Nov 16, 2007

Homeschooling on one income: How your decision to home educate can make you MORE finacially secure

I saw that Why Homeschool found this hour-long interview with Elizabeth Warren, one of the authors of The Two-Income Trap: Why Middle-Class Parents are Going Broke.

This is one of my very favorite books. It explains so well why having two incomes can, indeed, be a terrible trap for many people. It was after I read this book a couple of years ago that I knew we were going to be in for some major problems in the U.S. real estate market.While I had known for a while that many people are lured to financial disaster by easy consumer credit, I had not put the pieces together to see that even many people who pay all their bills and live within their means are still vulnerable to financial disaster.There is a common perception that homeschoolers make a financial sacrifice to enable one parent to be available for child-rearing. This book, though, was proof positive for me that homeschooling is a great way to avoid the trap that many families find themselves facing. After reading this, I knew that homeschooling was actually going to strengthen our family’s overall financial security.

Essentially, much of the danger of the two income trap comes from rising home prices. While people spend less on necessities like groceries than they have historically, they spend a lot more on their mortgages.

This book argues that one of the main drives in the cost of housing has been the need to be located near good schools. Homes cost more in desirable school precincts, and the more people who want to live in that district, the more the houses cost.

Though the authors don’t have anything against having two incomes, they do see a huge problem when a family HAS to have two incomes in order to pay the mortgage.

If you have extra income just to pay for luxuries, vacations, or for saving money, it isn’t such a big problem. When one of you gets sick, or is laid off, your family can just cut back on those optional expenses, without being in danger of losing your home or going bankrupt.

If your family requires both incomes in order to make ends meet, you are in an incredibly precarious position. Most bankruptcies are caused by illness or job loss, not just running up credit card debt and living beyond your means.

If you are a one income family, then you have a great safety valve. If that one income is reduced or lost due to a layoff, or if expenses go up because of illnesses or other temporary factors, the unemployed spouse can go out and get a part-time or full-time job, until things get better.

If both spouses are already employed, then it is much more difficult to bring in more money in the case of an emergency. So one-income families are more solid, financially, than many two-income families, even though they may have to live a somewhat more frugal lifestyle on a day-to-day basis.

We homeschoolers don’t have to think about what school district we are near! Furthermore, if we do find ourselves needing to reduce our housing costs, we can just sell our house and buy a smaller one. We don’t have to agonize about kids switching schools mid-year, losing their entire social network at the same time that the family is undergoing many other challenges.

After reading The Two-Income Trap, I’m convinced that homeschooling is a great way for our family to build a stronger financial and emotional position. It is a responsible way to anticipate life’s unexpected problems, while building a lifestyle of family bonding.

And heck, I just realized that the book is on sale at Amazon for only $4.99. What a steal! Find it at your local library, or pick up a copy on Amazon to have for future reference and moral support when you start envying those big houses.

The Two-Income Trap: Why Middle-Class Parents are Going Broke

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1. Lauxa

   Nice article! I hadn’t thought about that living on a single income provides a kind of safety valve in case things go wrong. I have been away from the workplace for 4 years now and using the time (when I’m not watching the kids) to explore work from home ideas. I would never have been able to explore these avenues and develop the skills that I have (which will be marketable if I do need to go back to work) if I were working for someone else 40+ hours a week.

   I had a friend in college who described herself as “house poor”. She had started in a reasonably priced house, but she sold it when it appreciated, and the tax laws are structured to encourage people to roll over the gains into a new mortgage. My father encouraged me to buy the most expensive house I could afford because it would be my biggest investment, but after seeing how my friend struggled just to make the mortgage payments, I knew I didn’t want to live like that. Not to mention the risks of the “housing bubble”, etc.

   Nov 20th, 2007

2. Barbara Frank

   You are right on the money, April! We’ve been homeschooling for 20 years and a single income family for 25. By living frugally, we were able to keep me at home and eventually pay off our house. And we’ve had lots of family time, which wouldn’t have happened if I’d been gone every day for 10 hours (job plus commute).

   When we bought our first house in late 1980, I was offended that the mortgage company would not include my income in the application. That was how they used to do it and I thought it was chauvinist at the time. Now I see where it was a good thing!

