Latest / Money Grows on Trees / #333 - Why 2 Incomes Made the Middle Class Poorer

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#333 - Why 2 Incomes Made the Middle Class Poorer · Money Grows on Trees

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Doubling your household income actually made you poorer. Most
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people think having two incomes is the only way to survive in Australia. But
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the reality is, when women entered the workforce en masse, it
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didn't double our wealth, it just doubled the price of
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housing. In 1975, a house cost 3.7 times a single
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income. Today, almost 10 times. It's actually 9.4 times
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a single income or combined income. So I'm Lloyd J. Ross,
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seven-figure investor entrepreneur, and I've helped thousands of everyday Aussies,
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Americans, New Zealanders, Canadians to get out of real debt and build
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real wealth. And in this video, I'm gonna show you exactly how the two-income trap destroyed
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the middle-class wealth and what you have to do differently now
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to actually get ahead. So let's go to what actually
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caused all this, all right? So we have to understand what happened in the
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past. So in 1975, a single wage was about $7,600 a year on average. and
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the average capital city home was $26,000 to $33,000. So a house
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to income ratio on one income was 3.7. So you
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needed three and a half years of salary to buy the average home. The
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1984 comparison, one generation ago. It's only one generation ago. It's
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a nation history. The average home 64K, average
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income 20K. Ratio, 3.3 times.
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This is from the Australian Bureau of Statistics. This is actual data. The
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2025 reality, average home cost 9.4 times
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the average annual income. 9.4, that's a
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factor of three. Now, mortgage
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as a percentage of median wage, same cities. 50 years
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apart, let's look at it, data, Adelaide in
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1975, 34% of the wage, now it's
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up to 70% of a median wage. The
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same, may not be your wage, but it's of the median, 70%. So
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someone on an annual wage to facilitate a mortgage repayment of the
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property market there is up to 70%, it's crazy. Brisbane's about
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48%, it's wild. Canberra's off its face. This is
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the data from money.com.au, but the headline number is this, the understanding that
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since 1975 house prices rose, this is you can see what's happened here, 3,400% roughly.
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So 34x. Wages rose
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1180%, 11x. So house prices grew at nearly three
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times the rate of wages in the last 50 years.
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So that's not a market cycle, that's a structural repricing of the most essential
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thing a family needs, and that is shelter. And what caused it?
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It's a shift in how households earn money. Okay, so
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what does 9.4 times income even mean in real life, right? What suburb could
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your parents afford on one income that's now like it's our
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parents didn't do that. They didn't. They lived in good suburbs for
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three and a half times and you're learning to buy a house. Okay, so
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here's the unintended consequence of a shift
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in how we earn money. And it's not an argument certainly against women working,
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equal pay, career opportunity, financial independence, none of that stuff. It's
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about the economic side effects that nobody had expected or
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planned for. So before the 1960s, one
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income per household by law and design. Married women
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couldn't work in the Commonwealth until 1966, just so you
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know. Women couldn't work in the Commonwealth in
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public service, that is, until 1966. Then
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everything changed. Legal barriers were removed, equal pay legislation, contraception,
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childcare, default divorce. like
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divorce rates spiked, and many women entered the workforce as
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part of World War II, but then in general to
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get financial independence and start to also bring in more money to
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the family. So the female workforce participation rose
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from 44% in 1980 to 61% by 2020. So mothers in the workforce more than doubled since 1984. The economic consequences
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are this.
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Obviously more household income, cool, but then greater
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borrowing capacity. Banks lend more, more money
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chasing fixed housing stock, prices rise, housing supply
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is fixed in the short term because of regulation in this irritating country sometimes.
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The money chasing it doubled, okay, so the prices absorbed it,
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that's where it went. So the income created higher
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approval rates for higher loans, bigger loans
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effectively, and that was just price pushed
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into real estate. It wasn't spread out from supply, which
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it should have been. If you combine that, like in the 80s,
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they deregulated the financial industry. The rates
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on loans changed too because of the deregulation in the 80s under the Hawke government.
