Money Match-Up: Stay at Home with New Child or Return to Work?

Here's the latest post in the Rockstar Finance Money Match-Up series where two money bloggers argue opposite sides of an issue. Today's issue features another interesting debate -- should a parent stay at home with a new child or return to work? We'll begin with Your Money Blueprint who says a parent should stay at home...

A Parent's Decision: Argument for Staying at Home

Children cost money. Newsflash right? There comes a point in most two parent household lives where they must decide whether to return to work or stay at home and take the role of full time caregiver of their child. The average cost to raise a child to the age of 18 in New Zealand is approximately $280,000. That is about $15,000 per year. If you are going to fund college as well, then this figure may be higher. Of course, this is just an average. There are so many variables, such as what day care you use (if any), where you live, the social support you have, and your spending patterns. Could be more, could be less. That is no chump change and is almost enough to retire on for some people. So, it would make sense to return to work wouldn’t it? Not so fast.

It Costs Money to Work

Before we can make the decision to return to work we must first calculate how much we get paid. Let’s take an average income earner in this country of $50,000. Some people make the mistake of calculating this amount in their decision. This is your gross pay though – far from what you actually keep in your pocket. Let’s look at an example for Simon: . Why wait 20 years to live the life you want? 3. You are their teacher. You become their sole influence before sending them off to school. As a stay at home parent you can teach your child what you want them to learn. You are not leaving this decision to someone else. You can use as many or few learning opportunities as you like and the topics are your choosing. 4. It could be easier on the family. With both parents working it can be constant hassle having to juggle and time manage. Who is going to pick the child up from daycare and when? Who is going to leave work early to collect their sick child? This constant scheduling can be a real time and mental strain on the family. 5. It could be less stressful. Of course raising a child carries plenty of stressful moments, but the stress is much more when both parents are working. With all the stress that occurs at work on a daily basis, it is stress on stress. At least one parent staying out home carries just one form of stress instead of two. This can make all the difference to your relationship. You can spend more time together when things are under more control at home. 6. You won’t miss milestones. First smile. First time crawling. First words. First time eating ice cream. Stay at home parents get to enjoy all these priceless firsts that will never happen again. 7. You can always go back to work. If the stay a home decision doesn’t work out you can always return back to work, or even take on a part time gig. It is not like you are stuck with this decision.

Who Will This Decision Work Best For?

Obviously couples. Single parents will often have no choice but to work. Two low income parents will probably have not much choice either. Couples that have a low savings rate on two incomes will not have any chance of living on one either, unless they can make a drastic turnaround. The decision to stay at home becomes more blurred once you have one parent earning at least the average national income. Going back to the example of Simon, after tax income of $41,980 will be enough to cover annual expenses for a lot of couples, depending on where you live. That may not leave a lot of room for savings for some though, derailing the speed for achieving FI. This is really only a decision to be made for at least an average income household with a good savings rate, or a household that has already spent years being disciplined with their money and has built up some nice reserves. That is the beauty of creating a good savings rate. It opens up options.

Final Thoughts

If one earner in the household is on a high income and the other earner is on a low income, it can make financial sense for the low income earner to stay at home. For everyone else it will be a cut to your current income levels if you decide to become a single income household. This will slow down your path to reaching financial independence, but I will argue that if you are in a situation where you can afford to stay at home with your child, then much like the Mexican fisherman, you are already financially independent. At least one of you is anyway. Once you have run the numbers, it really comes down to the non-financial factors. What value do you place on raising your child full time and what value does your family put on having someone to manage the household? This is exceptionally difficult to put a price on and will be different for everyone. Is this value more or less than what you get paid at work? For my wife and me, we decided the value gained from having one stay at home parent was greater than her income. My wife is a stay at home mum and we may not be earning as much now as we would if we were both working, but we have never felt so rich. I hope to join her in about 10 years when I reach financial independence to spend precious time with the family. For me, no amount of extra income will be worth sacrificing that. ------------------------------------------------------------------ Now let's hear from Mark at The Retirement Spot who says you should return to work...

Why Two Incomes are Better than One

My wife and I entered the workforce young, inexperienced and naïve. It was not even a question. We were both going to work. We were separated for a year before we were married-she was in Nicaragua, her home country and I was in California. We wrote copious letters to one another. In one letter, she closed with, “yo quiero trabajar”, “I want to work.” She is now ready to retire but I jokingly remind her of those words. We had always intended to have two incomes. I had not yet graduated from the University. I worked as an orderly and my wife began her career as a secretary. Two incomes are better because...

