Moreover, one disaster often triggers another. A layoff may leave a family without health insurance, increasing the exposure to an exorbitant bill. Similarly, a job loss may actually lead to divorce; sociologists have shown that as finances deteriorate, couples tend to fight more, increasing the chances that they will split up. Among families in bankruptcy, nearly half report two of three problems — job loss, medical problems, or a family breakup — and about one in thirteen were hit by all three. We have no statistical proof of the old wives' tale that bad things happen in threes, but there is ample evidence that disasters really do follow disasters. — Elizabeth Warren & Amelia Warren Tyagi, The Two-Income Trap

I find it rather interesting to consider the various ways that one "dose of bad luck" could set off a chain reaction of financial mayhem. It is evidence, I think, of the immense "interconnectedness" of our world and our lives. Screw up one thing, and before you know it, two others are waiting right behind.

Mr. Smith, for instance, is laid off from his job, and has difficulty tracking down one with similar pay. His family has little liquid savings. Money rapidly becomes tight. His credit-card balances increase dramatically due to loss of income. Shortly thereafter he posts a late card payment. He is tagged with late fees and higher rates on all his cards. Payments become larger, and money tighter. At the same time, his medical insurance evaporates. Gone with it is the 80% coverage for his family's necessary monthly prescriptions. More pile-up of bills and debts. Under stress, his marriage begins to fray. His credit score drops, reflecting the late payments. Potential employers see this and become even more skittish about hiring Mr. Smith. He is driving much more than usual now, hopping from possible employer to possible employer. On the way to an interview his vehicle craps out. Or, his mind wandering, he causes a wreck. Perhaps he is even injured. Then things get really nasty . . ..

My point? So many people simply do not realize how quickly things can get out of hand. Without a safety net in place, well, once the chain reaction gets going, it's very difficult to stop.

There is, by the way, a really good review of Two-Income Trap posted at Spending Wisely. I reviewed it, too, but I will freely admit that Ms. Ordway's review nukes mine.

It's a good book. Maybe not entirely on target, but good. And worth picking up cheap. Or free.

Labels: Bankruptcy