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Hawke and Keating deregulated the banking industry. Interest rates fell from 15% down
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to six. That's
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also because inflation was curtailed, but the
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deregulation really helped. So it put jet fuel on the borrowing capacity.
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So it went from 17% rates to then six plus a
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whole nother person joining the workforce in the household doubled the income. So
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the second income didn't make families wealthier, it really just got priced into
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the cost of access. Because do you feel wealthier? No,
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right Those that were in back then have built this Like
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sit on your ass wealth in property, but it's because this structural
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shift has happened in real time, right? So the property market basically said great you
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can now afford what used to cost half as much So the finish line
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moved that's what happened, right? So people aren't talking
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about publicly like what's the political reason well because they think
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it's an attack on women entering the workforce. It's not an
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attack, it's just that if we were going to earn more income,
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why do we use it to bid up housing, right? So let's go through some
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numbers here and just so you understand this. Let's say now, so
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I want to show you the actual net gain of the second income
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earner as an example, right? So this is for the Australian Bureau of Statistics for
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wages. So partner one earned 90 grand, okay? On
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average, part of two, let's say 70 combined 160, sounds
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pretty solid. But what does the second $70,000 income actually
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bring net after having to outsource pretty much everything, right?
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So we look at 70,000 gross, the tax is about eight and a half,
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Medicare levy is about 1400, the gross is about 13,000. So
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the take home is 56,000 as an example, right? Or 57,000. That's
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the take home after taxes and Medicare levy, et cetera. So 57,000, that's what
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they got. Now, childcare to kids after
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the 50% subsidy is 16 grand. Transport,
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seven, like work, wardrobe, dry cleaning, et cetera, two and
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a half. Lunches and coffee, three and a half. Convenience meals per household,
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5K. Afterschool care, OSH, 4K. Household
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help, getting a cleaner, et cetera, 3K. Total, 41K,
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right? The national average, this is from childcare source, Kindercare
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in 2025, the national average for childcare before subsidy
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is $343 a week, 17,000 a year. It's huge because
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raising children has had to be outsourced. Looking after children has
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had to be outsourced. So yes, you can earn the 70, but what are you outsourcing? The
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outsourcing costs are 41,000, okay? So
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after tax of 57 minus 41 is about 16K. So
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16,000 net is what that second earner brings in. Now, if you
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look at that on an hourly rate over say a 38, our
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work week as an example, it's about $9 an
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hour. The national average, by the way, is $24 an hour. Again,
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that's before tax. But after tax, say
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$18, $19. So the person is earning less than a third of a minimum wage in
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real terms, and that's because a lot of
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the money is used to outsource everything else. So let's paint the DAV what it looks like. Second
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job, 70K, net 57 plus all the costs. So
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I want that $9 per hour to land. you
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get for being able to bring in $9 an hour extra, here's
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what you get, okay? 7 a.m. start, childcare
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drop-off, commute, full day at work, 6 p.m. pick up,
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dinner, like what? And that's conservative figures. Like
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in Sydney and Melbourne, with the two kids not subsidy capped, the net
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is like closer to zero gain. Like net zero
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gain for the second income. So, some families are literally losing
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money to have the second person go to work because they haven't calculated, haven't
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sat down to calculate it. So, once it feels like you're earning more
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because you got more cash flow, it's just disappearing, right?