   BTW I used to urge my older children to buy a house while they’re young, like we did, but now I’ve changed my tune. With house prices dropping, it makes no sense to buy something that will drop $10-20K or more in the next few years. You may think you’re going to stay in a house forever but it doesn’t usually work out that way. These days, it makes more sense to rent. Rents are coming down because of all the hard–to-sell houses coming on the market as rentals. We sold our house and are now renting. We’ll probably buy again when the prices finally bottom out.

   Great post!

   Nov 20th, 2007

3. april

   Thanks Lauxa - I agree about the time at home being the perfect opportunity to explore other avenues of employment. That’s what I do, too, and you are right that it would be much more difficult while working full time elsewhere. At least there are odd moments here and there during the day when I can carve out a few moments to work on projects like that. I’ve been doing lots of learning that will serve me in the years after I’m done homeschooling, too.

   I think a lot of people are in your friend’s position. I know it is common to approve of advice like your father gave you, but there are some big drawbacks to buying as large a house as you can. I’ve run across several places (books, magazines) lately where financial experts caution you not to regard your primary residence as an investment, per se. It can help you make money, but to get at it you have to sell your house and pay the taxes on it. Plus you have to be able to make all those big payments for decades!

   Nov 20th, 2007

4. april

   Hi Barbara! That’s wonderful. Your strategy is a great anecdote that speaks to the advantages of living on one income.

   Of course, it is possible to have two incomes and still live very frugally, saving whatever the second income provides. After you factor in childcare, gas, work clothes, extra eating out, and all that jazz, that option starts to look less attractive. Also, I think very few people do actually save all that extra income. Either it is spent on luxuries, or it is spent on the bigger mortgage, in many, many cases.

   I did work part time (taking advantage of free family-provided child care)until about a year ago. We tried, as much as possible, to put my income to paying off debt, like our student loans and credit cards we ran up in college. That strategy paid off well for us, but probably wouldn’t have worked if I’d had to pay market price for child care.

   I hear you on the real estate strategy. I think that advice depends a bit on what area of the country you are talking about, though. I live in Charlotte, which has been listed as top of the list of places to buy real estate right now, just because we have so much land and are building so many new houses that home prices haven’t become as overvalued here as in other parts of the country. It might not be the ideal time to buy around here, but if you were planning on keeping a house for at least 5 years or so, you might come out ahead of the renting option.

   As I understand it, that is the exception these days, and many parts of the country are experiencing the opposite. Better to bide your time and save for your down payment, I guess. That, or get a good deal on a foreclosure.

   Nov 20th, 2007

5. ahermitt

   We too have hit a rough spot after a stint of unemployment and failed business venture. It is comforting however to know that we could always sell our house and move… anywhere, even into a smaller house we have been renting out, without causing too much upheaval for our kids since we won’t have to switch schools.

   Nov 20th, 2007

6. april

   ahermitt,
   Thanks for the comment. In times like this, you need all the comfort you can get, right? And it is very comforting, as an adult in this situation, to know that you have options that wouldn’t cause even more stress and hardship for your family.

   This was an advantage of homeschooling that I completely took for granted growing up. We moved several times, and I never had the stress of having to switch schools. (We were still in the same city, so I didn’t have to worry about making new friends, either.) It wasn’t until I was grown that I realized how lucky I was in that regard!

   Nov 20th, 2007

7. Renae

   Thanks for this good reminder. Living frugally really does pay off!

   Nov 20th, 2007

8. Kat

   Oh, I so agree about this, especially the housing situation. We are a military family so we move a lot. When I went looking at houses this past spring it was hard to find a big enough house for the 7 of us, I can’t imagine trying to find the right house and the right school district too. Instead of worrying about the kids attending 3 schools in 3 years, we just use the same program every year. Next year we are moving to DC and we can live downtown if we want to, I don’t have to worry about the failing school system, I just want to be on the Metro line so we can easily visit all the museums!

   Nov 23rd, 2007

9. april

   Kat, I’m sure that would be so important for a military family! It is hard enough to move a lot without having to change schools every year.

   I live in Charlotte, which is a very high growth area, and there has been lots and lots and lots of redistricting going on in the last decade. That means many children in my area have gone to 4 different schools in 5 years, without ever having moved at all!!! I think things are starting to settle down a little, but it is nice not to have to worry about all that.

   I hope you have a great time living in DC! I went to college there, at Georgetown, and it was so great to be right in the middle of where things happen. The museums and monuments are phenomenal, and there is even more now than when I was there in the 90’s.

   Nov 23rd, 2007

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