Brown, who'd endured her own financial setbacks during the steel bust of the 1980s, brought an extra $50,000 a year to the Burtless household, almost doubling the family's annual income. In 1993, the couple built a $150,000 five-bedroom, three-bath house to shelter their new clan, which was made up of Toni and her four children from a previous marriage as well as Ron, Mary, Patty and eventually Patty's young son, Nicky. They outfitted the place with cherry furniture and a 35-inch Magnavox TV.
Still, at about $1,500 a month, their mortgage payments weren't exorbitant. And as the family settled in, and as Mary and then Patty got their own places, they were able to manage the cost of their day-to-day lives pretty easily. They even stashed $72,000 in a 401(k) — about twice what Federal Reserve statistics show a typical couple their age saves.
Then, in 2000, the Burtlesses went through a bitter divorce. Among other things, Ron had to give up half the money in the 401(k).
Two Incomes, More Debt
Like Ron Burtless, millions of Americans have relied on two factors to help them handle the heightened risks of the last 25 years: the entry of women into the paid workforce and borrowing.
Today, more than 70% of mothers work outside the home, compared with less than 40% in the 1970s. Although women's arrival in the full-time workforce has been driven by forces as disparate as feminism and the triumph of brain jobs over brawn, their influx could hardly have come at a better time for millions of working families. It has provided households with the insurance of a second wage earner in case anything happens to the first.
Yet women's employment also has meant new costs — for day care, extra cars, more meals out. And most families have treated the additional income not as savings to be set aside in case of emergency but as a means of raising living standards.
An analysis of two decades of the government's Consumer Expenditure Survey, Washington's tally of what Americans buy, shows that the fraction of spending going toward big-ticket items such as houses, cars and schools has increased to more than 50% as the number of earners within families has grown.
The situation "puts families in a bind," said Raj Chetty, a UC Berkeley economist who specializes in studying risk. "It means that if they are hit with an economic shock, they have to adjust to it by making bigger changes in the part of their budget that is still not locked in."
In other words, people have ended up leading lives that are both more prosperous and more precarious.
To help cope, many Americans have borrowed. Arguably, borrowing has become for this generation what unemployment compensation, the GI Bill and government-guaranteed mortgages were for a previous one — a way to tide over one's family during bad times and reach for a better life.
The traditional measure of household debt — calculated as a percentage of a family's after-tax income — has climbed from 62% a quarter century ago to almost 120%, according to Federal Reserve statistics. Much of that increase is from the rush of mortgage lending during the last decade. But non-mortgage debt, including credit cards and auto loans, also has risen, from 15% to almost 24% of after-tax income.
Economists and policymakers have generally applauded the growth of borrowing as a boon to the economy and a blessing for average Americans. They have portrayed the extension of credit to families further and further down the income scale as part of a sweeping democratization of finance.
But even upbeat commentators such as Dean M. Maki, a former Fed economist now with J.P. Morgan Chase & Co. in New York, acknowledge that families' growing reliance on debt exposes them to new risks, especially if interest rates rise. Maki estimates that the interest cost on about one-quarter of household debt is now variable and prone to swell if overall rates go up.
The borrowing boom has already produced one disturbing trend — a sixfold increase in personal bankruptcies since 1980. Bankruptcy filings reached a record 1.625 million last year and were up again through March of this year. Two decades ago, they totaled 288,000.
"We've allowed bankruptcy to become commonplace in America," said Elizabeth Warren, a Harvard Law School professor who, with her daughter, Los Angeles business consultant Amelia W. Tyagi, has written an influential book on bankruptcy and people's financial strains called "The Two-Income Trap." "Last year more people filed for bankruptcy than filed for divorce or were diagnosed with cancer or graduated from college."
Ron Burtless may well be next.