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And so, certainly, the reason for that is because two incomes
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are needed for the mortgage approval. Right? Because
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it's like, honey, we're not working to pocket the 15k cash flow,
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we need it to qualify for a mortgage. So the culture of you must buy
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a house or you're a peasant has forced people to do this to
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just be on the ladder and it's destroying their life, right? The
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banks now assess household income on the borrowing capacity,
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right? So the property prices rose to absorb the new
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combined capacity. So if you need two incomes just
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to get in, right, even though one barely covers the extra cost
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of having to function in life, you're not really building wealth, you're servicing the
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debt on an asset that's been repriced. So in
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1984, you know, 3.3 times annual salary to get a house, it's
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now 9.4. So your parents bought a house on a
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single teacher's salary. And our generation needs two professional incomes
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and a decade of savings, 40 grand in stamp duty, and
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1.1 million in bank interest just to buy in a
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similar suburb. It's not because it's personal failure, like it's not
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because we're eating out more. It's
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really a structural shift. It is, it's a structural shift. So
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you may not even be bad with money, but the game has changed around you,
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right? And so how you play the game now must change. Would
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you agree? So here's the cost nobody really is considering at this point, right?
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Time doesn't show up on your bank statement, but it's the most expensive thing
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that the two-income trap takes from you is your time. In a single household income, one
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parent stays at home, present, school runs, sick days, homework, 4pm, dinner, blah,
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blah, blah. That's what happened to me, right? Economically invisible, but huge,
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huge. With both, and my mom has four kids, so it's like, yep, that's
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a full-time job for sure, more than a full-time job. With
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both parents working full-time now, it's like, well, heck, like outsourcing, cleaning,
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cooking, lawn, and after school just so the other person can earn. Now, of course,
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it makes a lot more sense if that person can earn more than $70K. Like if they can
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go and earn $150K and you got $100K, that makes a lot more sense. But
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this is not what's happening necessarily. Again, because people
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haven't done the numbers. Just quickly, if you're ready to take control of your finances, but
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feel stuck on where to start, I have a solution. My
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book, Money Bias Happiness, simplifies investing and
10:43
wealth building with practical steps to help you achieve financial peace.
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Get your copy via the link in the show notes and let's get your money working for
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you. Now back to the episode. So yes, we gained
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a second income, but we outsourced our lives to pay for it. Somehow
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we're still behind, right? So what
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does it cost? It's exhaustion. It's Sunday dread. It's lost
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its life cost Just to get a house and
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this is where this whole notion of buying a home in this country
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culturally Destroys people I think so who are
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the people that won with this structural shift one the banks because
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now they have two incomes and instead of one, so they can lend out more.
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Two, property owners who already owned because the shift
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just structurally increased the price, repriced it. It
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brought 3.4 times annual income to 9 to 10 times. No
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skill, no skill, just timing, right? Like
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they didn't do anything, there's no productivity out of that, none, no net productivity.
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The other winner is the childcare industry, huge winner, right? Subsidized childcare,
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17,000 a year. The government spends $3.5 billion
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per quarter on subsidies for this. And
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this is why we have a huge amount of inflation problems in this country, because of
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spending on these types of things that weren't available around before, needed, right?
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And of course, the convenience economy. So Uber Eats, DoorDash, cleaners, meal
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kits, AirTasker, LawnCert, like they're
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filling the gaps of what would have been done by the household, yes? Now,
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if you're not earning enough to cover that, you're losing. And of course,
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this is what wiped out the middle class. So, working twice as hard,
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gave up presence with children, ended up in the same house that parents
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bought on one income for two, but way, way higher price
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with LMI, stamp duty, bigger deposit. So, more cash required
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too, a lot longer before you can get on the ladder. In fact, statistically, it's like
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late 30s to buy your first house now. It used to be 20s, right? So, the
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entire productivity of an entire generation of women entering the workforce Huge
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economic shift, but it's been captured by the banks. It's been
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captured by banks, property owners, childcare owners, not being captured by
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the middle class, yes? The middle class has gone to work for the other people. So,
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how do you shift it? What's the way out? How do
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you change this? It's not hopeless, which is great. So there's probably three
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practical moves you can consider. The first one obviously being
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run the real numbers on your second income. If your second income is not bringing
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in what it's costing you to outsource the other stuff, why have it? You're far
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better to have your time. It's more valuable than $8.40 for an hour. Wouldn't
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you agree? So understand what
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it costs to do the numbers, okay? If the numbers tell you you're losing, I
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think it's a pretty easy decision while you're working there. There are other ways to earn even
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at home that would be more commensurate to a higher hourly rate
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with your time back and your sanity. Second,
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question your suburb, right? So the dual economy makes repriced central suburb
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locations. So now with technology, maybe consider, hey,
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where can we buy that's not as expensive so we can drop
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our purchase price per our annual income? further
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down, so you don't have to work as much to facilitate that. Or
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consider renting over owning as an example, which is a real possibility too.
