Can a Millennial Single Earner Support a Traditional Middle Class Family?

The Middle, formerly on ABC. Photo by Craig Sjodin/ABC

[A couple of the formulas in the model have been updated since publication, but the basic financial story remains the same. I have noted in the story where exact figures differ from initial publication.]

One of the largest economic and sociological shifts of the 20th century was the rise of the dual earner family, where both parents were involved in the workforce. In 1960, 70% of American married couples with young children were families where only the dad was in the workforce; by 1990, this fraction was only about 30%, where it has stayed ever since. (A single-digit percentage of families are now families where only the mom is in the workforce, and queer families with two dads or two moms are becoming more common as well.)

This shift has been accompanied by substantial commentary on its implications for economic security, child rearing, and gender roles. Reactions to this shift do not correspond neatly to a left-right political spectrum, as groups like left-wing economic populists and right-wing social conservatives have expressed concerns about its impact, while groups like economically center-left feminists have championed its rise. Elizabeth Warren’s 2003 book The Two-Income Trap mostly described the rise of the dual earner household as a practical response to increasing economic precarity among the middle class that she argues has failed to deliver the security it promised.

That about 60% of families with young children have both parents working clearly indicates that people see benefits to the dual earner model. I bracket the discussion about whether the rise of the dual earner bodes well for American society and focus on a more direct empirical question: is it even feasible for the single earner model, 60 years on from the beginning of its decline, to support a traditional middle class family? I use a simple Excel financial model, visible here, to answer it. The answer is “if absolutely nothing goes wrong, barely.” I also discuss some implications of my results at the end of this essay.

Running the Numbers

I define a ‘traditional middle class family’ here as a family with two parents, two children, a home that they will eventually own, and nontrivial retirement savings. I choose the median person between ages 25 and 34 with a bachelor’s degree in terms of salary and student debt (as 40% of millennials have a bachelor’s degree or more and there is a median wage difference in the tens of thousands of dollars between millennials with B.A.s and millennials without, the middle class traditional family single earner model is generally inaccessible to about 60% of millennials before even doing the math here).

The median college-educated millennial has a salary of about $50,000 and student loan debt of $16,000. I assume that this person has kids at 28 and 30, rents until buying an average house at 28 with a 10% down payment and a 30-year mortgage, contributes 7.5% of their income to retirement savings each year, and pays down their student debt (which has an interest rate of 5%) over 15 years. I also assume that this person is continuously employed, receives annual raises that outpace inflation by $1,000, can get to and from work using inexpensive public transit [edit: until age 28, when a car is bought], does not receive any financial help from their parents, and does not save money for their children’s college education. (If these assumptions sound generous, that further illustrates how tenuous this is.) Various other assumptions about calculating the cost of health insurance, food, and other factors are enumerated in the Excel file, as well as citations to sources for the numbers.

While this person is in their mid-twenties, by keeping spending on entertainment and vacations to about $2,000 per year and keeping rent and utilities to $12,000 a year ($1,000 a month), they are able to save about $9,000 a year in cash. This behavior will probably not be feasible in expensive metro areas like the Bay Area and New York City, and these savings will be necessary to accumulate because having kids is so expensive. At age 28, having accumulated about [edit: over $50,000] in liquid savings and gotten married, this hypothetical person would have to open the purse and spend several years eating those same savings back down to support the home, car, and children. I assume that the home has a value of $200,000 and that the happy couple would put down $20,000 (10%) as a down payment, as well as spend [edit: $6,500] a year on the first child. This means that at age 28 the annual flow of funds into the savings account reverses, from a roughly $9,000 gain to a sharp loss.

From this point on, the cost of mortgage payments is roughly the same as what our model person was paying in rent before. The real hit to the budget is the children. I assume that when there are two kids the direct cost of providing for them (including increased food expenses) is only [edit: $6,000] for each kid due to some efficiencies (handing down clothes to the younger sibling, etc), but this still means that having two kids comes at a cost of [edit: $12,000] per year, and this does not include the cost of having to move from an apartment to a house. The family does save a few thousand dollars due to the child tax credit and a reduction in childcare costs due to having a stay-at-home parent, but it is not nearly enough to cover the costs. Note that the true cost of having children includes not only the direct costs and food, but is also incorporated into the choice to move into the house and get a car.

From age 28 to age [edit: 33], our heroes watch their savings account shrink every single year, usually by several thousand dollars. But at age [edit: 34], victory is achieved: the single earner’s salary rises just enough to have a budget surplus for the year. By this point, the savings account has dwindled from [edit: over $50,000] to [edit: just above $15,000], which is (hopefully) enough that the family will have enough savings to be able to weather some unexpected financial drains (health scares, etc) that are not included in the model. From this point on, the family’s annual budget will result in increasing gains to their savings account, and it will be possible to begin saving some money for the kids’ college.

Actually implementing this in real life would require very strong patience and discipline. This would mean virtually no eating at restaurants, international travel, or expensive purchases in general, including in years that are several years before actually having children in order to build up a substantial nest egg. It would require that they consistently be able to get raises that exceed inflation and not have any substantial period of unemployment. In other words, it would require substantial luck and willingness to pinch pennies for decades. But if you have a bachelor’s degree and run the table, the numbers do work.

I also include scenarios where the same family attempts to maintain the same standard of living but has only one child (relatively easy to do) or three children (essentially impossible without outside help).

Implications

I believe the choice of having one or both parents be in the workforce is not something on which I should be delivering a judgment; I trust families to make the decision that they feel is best for them. I am much more interested in making family life, in all its forms, financially feasible, and I believe that this exercise shows that under current policies having children is a massive financial penalty that can throw families out of the middle class.

For those interested in making parenthood more feasible, I highly recommend the People’s Policy Project (PPP) report on expanding child benefits. Millions of people in America choose to have less children than they want, or choose to not have kids at all, because they also ran some math and could not afford to be parents (or they do have kids and fall into poverty). The report, written by PPP director Matt Bruenig, points out several facts that are obviously true but are not really discussed together: people’s incomes and savings tend to be lower when they are younger because people get raises and get promoted over time, but people also have young children, which are expensive, when they are younger. This means that parents of young children are put into a financial vise, and American public policy currently has almost nothing other than the child tax credit that helps them. As Bruenig says, “put simply, the distribution of income in a capitalist economy is at odds with the rhythm of human life and especially the rhythm of family life.”

The question of whether and/or to what extent the ability of a single earner to provide a traditional middle class life to a family of four has shrunk over time is outside the scope of this analysis, but it should be noted that Oren Cass of American Compass has built a “cost-of-thriving index” that indicates that there has been substantial deterioration since the 1980s. I hope this financial exercise was helpful in illustrating the situation millennials (again, a majority of whom do not have bachelor’s degrees) face when trying to start families.