Changes that have occurred in the last generation with regard to personal and family finances - Essay Example

Changes that have occurred in the last generation with regard to personal and family finances. Introduction The last generation has undergone a variety of changes. There have been several developments that have served to better life expectancy and quality of life. Concurrently, the number of families that file for bankruptcy and divorce has gone up. The numbers of individuals who in their career have had to face layoffs have also increased. This essay seeks to examine the changes that have taken place in relation to personal and family finances. It also examines the remedies prescribed by Professor Warren to avoid financial dangers and securely build wealth. Changes in relation to personal and family finances. The social setting has changed. Families have a second parent in the workforce. They do this with the perception that this will make the family secure financially. This move fails to consider an important element of a two income life. Having mothers joining the workforce comes with a sacrifice. That is the additional dedicated and skilled adult, present, to rescues the family during instances of emergency. When a child fell sick in the past, the stay at home mother took care of the baby. Nowadays there is a need to hire a nurse. When the man of the house lost his job, the wife would join the workforce, providing the needed income until the man found another job. In instances of divorce the woman, who previously wasn’t working, would get a job to support her kids. A stay at home parent provided the necessary safety net during times of economic distress (Warren and Amelia 15). Poor saving habit is another danger to the financial stabilities of today's families. If parents with two paychecks saved the second one then this would act as a safety net. With the change in generation, there has also been a significant decline in savings amongst families. Parents are using the additional incomes on extravagant items for their children and themselves. An increased push for housing in decent school districts is responsible for the financial crisis faced by many families at present. This situation is as a result of loss in confidence of the education system. The government should increase investment in the schools that the middle income took their children to. The increased demand for these so called decent preschools and good colleges lead a rise in their cost. The extra income earned by the woman pays for this (Warren and Amelia 18). The cost of living is higher than it used to be. It is a fact that two income families earn more today than what a family with individual bread winners used to earn a generation ago. The cost of mortgage, taxes, health insurance and daycare are higher than before. The net effect is that the discretionary income of today's dual income families is lower than before. There is thus little money set aside for a rainy day. These variables are what make up the two income trap. The families have two income earners, yet the money they have in hand is less. The additional income resulting from another parent joining the work force goes into the cost to keep themselves in the middle class. The State of the health care system is another point worth noting. It increased the need for hired caregivers accelerating the economic crisis that families are undergoing. This role was for the stay –at – home mothers. Most have now joined the workforce. The number of frail elderly persons and the sick is greater in this generation compared to the previous one. The health care system, unable to cater for all of them discharges them quicker and sicker. The family has the responsibility of nursing these individuals back to health. With the mothers at work many, a family opt to pay for expensive caregivers as opposed to having the mothers take time off work. The economic situation is a factor that has also contributed to the financial crisis faced by families in today’s generation. The business climate of the current generation calls for a leaner- and-meaner work force. That has resulted in an alarming frequency of layoffs. Families without safety nets have no option, but to file for bankruptcy. It is worth noting that the two income trap also affects the one income family. The second parent, a woman, entering the work force raised the cost of middle class life for all. In the past generation, one breadwinner working diligently would guarantee the family a comfortable position in the middles class. The bidding wars, powered by two income families pushed the single income families to a lower position on the economic ladder. The single income family would have to sacrifice decent schools and preschool, health insurance and degrees when it wants the mum to remain at home (Warren and Amelia 18). Recommendation to avoid today's serious new financial dangers and still be financially secure while building wealth. The answer to the economic difficulties faced by the current generation is to get a money balance. Money use falls in the follow categories. The first part is the Must –Haves. That is made up of bills payable on a monthly basis. The next category is the wants. That is money for use in having fun at present. The final section is the savings. That is money for use to develop a better future. Families must apportion their income wisely with regards to these needs. From the situations presented by Warren that lead up to the financial trap, the safety net is important in mitigating the economic crisis faced by families. It is a viable alternative since the current generation cannot rely on a stay- at- home mother to enter the workforce. The challenge is the size of the safety net required (Warren and Amelia 67). It is advisable to have a minimum of six months of rainy day fund. It is hard for an average family to have this amount of money in savings. Squeezing the family budget will create saving but this saving cannot reach the six times the monthly expenses within a reasonable amount of time. Escaping the income trap thus requires a bit more financial wisdom. Debt payment consumes 30-40% of the average family’s income. If one were to implement a program to reduce the family debt, then automatically the family would save 30-40% percent of its income. They would also have to cut their living expenses by the same margin. Thus, it will be possible to make a rainy day fund in a matter of days and not over a period of years. With these savings, a family of this generation will be better able to handle the causes of economic distress discussed earlier that lead to bankruptcy, divorce layoffs and illness. They second parent joining the work force will be additionally motivated to work since the additional income will go towards guaranteeing them a comfortable retirement. Warren puts forth steps aimed at having financial stability. The initial step is to count all of one's worth. The individual then needs to escape from the thinking traps. The third step is what she calls counting of Dollars and not pennies. In the fourth step of planning for money, one is encourage that if he/she is unable to have fun than the person cannot afford their lives. The fifth point is on paying off one's past to facilitate building the future. Finally, the sixth step focuses on developing one's dreams a little at a time. Conclusion Financial difficulty is a situation that even the most well of families can encounter. The fact that people do not talk about it has contributed to them having the notion that they are alone in the financial struggle. One should apply the various recommendations given so as to live within their means and overcome financial difficulties. Works cited Warren, Elizabeth, and Amelia W. Tyagi. The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke. New York: Basic Books, 2006. Print. Read More