Up Close and Personal – My View
The rich are different than you and me. More often than not where you’re born and who are your parents will decide where you live, whether or not you go to school and whether you marry. To secure economic success, you need to have economic success. To stack the odds in your favor, be the child of parents who both graduated from college, are both working and still married to each other. And don’t be born in the UK (see chart below). I explored this in an earlier post.
In my world I’ve seen the impact of marriage and social mobility up close and personal. I grew up in a dual-earner household before it was fashionable. My mom’s income contributed mightily to our solid Middle Class lifestyle and provided my brother and me opportunities to go on to college. And now my wife continues to work in her health care field and contributing to our family.
Professionally, I’ve witnessed two distinct contributors to the decline of social mobility: federal tax policy and divorce.
When reviewing income tax returns for clients, I’ve seen that many folks who have not married but have children are savvy to the ins and outs of the federal Earned Income Tax Credit. These folks tend to be working in lower-wage jobs in the service sector and have limited education as noted in research published by Brookings. Some may be pursuing degrees in healthcare. Oftentimes, these are women with kids. And while they may be unmarried they may be living with the children’s father who may or may not be working or is likely earning unreported income. Because they are not married, they are able to file as “head of household” and oftentimes qualify for the Earned Income Tax Credit (EIC). If these same folks married, they might not qualify for this credit because of income limits. In an unintended way, this may deter rational folks from marrying and losing out on this benefit.
Divorce Contributes to Downward Social Mobility
Another contributor not mentioned in The Atlantic article is divorce. As a divorce financial planning professional, I’ve seen many couples throughout the Boston area who have become single moms and dads heading a household with two or more kids. Parents struggling to maintain a similar lifestyle after divorce find themselves financially squeezed. Too often parents try to stay in the same neighborhoods to minimize the impact on their kids’ education and social relationships at a cost that is hard for the parents to bear.
It’s one thing to live hand-to-mouth in a nice neighborhood in a 3,000+ square foot house and private school tuition when you have two incomes or one parent with a good income and another at home. But it is unrealistic to maintain that lifestyle after a split when there literally will be two households being supported with the same pre-divorce dollars.
In some cases, both parents may have worked but one may have been in a part-time position or taken a lower-paying career track to accommodate parenting responsibilities. Career skills and education may be out of touch with the times limiting job opportunities. And often there is the learning curve needed to get up to speed on household financial matters that were once taken care of by the other spouse. All of these stressors contribute to the painful transition and economic fragility of the survivors of divorce.
And while divorce is not easy on anyone – least of all the kids – my financial modeling for clients tends to show that single moms fare the worst. Moms may have taken time off from the workforce. They may not have accumulated as much in their retirement accounts as their ex-spouses and may have worked at jobs part-time or for employers not offering such benefits. In my divorce planning practice, I find that the mom tends to want to keep the house and this is just an untenable financial position for the newly divorced single mom.
This is why divorcing moms need to seek guidance to evaluate options before a settlement is finalized.
Raising kids and maintaining a marriage are hard jobs. While I’m not anywhere near being an expert on either marriage or kids, I do certainly recommend that clients seeking to improve their personal economic situation when married or at least avoid a downward spiral as part of a divorce seek competent financial help preferably sooner rather than later.