalent Canadianisms.

They talk about the average price of a home in the US being (USD)$137K. I'm thinking, uh... is that ALL? I would love to be able to find a house that I could live in, even a "fixer-upper" for (CAD)$173K*. When we were looking, anything under $500K (USD$400K) was iffy. To say nothing of the property tax that's on top of the market value of the house plus land.

They talk about pre-school, daycare, the public versus private school system and college in the US. Every other sentence, I'm thinking "that's not the way it is in BC"; "it's different here, so that doesn't apply". Or "yes, their proposed policy reforms are exactly the way it works here and you still have Problem X. And we also have Problem Y and Zed." Etc., etc.

I'm not entirely sure of the divorce laws or bankruptcy procedures here. And I don't know the equivalent statistics for Canada. But it can't be pretty either.

I haven't finished it yet, I'm a slow reader. It's still a very interesting read.

* JeezusMaryJosephandthedonkey. 1 USD = 1.25966 CAD?!?!?! (at the timestamp of this journal entry, at least)...

[Update — Thursday, October 07, 2004]

Finished it last night. The book is (CAD)$20 + tax; (USD)$15. I thought it was worth the price, but I can understand if someone were reluctant to spend even that. If nothing at all, go down to your local bookstore, find it, stand there and read Chapter 7. It's less than 20 pages. Chapter 1-6 were an eye-opener, but 7 is "The Financial Fire Drill". It's a quick "assess your risk" guide, some practical prevention advice and also really good advice if "the house is already on fire". userinfoThe Husband and I definitely have a few things to talk about.

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Comments

( 15 comments — Leave a comment )
(Deleted comment)
bride
Oct. 6th, 2004 11:20 am (UTC)
Not having kids is looking better and better all the time. And it's becoming less and less of a joke every time I say that.
kaseido
Oct. 6th, 2004 12:57 pm (UTC)
It constantly boggles me that as many people have kids as I see, especially here in what's effectively a working-class state, AZ.

I've figured it'd take a tenfold increase in our current income to give kids decent housing, education and opportunities - and when you're making that kind of money, you're working 70-100 hours a week, and paying someone else to raise them anyway. Craziness.

(OTOH, Phoenix housing prices are still close to that national average, though that's looking like it won't last another 5 years, as we fill up with people (like us) priced out of the coasts)
bride
Oct. 6th, 2004 01:09 pm (UTC)
I figure we might be able to be godparents for a good friend's kid(s)... but, yeah, it's insane.
jidabug
Oct. 6th, 2004 11:15 am (UTC)
You have to remember that the average house price for the entire country is a very misleading indicator, if you want to live in an urban or even suburban area, you wouldn't get much more than a shoebox with a leaky cardboard roof for the "average" cost listed, and depending on the area the property taxes would still be high.
bride
Oct. 6th, 2004 11:18 am (UTC)
Yeah, their point was that it's bad even with the national average, skewed downwards by the house prices in Middle-of-a-Cornfield, Illinois.
xinit
Oct. 6th, 2004 02:48 pm (UTC)
Saw the USD :: CAD exchange the other day... It's getting to the point where it IS CHEAPER to shop in the US again.

On the bankruptcy front, it's not embarassing when it's a waffling government agency that changes the rules midflight... then it's a big "screw you, CCRA" and I'll tell everyone. Personal bankruptcy in Canada is pretty easy, but it's not FREE... you tend to be tied to a payment schedule for an extended period, and it's a bit of a pain, but it's nothing major. You don't have to sell your furniture, clothes, etc unless they're worth a certain amount ($5000 is allowed for clothes for example IIRC).

The only debts that aren't wiped in Canada are guaranteed loans - ie, Student Loans. The nice part is that Revenue Canada isn't guaranteed and neither are credit cards... rumor has it that Mastercard holds a grudge though they aren't legally supposed to.
bride
Oct. 6th, 2004 02:51 pm (UTC)
Really? Even child support?
xinit
Oct. 6th, 2004 07:42 pm (UTC)
I THINK that child support isn't affected... but a bankruptcy would likely be usable as "extraordinary circumstances" in family courts.
sertrel
Oct. 6th, 2004 09:29 pm (UTC)
http://money.cnn.com/2004/09/30/real_estate/buying_selling/compare_homeprices/index.htm for comparative costs of home ownership.

