Household finances: Should you stay at home or pay for child care?

Globe and Mail


…. 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….

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 [associate professor of finance and accounting at the University of Western Ontario’s Richard Ivey School of Business in London, Ont.] says.

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….

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.”…

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.

Source: Statistics Canada