The Real Cost of Staying Home with Your Kids: Is it Really Cheaper Than Paying for Childcare?
On average, childcare in the U.S. now costs more than rent. Childcare and nursery school cost have risen 168% over the past quarter century. This rising expense will surely put you in the hot seat when trying to decide what to do. If you are going to be paying up to 30 percent of your income directly to a childcare provider, it is worth going to work? The short answer is yes. Even if direct childcare costs totaled up to more than 50 percent of your income, a work stoppage is never the more cost-effective option. Sound crazy? Keep reading…
What is the Real Costs of a Career Break?
When you exit the workforce, you don’t just lose out on salary. It’s fairly easy to run the numbers and say “the average annual cost of childcare is $18,000, and I want to be at home with my kids.” When you don’t make a lot, that number can eat away at your take-home pay, making it a challenge to see the value in going to work every day. After all, $18,000 per year works out to $346.15 each week. When you are only bringing in $487.62 a week, the average take-home pay on a $35,000 annual salary, what is the benefit of working versus staying at home?
The little remaining out of every paycheck may not motivate you to stay in the workforce, but the cost of exiting is a lot higher than just missed salary opportunities. If finances are your primary concern, there are other factors (retirement savings, salary increases, etc.) that can impact your lifetime compensation.
Benefits of Being At Home
Of course, financial issues are not the only considerations when you are considering a nanny for your children. Staying at home during the early years allows you to develop a long-lasting and loving relationship with your children. You help prepare them for school, ensure they get taught the right social cues and form the foundation for their daily life. There are many intangible benefits to having a parent in the home, but the financial costs are considerable.
Adding Up the Intangibles
When you exit the workforce, your salary freezes, you stop collecting wages and you accrue nothing toward retirement savings. Let’s look at a couple of scenarios.
Scenario 1 - Stay-At-Home Right Out of College
If you meet your life partner at college and decide to start a family right after graduation, maybe the cost will be fairly reasonable: you’re young and haven’t yet established your career, so you have less to lose. Plus, childcare might actually cost more than you earn.
According to the childcare cost calculator, if you stop working full time at 22, after having spent less than a year in the workforce, and plan to be off for 5 years to care for your child, your total income loss will be $409,556 at an estimated salary of only $20,000.
The breakdown is simple:
- $100,000 in lost wages. (5 years off x $20,000/year)
- $173,667 in lost wage growth.
- $135,888 in lost retirement savings and assets.
Even in Washington D.C., the highest-cost childcare area in the country at $1,400 per month, the cost is less than one-quarter of what you will lose for a five-year career break.
Scenario 2 - Invest in a Career, then a Family
If you would rather spend some time pursuing a career before you settle into the joys of family life, you might see an established wage of more than $60,000 per year. The larger your salary, the bigger the financial hit when you do take that planned career break.
Consider the breakdown:
- $300,000 in lost wages. (5 years off x $60,000/year)
- $254,737 in lost wage growth.
- $230,243 in lost retirement savings and assets.
That works out to more than three-quarters of a million dollars in just five years. Also, keep in mind that these numbers are just for women. Men stand to lose even more, as employers are less understanding toward men who take time off to raise their children.
Balancing the Cost-Benefit Equation
Going to work every day and turning over most of your paycheck to a nanny, babysitter or daycare center is tough. It can make even the most fulfilling career seem like a burden. You may miss out on some of the most important childhood moments, all to pay someone else to enjoy them. However, lower-cost childcare solutions might help when making your decision. If you have more than one child, you can often negotiate lower rates. You might also work with another family in a similar situation that could share the services of a nanny.
Some daycare centers offer need-based discounts, so if your income is not sufficient to cover the cost of childcare, you might explore other options. You’ll want to pay your sitter at least minimum wage for your area, but that might cover the costs for more than one child.
Staying At Home Versus Going to Work
Ultimately, no matter how expensive childcare and low your wages, it usually makes more financial sense to go into work. Missed career opportunities often cannot be made up, so a year off from work can translate into heavy losses. A good nanny can help you feel confident about going to work every morning. To show appreciation, salary increases and vacation time are a good way to maintain your childcare relationship. When you’re not making a lot, staying at home might feel like the most cost-effective option, but in the long run, it is much more expensive than an hourly nanny wage or paying a daycare center.
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