If I remember the news correctly, in the US, home prices have been stable or even increasing over the last few years, even as inflation in most other things was held relatively low. The reason was because low interest rates encouraged lots of people to attempt to purchase homes using low interest mortgages. I remember new home construction remained high throughout the worst of the economy. What I don't quite understand is the mad rush to home ownership so common among my fellow "new grads." Many of them are single, less than 25, and still, their first goal is buying a home. They justify it as "building equity" rather than "wasting money on rent" but at least for me, it just doesn't seem worth it. Part of the problem is my uncertainty about my future. I can't imagine this first job being my last job.
nightshift
Oct. 6th, 2004 09:52 pm (UTC)
Real estate has been booming these past few years. Many analysts are anticipating that there will be a market correction in the near future. I believe prospective home buyers should hold off on purchases for now. That is unless location is critical to them. You know what they say about real estate and location...

Anyway, the reasons behind the real estate bubble are a combination of both fiscal stimulus (low interest rates and tax cuts) and very rough times in equity markets (the latter half of 2003 was an exception). When equity markets are doing well, people will typically forego the purchase of a home for greater returns in equities. Why worry about rent when you can trade some equities and make up your rent in a few days? But cos people lost a lot of money in the tech bust and 9/11, they became risk-averse and decided to invest their equity in a home instead.

You're right in that a home is often treated as building equity cos it is a very tangible and personal investment.
razorw
Oct. 7th, 2004 12:07 am (UTC)
The whole *mortgage* on a house thing can be quite the issue depending on where you live. I know here in Calgary, you probably couldn't get anything decent for $225K. That's just around 1300 square feet. I hear rumors that for what you pay for in Calgary, you'll have to add another 100K on top of that price to get that in Vancouver, but I could be wrong. =P

The one big thing that I do know, that is different from Canadian law, and American law, is that you can write off your mortgage as an American, but not as a Canadian.

As for bankruptcy, from what I heard from a friend who has declared it several times, you can do it more than once. .. it takes at least 9 months before you can rebuild your credit from scratch (secured credit card), and 7 years to completely get back to where you started before the whole mess.

Of course, they also changed the law so college/uni grads in Canada cannot declare bankruptcy until at least 10 years after finishing their degree/studies.... It gets really messy from there...

But I'd like to hear any more tidbits you might find interesting. --Ray
bride
Oct. 7th, 2004 10:20 am (UTC)
Wow, even Calgary is getting expensive. I remember very seriously considering moving to Calgary because housing prices were much better.
razorw
Oct. 7th, 2004 10:19 pm (UTC)
Well, business, residental, and no PST, it still works out cheaper than BC... minus the car insurance.

But good luck finding a computer/(non-oil) engineering jobs out here... they're not as plentiful as one may think.

--Ray
(Anonymous)
Oct. 7th, 2004 07:21 am (UTC)
House, Kids, Dogs, Job ....
Hmm, yeah, 2 income trap. It is a sticky one. We decided to buy a home a few years after we got married because we did want to start a family. It took a bit longer than anticipated which helped us build up a nice bundle of bucks. We had hoped to buy a home for about 125K 10 years ago. You could pretty much get nothing for that sum in the Suburban Philly area. It just was not going to happen. Whe bit the bullet and went for a 209k Jumbo Mortgage. It wiped us out. Now my neighbors ar selling their houses for 500k+ and I wonder how long this can last. If our houes is ever reassesed, our taxes would be way beyond our ability to pay/tolerate. Our kids are in day-care that costs us 250/week ... each. That is a pretty good price for what we get and the location is about 2 miles from our home. We could survive without both jobs, but we are socking away every spare penny in retirement and college funds. If we can just make it through the next 15 years ... This whole American Dream thing is kinda sucking the life out of us.
bride
Oct. 7th, 2004 10:17 am (UTC)
Re: House, Kids, Dogs, Job ....
If nothing at all, I recommend you go down to Chapters or Barnes&Noble, find this book and read Chapter 7 ("The Financial Fire Drill"). Chapter 1-6 were a real eye-opener as well, but 7 was a quick "assess your risk" guide.
( 15 comments — Leave a comment )

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