The WOH/SAH decision: Finances

First off:  for the nth time, no you do not need a SAHP in order to have a kid.

The Get rich slowly forum seems to be full of people like my rigid Uncle and his evil SAHM wife who lectured me at my grandmother’s funeral about how horrible it was that I was staying in the labor force (meanwhile, one of their teenage daughters desperately tried and failed to get caught by her parents smoking pot and cigarettes).

They say, “If you cannot afford to have one parent (the mother) stay at home with the kids, you should not be having children.”  They say, “It is too expensive to send your kids to a day orphanage/baby farm.  You cannot properly bond with your babies.”  (Actually, it’s only one nutty chick who says the latter and the first time she said it I thought she was being sarcastic… the nth time I’ve realized she’s just a troll.)

The strong research evidence is that moms who both work and send their kids to daycare bond just as strongly as moms who stay at home with their kids.  Throughout time mothers have shared child-rearing in groups rather than solo.  The one adult-with children model is not natural or normal.  It takes a village to raise a child, something that most SAHP realize, the difference being that money generally does not exchange hands in a playgroup or for informal care from relatives.  I haven’t seen research on father’s bonding because nobody seems to care (or because it’s harder to get working dads into the lab), but I bet you when both spouses work the father is more likely to bond than when he’s working 80 hour weeks to bring in money.  So, just to get that out of the way you’re not doing irreparable harm to your kid by putting hir in daycare, and daycare has benefits for the kid just like SAHP has benefits.  They’re different benefits, but one isn’t necessarily better than another.

Anyhow!  This is a Monday money post so the focus here is on the money aspect.

1.  Point in time cost-benefit analysis:  One argument is that the lower-earning spouse needs to do a point-in-time cost-benefit analysis of work income compared to the cost of daycare.  In this include not only the money going to daycare, but also commuting costs (assuming you’re not going to be driving everywhere as a SAHP, which is not necessarily a great assumption if you want to stay sane), professional clothing, etc. (or minus the cost of boredom-induced shopping if you turn into a Gymboree mom just to get out of the house).  They argue that if it costs more to work than it does to pay for daycare, then don’t work.  This argument makes some sense, especially if there are multiple pre-school age children and you’re not working a job that you particularly enjoy.  If you *do* enjoy your job, you should factor that into your equation since we should be maximizing happiness instead of money.  If you *don’t* enjoy your job, then maybe now is a good time to retool and think about your next career moves, regardless of your fertility.  So the idea is:

If

Cost of work – cost of daycare + happiness from working – disutility from working > Cost of staying at home + happiness from staying at home – disutility from staying at home, then you should continue to work.  If the sign flips, then you should stay at home.  This formula is incomplete– move on to #2.

2.  Add in Net Present Value of Lost Opportunities.  The point-in-time cost-benefit analysis is not where you should stop, however.  When you leave the labor force, you lose what economists call “human capital”– this is the abilities you get from working.  It comes in firm-specific human capital or all the things that make you valuable to a specific company, and general human capital or the things that make you valuable to the labor force as a whole.  When you leave the labor force, you start to forget how to do things and you stop keeping up with how the company, the industry, the workforce etc. are changing.  You get left behind.  That means when you restart in the labor force, you are likely to start at a lower (inflation-adjusted) salary than when you left — not the salary you would have with raises had you stayed in the field, not even the same salary as before with a 2 year gap, but an actual lower salary.  Add to that, if you are in a career-type job, specifically one that is not female-dominated (unlike nursing or teaching), you can be “mommy tracked” or have an even more uphill battle to be taken seriously in your career.  These problems will be worse in some fields and some specific jobs than in others.

So in this case you would have to take the same equation as above, but include the Net Present Value of your future benefits (this is your future income streams) instead of your single-year income alone.  You will compare your predicted future income with the work gap and without.  How do you predict your future income with and without?  Well, that’s difficult to do, but perhaps you have some ideas of career trajectories in your area.  Included in that calculation will be the probability that you get rehired, and the probability that you’ll be put back on the same track rather than forced to downshift if you return after an absence.

3.  Include Benefits, not just salary:  Don’t forget the value of lost retirement benefits that your company is paying for you when you make your calculations.  Are there other fringe benefits you should be considering?

4.  Risk:  What if the main earner loses his (or hir) job?  Many couples take turns being unemployed in this labor force, regardless of whether they are white collar or working class.  How secure is your partner’s job?  What would you do if ze lost it?  How quickly could either of you find work, and at what level?  A sizable emergency fund (or a dividend stream providing enough income to make you independently wealthy) can reduce the risk.  But if you don’t have that, having a second income and a second career to fall back on can dramatically reduce the stress of a lengthy job loss.

5.  Risk II:  Divorce or Widowhood:  What will you do if your spouse leaves you and isn’t good about paying child support?  What if the unimaginable happens and you’re left a widow or widower?  Do you have enough of your own resources to get through a divorce and its aftermath without a job?  Does your working spouse have enough life insurance to keep you and your children afloat until you can get back into the labor force yourself?

6.  Time to change careers?:  Are you thinking about a career change anyway?  If so, a break from the labor force may not be as damaging to your future income and future career.  You may want to spend some of your time out of the labor force retooling if you can get time away from child-care to explore education or new career options.

Before you take the plunge:

1.  Read Your Money or Your Life to help think about how your  career, job, and money fit into your life.

2.  Try living on one income (that of the spouse who will be working once the child is born) before the baby comes.  Doing so will help you understand what it means to have your income reduced (yes, some things will change, you’ll have more time to cook or grocery shop… though probably not anywhere near as much time as you think as babies are pretty exhausting, but you will also have increased expenses you that may balance that out– like paying for family health insurance rather than dual single insurance).  More importantly, living on one income will help you build up a large emergency fund that you almost certainly will need to tap at some point during your child’s early years.

Remember that being a stay at home parent is a form of financial independence.   It is not a bad or a good thing, it’s just a thing.  Make these calculations through the lens of financial independence– how much sacrifice do you want to make for temporary early retirement?  How will this decision fit into the rest of your life?