The biggest and most important decision faced by any parent or parents of young children is the question of child care. For some families, of course, the answer is obvious: single parents or low-income families may have no choice but to continue to work, entrusting their children to family, friends, a babysitter, or day care. For those with the means, however, some may ask if a parent (usually the mother, but occasionally the father) should stay at home with children, either taking on a part-time job with flexible scheduling, or having little or no outside
work at all.
|Joshua last fall with his youngest daughter, Abigail|
To be sure, there are all sorts of non-financial considerations. A parent may wonder, for example, if she or he can handle staying at home emotionally. Those emotional and practical questions are important, and they will be addressed by my wife and Mumbling Mommy deputy editor, Rachael, in a post tomorrow. Here, my primary focus is on the financial particulars behind keeping a parent at home.
Liabilities are expenses, the things of life families either choose or have to pay for. Liabilities are important because they have a big impact on whether or not a family can even keep a parent at home in the first place. Some of these liabilities are fixed: in other words, there isn’t much flexibility in either reducing or shedding them. Student loan debt, child support, and alimony are all examples of largely fixed expenses.
The home mortgage or rent is usually the largest of the fixed expenses. There are many families who might otherwise be able to afford having a stay-at-home parent who cannot because they are “house poor,” trapped in a mortgage that requires nearly everything their two incomes can manage. This is a common example around here: a couple collectively earns $100,000 a year – around $50,000 each – but both must work because the large suburban home they live in was purchased for $250,000 or $300,000. In the past, this was a relatively easy expense to reduce, but the current housing market makes that harder, especially if it is a home that is worth less than what the family owes on the mortgage (known as “being underwater”).
Other expenses are more flexible: they can be reduced or eliminated. While these are rarely as big as the mortgage, they can be the key to affording staying at home for some families. In my experience many families get what Rachael and I call “nickled and dimed.” They make all sorts of small purchases or take on all sorts of relatively small expenses that by themselves aren’t enormous but that pile up. Examples of flexible expenses that can “nickel and dime” a person to death include cell phone plans (especially those with data), Internet access, cable or satellite, eating out, vacationing, and the thousand different impulse buys or poorly researched purchases a person can make.
Drawing down those flexible expenses takes some time and effort, but the payoff can be well worth it. Replacing cable or satellite with Netflix or Hulu Plus (or, better still, with the public library or Redbox), researching more reliable car or appliance brands, cutting down on eating out, dropping a cell phone data plan, or haggling over Internet pricing are all possible ways to reduce liabilities in a way more friendly to a single income.
The Losses of Staying at Home
It probably goes without saying that staying home is, for most people, a net financial loss. There’s no way around it. You may gain in other valuable ways, but for most families the short- and long-term financial prospects are less than if both parents had kept working full-time. A person who leaves a job not only sacrifices their current annual salary, but also future income (including the amount of Social Security or pension payout) and career advancement. In addition, benefits like health insurance may have to either be borne by the remaining income or discarded altogether, the latter of which can become a nightmare if someone gets seriously hurt or ill.
Another risk attached to a single-income family is the possible loss of the main job. With two incomes a family might be able to get along for a time on just one, but the loss of the sole family income can loom a lot larger than if it were just part of the family income.
A third, easily overlooked, potential loss relates to how that stay-at-home time is spent. Most parents will want to get out with their kids at times, and while many communities offer plenty of freebies to entertain, other activities for kids can cost money. These small purchases, like others, can begin to accumulate. I also know a few parents who have trouble keeping free activities free; one mother I know, for example, takes her children to the playground at the local indoor mall but finds it hard to keep from shopping or picking up food while she’s there. Some boundaries and discipline are helpful to making a stay-at-home situation work at its best.
The Gains of Staying at Home
The losses of leaving a job are pretty easy to spot. Less obvious, though, are the financial gains of staying at home. For the vast majority of families these monetary gains will never completely offset the onetary losses, but they can take some of the bite out of that now-absent second full-time income.
One of the biggest gains is the end of expenses associated with working. Gone is child care, or what the government more scientifically calls “dependent care expenses.” Child care can run very high for families with multiple children; I know people who have quit their jobs because they determined they essentially broke even paying for child care and working. Gas and depreciation on a car are also dramatically reduced when leaving the workforce, which can run into a savings of hundreds a month if a long commute was previously involved. Yet another recouped work-related expense is professional wardrobe costs, which can run quite high depending on the profession.
Another important offsetting gain comes in the form of tax liability. Less income almost always means lower taxes; more than that, a single-income family may pay no taxes and even get money from the government in the form of the Earned Income Tax Credit (EITC). The EITC is essentially tax-free cash from the government to working families who are below a certain financial threshold, and it can run in the thousands. As an example: a family on a single income of $50,000 a year with two children might, after health insurance and social security deductions, have an adjusted gross income low enough to qualify for $2,000 to $2,500 from the government. This obviously varies from situation to situation, but an EITC potentially equal to a month’s income can be a big help.
Yet another gain is what I call “creative efficiencies.” These are the cost-cutting measures that families on more restricted incomes are more likely to take on. When my wife and I both worked, we didn’t worry as much about expenses like how much we spent on groceries or what we paid for certain items because finances weren’t tight. Now that we are on one income with two children, our financial constraints bring out our resourcefulness. My wife shops at Aldi and looks at yard sales for kids’ clothes. I have successfully haggled to keep my Internet bill under $20 a month, and Rachael helped me find a very expensive antenna for cheap at a yard sale to provide free digital, high definition over-the-air television in lieu of satellite. More ambitious families might consider downsizing their home or vehicle arrangements, or even seek to restructure debt in a way that makes it more cost-effective.
From a purely financial perspective, the decision to keep a parent at home is a difficult one, and for some people liabilities like debt, a high mortgage, or the absence of one good paying job make the whole idea impossible. Even for those families who can afford it, the decision does not come without financial cost; a person who leaves their career will likely never make that money back, even if they return to their profession later in life. That’s not to say that there aren’t other good reasons to keep someone at home – if there wasn’t, Rachael and I wouldn’t be doing it – but it does mean that families have to come at this decision with eyes wide open.
That all said, the financial outlook isn’t all bad. A full-time stay-at-home parent saves a lot of money in many areas and the challenge of working with less can bring out the best of families financially. Families can learn to be more efficient with their money and discover new and creative ways to save and spend that they did not know existed. And, as Rachael will talk about later, there are some benefits that can be, to some families, worth much more than the financial sacrifices.
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