In Risk Management

Hello Everyone! In this FRANKly SPEAKING blog post we’ll talk about how to evaluate the cost of being a stay-at-home parent and raising a child.

Raising a child in today’s unpredictable economic environment is nearly 70% more expensive than it was 15 years ago! In a recent USDA report the estimated average cost of raising a child from birth, until the age of 18 is a shocking $245,000. This estimate doesn’t include the cost of an undergraduate education, graduate degree or the cost of helping out while grown kids find their footing in a competitive job market. 

Parents face an overwhelming number of financial considerations when raising children. Questions include: How to support several children at once? How to save for college? What are 529 plans? How to prioritize competing priorities? How do you decide where to allocate your money? How much savings should you keep as an emergency reserve? Should you consider saving money becoming a stay-at-home parent?

In this post, we are going to focus on the cost of child care and factors to consider in helping you determine whether you should hire a professional or take on the task full time yourself as a stay-at-home parent. When you start thinking about having a child, it’s also time to evaluate your overall household budget and how having a child will impact your budget .

On average, across the United States, day care for a child under the age of 5 is about $9,589 annually according to The Care Index, a report from the online Child Care Resource and Policy Institute New America.

Future Map Financial: The Care Index

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The average annual cost for a nanny is $28,354. What you actually pay can vary greatly, depending on several factors including your child’s age and where you live. For example, full-time care for infants in daycare can be as little as $6,590 a year in Arkansas – where that still equates to about 15 percent of the state’s median income – and as much as $16,682 a year in Massachusetts, or 25 percent of median income, according to the Care Index.

Facing these type of costs, many parents may think it is better to avoid these costs altogether by staying home. After all, do-it-yourself child care is basically free, right? Of course, you’d be giving up your current salary to become a stay-at-home parent. But if that monthly take-home pay is about the same or less than the monthly cost of child care, you may be thinking that the decision to stay at home is wise.

This is where we need to step back and evaluate from a bigger perspective. Remember, in addition to your paycheck, you would also be losing employee benefits including possibly your 401(k) (that is free money, and opportunities for raises.)  Trying to find tools to assist you in making these calculations is tricky. Some economists suggest there is a tension on not wanting to put a price on something like this because the time you spend with your children is fleeting and very precious. To discuss this as a financial decision makes some people uncomfortable, understandably.  While there are many additional factors to evaluate when it comes to raising a family, the financial equation is important.

One tool that is available to give you a better idea of how much you’d really be giving up in order to stay home with your children is a calculator developed by the Center for American Progress.

Using this calculator you enter some of the following factors, and it will then give you a good idea of what you stand to lose in total lifetime earnings…

  • your gender,
  • age, current salary,
  • when you started working full time,
  • when you plan to stop working,
  • how long you intend to stay out of the workforce,
  • your planned retirement age, and
  • your employer’s current 401(k) contributions.

Another challenge to consider is that if and when you feel ready to re-enter the workforce, it may not be so ready to welcome you back. A lot can happen during those years you’re out of the workforce and you may not be able to work at that same pace. The longer you stay out of the workforce, the more difficult it is generally to return – and the greater your total income loss is. If you compare that loss with the nearly $50,000 an average American family may pay for five years in day care, the decision to stay at home may look different.

Making the choice between paying a significant expense today or face a potentially huge financial loss over a longer period of time is a difficult task. You also need to consider your own preferences and many other soft factors on top of the financial considerations. The preference and answers will be different for every family. I am hoping this post will help you evaluate significant family decisions from a big picture perspective when making the choice that is right for your family.

With all this said, it may still be a challenging and difficult decision for any family. Children are awesome and time spent together is precious. Many would say putting a price on this time is impossible.

However, preparing for the future by taking care of today is key. Your personal plans don’t stop because you have children, so creating a comprehensive retirement plan is important so your golden years stay golden even if Junior’s internet company doesn’t quite go as planned.

Reach out if you’d like to have a conversation to help plan and visualize the future of your family, and the steps to reach your goals.

HANDY, DANDY & ACTIONABLE MONEY-SAVING TIP:

protecting home inventory

This tip may not save you money right away, but it will save your sanity in several situations. If you do decide to be the stay-at-home parent, there may be a few moments where you find yourself missing the environment of an adult workplace, suffering burnout, or even feeling intellectually underwhelmed on occasion. For those moments, The Pragmatic Parent blog offers 10 great strategies for finding your stay-at-home happiness and to help your family and your own soul thrive. Whatever you do, make sure to be kind to yourself. As The Pragmatic Parent blogger says, “Your house doesn’t need to be spotless or dinner prepared from scratch. If you have laundry piling up or ordered pizza twice this week, that’s ok!”

NEXT FRANKly SPEAKING POST…

Just checking in, and wondering whether your tax returns have been filed? In my next post I’ll address questions around tax filing extensions, just in case you’re not quite ready. I will also discuss how long you need to hold on to tax records for purposes of an audit.

As always, I invite you to reach out to me – in real life – with any comments, feedback or questions!  [email protected]

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Disclaimer: The information contained in this article is for informational purposes.  None of the information provided in this article is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. Please consult with your accountant, finance professional, and/or legal counsel regarding your specific circumstance. Reproduction of this material is prohibited without written permission from Frank Shields, and all rights are reserved. Read the full Disclaimer.

 

 

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