Less Stress

With only one income, the bread-winner will have to absorb all the stress of making sure expenses are met. There is stress from being a housewife or househusband but it is a different stress. When you work at a company, performance becomes the key issue. The goal becomes to please your boss. His goal is to please his boss. You work long hours to meet every deadline imaginable and to play the political game to get ahead. The pressure to perform increases when you purchase your first home. I remember a time when a co-worker came into work and bragged about the new home he purchased. My boss livened up and said, “I like highly-leveraged workers, it makes for a better employee.” Although he joked about it, there is truth in that statement. Two incomes lessen the stress of paying the mortgage. The spouse who stays home does not have to worry about being fired from a job. Certainly, she has a lot of work with the children, meals and the list goes on. But, she is not providing for the family financially. Work at home not done today can be done tomorrow.

Disability

8.1% of the population age 18-64 report some type of work limitation, (1 out of 12 people). The disability of one spouse can happen at any time. We buy insurance for everything; fire, flood, earthquake, and mortgage are but a few examples. The second income is insurance in case one spouse becomes disabled. I became disabled at the age of 48. If it were not for both of us working throughout our marriage, we would have been in trouble. I have a progressive disorder, and I knew the possibility one day I would have to leave the workforce. I prepared for it. The day came, and my spouse’s income was a lifesaver.

Children Social Interaction

When both parents work, the children go to daycare. This gives the children the opportunity for social interaction with other kids and prepares them for the future. It is much more difficult to find the interpersonal communication skills a child needs for school without the daily interaction provided by daycare.

Your Children Benefit from Two Incomes

Two incomes also benefit the children. You have more to pay for school, maybe even private education. You can afford to give your children more. The children will not have to worry about college expenses. Two incomes will afford him the luxury of college without debt. The average graduate has an outstanding loan debt of 28K and 58K for graduate students. Two incomes will allow the children to graduate student debt free.

Housing

Housing is increasing at astronomical rates. I purchased my home at $121,000 in the early 1980s. It is now valued at 1.1 million. The earlier you buy a house the longer you have to keep pace with inflation because houses rise with inflation. Buyers are bidding up houses 250K more than the asking price in many areas of California. How can you afford that without two incomes? One income is not enough to maintain a household. The middle class is continually being squeezed. In many cases, two incomes are necessary just to get by. It is not even a luxury anymore.

Children Will Have a Better Outlook on Life

Children who have two parents working will feel proud of their parents. Companies have “bring your daughters to work day.” Daughters will see their mothers in their actual work environment. Girls will see better career options, and a world full of possibilities when they see both parents working. In almost every case, with my co-workers, where both spouses worked, the children are successful in their own right. The parents instill in them a work ethic and encourage them to find their own career paths, and in my experience, most do. I know children who have become accountants, lawyers and one even started her own website with venture capital and is now very successful. In 2006 NICDH followed 1,364 children over a span of 15 years and published a study in which it concluded "Children who were cared for exclusively by their mothers did not develop differently than those who were also cared for by others. It found that children in high-quality child care had higher cognitive and language skills."

Your Identity

It is very likely that the husband or wife will lose his or her identity if he or she remains out of the workforce. Your identity is your work. If you are an accountant, that is who you are. Your life revolves around accountancy. If you are a nurse, that is your identity. Staying home with the children stifles your ambition and your career stops. If you are a professional, what good did a degree serve you? Staying at home leads to a loss of your network and your colleagues. I know one couple whose spouse obtained her CPA license. They made a fateful decision -- she stayed home with the kids. This stopped her ambition in its track. She regretted it the day they were married. She had been accepted at one of the prestigious big six accounting firms, a lucrative job for a CPA and rarely turned down. The couple ended up in divorce. Whether or not stopping her career had anything to do with the divorce is up for conjecture, but it couldn’t have helped. There are people who need adult interaction and a network of professionals to give them the validity they need and that only outside employment provides.

Retirement Benefits

As both husband and wife work, retirement benefits including Social Security will be greater. If only one spouse works, the more likely outcome is you will have to work until full retirement age. Social Security will only pay the spouse half of the worker’s benefits. If both work, husband and wife receive benefits based on their own records. In addition, their 401K and personal savings will be larger. There is most likely no chance of early retirement if only one spouse is working. ------------------------------------------------------------------ So, those are the two sides of the issue. What do you think?