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Now, and here's the third part, which is to do this. Learn
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to develop and educate yourself on developing income that's
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not purely tied to time. Some of it obviously is, a lot of it
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is, makes sense. But what can compound without your
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time? So instead of spending stuff on the convenience economy, what about indexing? What
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about a side business? What about, you
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know, adding certain equity to your property? What
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can you do to add in things where you can charge, right?
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Can you get a new qualification to double your hourly
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rate too? So how can you double your
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income without doubling your time? That's a good question to ask, okay?
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And begin with a small step because every million dollar portfolio start with a
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thousand bucks, 500 bucks, 10 bucks, it doesn't matter. You've just got to get
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in the habits of doing things over time that's going to bring you money without your
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time. So for
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most two-income families, I hope you're earning a lot more than 70 on the second
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one and I mostly hope that you're not delegating
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using all the money to delegate all those things that you could be doing yourself because
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your time is more valuable. And if you are, really reconsider your
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whole position and everything's on the table. There's a great saying that says,
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edit your life ruthlessly and often. And so if
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you're really tapped, then it's a wake-up call to say, how
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do we get untapped? How do we get untapped? Because
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the two-income household would have worked for a period of time until real estate numbers just
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jumped and now it doesn't work anymore. And guess what? We
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can't bring in a third earner. That would destroy your marriage. We
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can't bring in a third earner. We can't deregulate the financial industry again. We
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could push out terms to 40, but who's going to buy into that? We can't get
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interest rates to 0% again. If anything, taxes go up. If anything, with
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the price of oil, things are going to go up. Cost of living go up. If anything, it's going to
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get harder. So, I don't think we're going to see this massive
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50-year gain in the real estate market, and I've mentioned this time and
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time again on this show, we're just not going to see it. So, how are
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you going to play this game differently? What are you going to do that your parents
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didn't do? Because your parents can't give you any advice because they grew up in a completely different time. They
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have no say in this, none. They don't understand, right?
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They may understand some things, but they don't understand nine times annual
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earnings for your first half. They just don't. They never will. So you can't just
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rely on that anymore. What are you going to do? What
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skills are you going to get? What education are you going to get? What are you going
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to sacrifice? And how are you going to edit your life ruthlessly right now?
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What is on the table? Put it all on there. Everything's up
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for grabs. Take your gloves off, sit down with your spouse and go, what are we doing here? Are
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we just on automation till we're 65 and die? Is that the game? Or
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is there a better game? Are you gonna move? You're
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just gonna shift country? If you're not having the life
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that you desire, put it on the table. That's what I've done in my life. I
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remember back in, I was like commuting three hours a
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day. I'm like, hang on a second. What the hell am I doing? What, what,
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what? God put me on this earth, 402 into one shot
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and I'm sitting here commuting, what? Wake
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up. So the call to action here
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for you is this, sit down and do the numbers, and then take
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some bold action. Make some hard decisions. Because if you don't, the
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next 10, 20 years of getting away from it, you'll have nothing to show for it. You'll have no memories. You'll
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have lived someone else's life. For what? Just to say we got a house? Who
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cares, right? So I hope that makes sense. Do you agree with me? Do
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you think the second income's destroyed the middle class instead of advancing it?
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I'd love to know in the comments. Drop them below. Hit the subscribe button, and
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I can't wait to see you in the next episode. Thanks for listening to Money Grows on Trees.
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