Hot! Should you stay at home or pay for child care?

TheGlobeandMail.com – globe-investor/personal-finance/household-finances
7 August 2012.   Roma Luciw

After the birth of her first son in 2002, Shawnessy Johnson was able to juggle parenthood and working. “I remember when there was a crisis, I would take the baby into the office and set up a playpen.”

The arrival of her second son two years later changed everything. Holding down a job as a small business management consultant, even part-time, and raising two small kids was overwhelming. When her younger son turned 1, she and her husband crunched the numbers and decided she would stay home. “I didn’t make that much money, so the cost of putting both boys in daycare would have been too much,” said the 40-year-old Toronto resident.

Ms. Johnson loved being a stay-at-home mom, but she has since gone back to work part-time. With her boys now 8 and 10, she is about to start looking for a permanent job. “I am a little nervous, but the advantage is that I have kept my foot in the door.”

It is a dilemma over which many parents wrestle: When does it make sense to put your career on hold and look after the kids versus going back to work and forking out the money for child care? Income, career development, the size of the family and the cost of care are some of the factors that play a role in this highly personal choice.

“How much money the individuals make dramatically impacts this decision, and clearly the number of kids you have makes a massive difference,” says Rick Robertson, an associate professor of finance and accounting at the University of Western Ontario’s Richard Ivey School of Business in London, Ont.

A family where the lowest-earning spouse has an income of $30,000 is clearly in a different financial situation than one where the lowest earner brings home $100,000, Prof. Robertson says.

Parents with multiple children sometimes decide to get a nanny, which can be cheaper since paying for daycare becomes more expensive with each additional child.

Prof. Robertson provided this example: A family paying $600 a month for daycare needs to cover an annual bill of $7,200, before taxes. The arrival of a second child doubles that to more than $14,000, while a third would boost it to almost $22,000, all on a pre-tax basis. Costs vary greatly depending on where you live, but parents in big cities are likely grappling with monthly bills that are significantly higher.

What was manageable with one child might not be with two. Does having three put you over the edge? What about eight?

Véronique Bergeron is a mother of eight who has moved in and out of the work force.

The 38-year-old Ottawa woman, whose oldest is now 16, first got pregnant when she was still in law school. She placed her daughter in a daycare that she describes as “really bad.” She had a second child and by the time she finished her degree, was pregnant with her third.

“It was not a good time to start my law career. I kept having kids, my husband was deployed overseas and life took over,” she says. She spent her 20s at home with her burgeoning family, something she could afford to do thanks to her husband’s salary from a defence and security consulting firm.

By the time she turned 32, she was itching to get back to work. But her lack of experience and lapsed credentials made it impossible for her to find work as a lawyer. So Ms. Bergeron went back to school for a master’s degree and, by 35, had found a job as an assistant for a federal member of parliament.

When her mat leave ends in September, she plans to return to work, part-time. First she has to secure child care for her three youngest: a nanny for her 10-month-old twins and a preschool spot for her three-year-old. Paying someone to look after them will be expensive, costing the family an estimated $800 per child each month – roughly $28,800 a year, before taxes.

“Right now, I will be paying more in child care than I will make at work part-time, but I will keep my job, my benefits and my continuity of employment,” she says. “The money that it is costing me to go back to work, I see it as an investment in my career.”

Certified financial planner Alexandra Macqueen says that parents who drop out of the labour force are forfeiting not only the wages over the three, five or 10 years that they are not working, but also the time it will take them to regain that lost ground.

“If you lose out on a $10,000-a-year raise that you would have gotten by staying in the work force, over just five years that is $50,000,” she said. “When you look at that over a lifetime of earnings, that can be very financially significant.”

Leaving a job in your 20s or 30s – key career-building years – can make it difficult to get rehired, Ms. Macqueen says. “I worry when a Mom or Dad … decides to stay home for 10 years and then expects to get back into their work force where they left.”

University of Toronto economics professor Michael Krashinsky, who just began a study looking at what point the cost of child care starts to tip behaviour patterns, says that while some men choose to stay at home with the kids, in the majority of cases it is still women who exit the labour market. “Even though many women now earn more than men, typically it is the woman who considers dropping out.”

Of course, staying home or returning to work are not the only two choices. It is increasingly common for parents to adjust their working lives, cobbling together free care from grandparents, a move to a part-time job or shifting their hours to provide child care themselves, Prof. Krashinsky says. “Maybe one person works nights and the other works days … so the kid is getting care from the parents but the parents are being driven over the edge.”

For those who keep working, flexibility and availability are major factors in the work-child care balancing act, Prof. Robertson says. “Certainly, one of the two spouses has to have at least some degree of flexibility. Or that flexibility has to be purchased by paying the caregiver.”

A mom or dad who routinely needs to work late won’t be able to pick up their child from daycare on time, so will have to pay for extended care or for someone else to pick the child up.

“Once you start to have two or three kids that are younger, you are looking at some large child care costs,” Prof. Robertson says. “If the lowest-income spouse is not making more than $30,000, I don’t see how it can be worthwhile to pay that kind of money.”

Generational divide

Stay-at-home moms are far less common these days than a generation ago. Statistics suggest that women are more likely to quit the work force while their children are young and return to work once their kids are in school.

In 1976, 31.4 per cent of mothers with a youngest child aged 5 or younger were employed. By 2012, that number had risen to 67.2 per cent.

In 1976, 46.4 per cent of mothers with a youngest child aged 6 to 17 were employed. By 2012, that number had surged to 79.3 per cent.

1 Comment

  1. I found this article particularly fitting for me due to questions I have surrounding this topic. When a baby is brought into the world a common concern that arises is whether or not both parents will continue working, or pay for child care once mat leave is over. What it boils down to is whether or not it is beneficial financially for both parents to continue being employed.

    Stated in the article, if one person in the family decided to stay home and the other continues working bringing in roughly 30,000 dollars. I believe with that income it is manageable for either the male or female to stay home until they felt comfortable to pursue a job. The challenge arises when a family’s income is 30,000 dollars and they begin to expand their family. Now there are two maybe three children. This is when times become troubling and it creates both parents having to work.

    In reference to entering the work force, if an individual has been unemployed, barriers can arise due to work experience, inadequate schooling, and lack of knowledge regarding the newest technology. The previously stated barriers are directed more towards professional career options. In the Article it mentioned that women now are making higher salaries then men. Women tend to have difficulty becoming CEO’s of companies due to the years away from work because of child rearing. In my opinion women should be able to attach to their resume the fact that they have raised a family and their challenges and accomplishments that come along with staying at home. By choosing to remain home and being primary care giver it is putting the woman behind career wise. However, if an individual were to work a part-time or full time retail job would it be worth it for the family? Taking into consideration how much day care costs and how much income the extra body would be bringing into the home, would it be justifiable? I believe if a family were to have one or two children in day care and both parents were working it would be financially stable. However, families may see the cost of day care as unnecessary and would choose to stay at home.
    One statement stuck out to me the most in the article which mentioned that it has been “increasingly common for parents to adjust their working lives…maybe one person works nights and the other works days.” (Krashinsky, 2012). Not only would the child miss out on having both their parents around, the parents would not be around to support one another. What kind of family dynamic would this create? If day care were to cause debt amongst the family I agree that either the mother or father should remain home however, if the extra income were to only generate say an extra 10,000 dollars annually both parents should continue in the work force. Having parents remain in the workforce allows them to feel a sense of accomplishment and equality. Whereas for the child or children they learn social skills and can build friendships within day cares.
    Overall, we must overlook the amount of money that will be spent into providing security for children, be optimistic and think about the outcomes that come along with day care.

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