Having Children is Bankruptcy Predictor:
CCCS-SF Offers Advice on How To Beat the BK Odds

October 10, 2003 – The statistics are in: having children is the most significant factor for those declaring personal bankruptcy. Such is the conclusion of Elizabeth Warren, author of the new book "The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke." Consumer Credit Counseling Service of San Francisco (CCCS-SF), a nonprofit financial counseling and education agency, supports the findings that working parents are under increasing financial pressure, and at risk of declaring bankruptcy in increasing numbers.

"Spending on luxury items isn't the problem," said Patricia Perez, a counselor for CCCS-SF. "It's everything from high housing expenses, two car payments instead of one, and increased health insurance, food, clothing and childcare costs." Many parents use credit cards to make up for negative cash flow. It doesn't take long for balances to exceed credit limits and payments to be made late – leading to costly fees and high interest rates. The stress can be overwhelming. "Many people see bankruptcy as their only hope for relief," said Perez. "And that's often not the case – parents do have options."

With the right tools, assistance, and information, many parents can become and remain financially healthy. CCCS-SF offers the following advice to current and future parents:

• Track spending to know where your money goes. Then identify expenses that can be reduced or eliminated – and take action.
• Expect and prepare for emergencies. Aim for six months worth of expenses set aside in an account where you wont be assessed penalties for early withdrawals. That's three more than for those without children, so start saving now.
• If housing costs are too high, consider downsizing, renting or home sharing with other family members.
• Consider couples therapy or counseling to help prioritize values.
• Do not try to keep up with the Joneses – chances are they are probably in a in a worse position than you are.
• Childcare is the single largest expense for most working parents. Explore nanny share care, a co-op, and subsidized daycare.
• Sometimes it is worth it for one parent to stay home. Calculate how much you could save (or come out ahead) if you did.
• You may be able to pay for unreimbursed medical expenses with pretax dollars using a flexible savings account. Check with your employer for availability.
• Commit yourself to spending within your means. A line of credit is not an emergency fund or extra income.
• Get professional assistance and support. CCCS-SF offers free financial counseling to help you prioritize your expenses and understand debt repayment options.