The Two Income Trap

Todd Zywicki looks at the "two-income trap" and to a certain extent debunks the premise of the commonly accepted theory that increases in mortgage costs drives the engine that creates a two-income household, which in turn actually makes the two income household less economically stable than a single income family. Zwicki notes that it is the tax burden, not the increased mortgage and childcare costs associated with a two income family that causes the greatest financial instability.

To a certain extent, my wife and I are in a similar situation. She is returning to the workforce full time at a time when I am looking for new legal work. Part of the reason is poor decision making regarding our finances previously and the attendant consequences of those decisions.

I do worry about the additional tax burden, but there are other reasons, beyond the simply financial, that my wife is returning to work. Part of the reason is my aversion (at my age and with my family) to working at a big time law firm where new associates are expected to work 65-70 hours a week and my desire to avoid 1.5 hour commute (one way) to get to work every day. That drives my range of employment options.

But another part is the desire of my wife to actually return to work despite the emotional toll it will place on her. While part of my wife's income will go to paying down out debts faster than had we just relied on my salary, a large portion of it will be saved for education and family expenses. We calculated that it would be better in terms of interest to start saving for our daughters' collegiate education now than if we wait three years until our youngest is in school. Smaller savings payments now translate to much bigger payoffs in the end.

What is ironic is that my wife, whose job will likely be with the University System of Maryland, will probably have even better benefits that I currently have, at least in terms of payroll deductions, that it may be cheaper for our entire family to be on her health plan, thus freeing up me to take a few risks in terms of employment that we otherwise would not be able to take if I had to keep my job for the health coverage.