"Americans are not going broke over lattes!"

Home mortgages, insurance and, above all, children are driving middle-class parents into bankruptcy, says Harvard law professor and author Elizabeth Warren.

By Katharine Mieszkowski

Oct 13, 2003 | Repossessed BMWs. Foreclosed McMansions. Pawned Rolexes.

Such is the stuff of personal bankruptcy when a go-go lifestyle built on consumer excess runs up against financial reality.

Or is it? Could it be that those tarnished icons of dead-end decadence are just as much an overhyped myth as the hordes of teenage day-traders back in 1999 who supposedly beat Wall Street's best brokers without ever leaving the comfort of their bedrooms?

The biggest predictor that a person will end up bankrupt turns out not to be a bad Prada habit or a taste for sub-zero refrigerators. It's having children, according to the mother-and-daughter authors of "The Two-Income Trap: Why Middle-Class Mothers and Fathers are Going Broke."

Elizabeth Warren, a professor at Harvard Law School, and her daughter, Amelia Warren Tyagi, a former McKinsey consultant, studied nearly 2,000 families that had gone bankrupt in the U.S. They analyzed myriad federal data detailing what Americans are actually spending their money on today compared to the legendarily more austere 1970s. What they discovered shocked even them: The effort to keep the kids in a good school district when one parent is laid off is more likely to drive Americans into bankruptcy court than all those trips to the Niketown store.

From her office at Harvard, Warren told Salon why the typical American middle-class family today is in a much more financially precarious situation than it was 30 years ago.

Why is today's two-income couple with kids more vulnerable than the single-income family of the past?

Today's two-income family has 75 percent more earnings, inflation adjusted, than their parents had a generation ago. The reason, of course, is because today's average family has two people in the workforce, instead of one. But this year, more children will live through their parents' bankruptcy than their parents' divorce.

Being a parent is the best predictor that a person will file for bankruptcy. Are parents more profligate than nonparents? What's wrong with this family? Since they're going bankrupt four times more often than their parents did a generation ago, I thought that this would be a story of overconsumption -- too many trips to the mall, too many designer toddler outfits, too many Gameboys.

The data show, however, that today's families are actually spending less on consumption that their parents spent a generation ago: 22 percent less on clothing, 21 percent less on food, including eating out, 44 percent less on appliances, less on furniture, less on floor coverings.

And I have to tell you, that finding stopped me dead in my tracks. It's counter to every conventional wisdom out there.

How can today's family possibly be less secure with two incomes?

Today's families are in financial trouble, because they're spending so much more on big fixed expenses -- mortgage, health insurance, car, preschool, after-school care and college.

What's happened is that the cost of being middle-class has shot out of the reach of ordinary families over the past generation.

Today's two-income family has 75 percent more income than the one-income family had a generation ago, but by the time they make four basic payments and their taxes they have less money to spend than their one-income parents.

Once a family builds a budget around two incomes, once they count on having both paychecks 52 weeks out of the year in order to be able to make the mortgage payment and the health insurance payment, they have a problem.

Because they have twice as many chances to get laid off, twice as many chances for someone to get too sick to go to work, and if grandma breaks a hip, or a young child becomes seriously ill, one of those two wage-earners will have to quit work to take care of the family member. So that means that they have more income, but they're actually more at risk.

How has the economic value of stay-at-home mothers been historically misunderstood both by feminists and conservatives?

A stay-at-home mother a generation ago not only took care of the children and tended the home fires, but she acted as an economic safety net for the family. If Dad lost his job, or was too sick to go to work, Mom could go to work, and could bring in a new source of revenue to the family.

She might not make as much money as he made, but the combination of her new income plus unemployment would often keep the family at about the same total income level. And if she stayed at work after he went back to work, they had extra income for a few months and could boost their earnings. The same thing if they were hit with an unexpected expense, anything from a child going to college to uninsured medical bills. They had a second source of revenue, someone who could work whose salary hadn't already been figured into the family budget, and could add that extra shot of income to the economic mix.

That made a two-parent family with one parent in the workforce and one parent at home a stronger, more secure family economically.

This is not an argument that women should stay at home. Today's mortgage costs and health insurance costs and day-care costs mean that today's families can't survive on one income and use the second income for extras. Instead, they have to commit both incomes just to making the basic payments.

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