Stay at home mum or stay at home dad

Costs of childcare

Childcare is considered expensive for most, and with childcare costs on the rise, parents are finding it increasingly difficult to juggle their finances. Some parents are reporting that most of their income goes towards childcare costs and that they feel increased strain when they attempt to balance work and family.

What are new parents to do?

While many decide to become a stay-at-home parent because it’s financially viable and/or because they find it to be a rewarding lifestyle choice, there are those who see it as a solution to a big financial responsibility. This leads to couples considering stay-at-home parenting because they can’t see the financial reward in working. If your decision is mainly motivated by finances or if you’re just feeling discouraged by your depleting disposable income, we’ve provided a hypothetical case study to offer insights on what many young working parents forget to factor in.

Hypothetical situation

The following is a hypothetical scenario provided for educational purposes. It’s important to remember that Greater Bank is not in the financial planning business and we don’t provide personal financial advice. As a service to our customers, we’ve partnered with Bridges Financial Services, who offer expert advice to help our customers better plan for the future.

Meet Lisa and Doug

Lisa and Doug have just welcomed their new baby into the world. Lisa is currently at the beginning of her 18 week paid maternity leave from the company where she has worked for almost 2 years.

Lisa and Doug are from Newcastle, where the average cost of childcare sits at around $130 a day.  Lisa is earning an average income of around $56,200 before tax, while Doug is on a higher income at around $82,000 a year. With 250 working days in 2019 they will be paying $32,500 a year in childcare. Doug and Lisa start discussing Lisa becoming a stay-at-home mum due to the cost of childcare. Lisa and Doug decide to budget how much disposable income she has after deducting tax, (approx. $9,812), superannuation, (approx. $5,400), and the cost of childcare, (approx. $32,500). Much to Lisa’s disappointment she will have $8,488 disposable income from the year. Lisa didn’t plan to stop working, but doesn’t see the point with the amount of disposable income she will have at the EOY.*

What are Lisa and Doug forgetting?

Lisa and Doug have neglected to consider the following in their financial planning:

• The value of superannuation
• Entitlements and inclusions (e.g. annual leave)
• Career progression and salary increases
• Job security
• Financial security

To have an accurate representation of how electing one parent to be a stay-at-home parent would affect finances, Lisa and Doug need to consider both short-term and long-term consequences.

Superannuation is part of your salary that you will receive when you retire, it should not be disregarded because it is not liquid. Your superannuation is your money and an investment for your future. If you cease your employment, this may affect contributions and leave you with less money with which to retire.

Different entitlements and inclusions such as annual leave, sick leave, long service leave and leave loading are examples of pay that you receive when you’re not working. For example, if Lisa and Doug wanted to take their infant on a holiday to the Gold Coast, Lisa will not be receiving a salary, so the costs for the family will need to be covered entirely by Doug’s income. Furthermore, there is the opportunity to decrease their yearly childcare costs, This could relieve them of up to 40 working days of childcare costs, (assuming Lisa and Doug are each entitled to four weeks of annual leave per year.)

Career progression and salary increases should be factored in for Lisa. If Lisa is to take three years away from her job, she will not only have missed potential progression in her career, lining her up for higher paid roles, but also the additional money she may have made off potential pay rises and inflation. It’s important to consider prospective salary and progression opportunities that would likely be impacted by extended absence from her industry.

Job security and financial security will be sacrificed as Lisa’s family will become solely reliant on Doug’s income. Also, if Lisa chooses to return to work after taking a few years to dedicate herself as a stay at home parent, she may find it difficult to re-enter the workforce. There is also the question of a whole family relying on a singular income. If Doug were to suddenly lose his job, the family would not have an income to rely on.

Childcare costs are shared by both Doug and Lisa. Consequently, they should work out both of their disposable incomes and deduct the costs from that income. This provides Doug and Lisa with a better perspective on their joint disposable income compared to if one of them was to become a stay-at-home parent. For example, by deducting their combined tax (approx. $28,000), their superannuation payments (approx.$13,190), and their childcare payments (approx.$32,000), this would leave them with a shared annual disposable income of $65,010.

When budgeting, it’s important to take into consideration prospective finances and inclusions that offer their own financial rewards. If you are making personal and professional choices based on your finances, it makes sense to have a detailed breakdown of shared finances. | Greater Bank

*Please note, we have not included subsidy payments from the government, which would be affected by Lisa and Doug’s joint income and the hours the couple work. This hypothetical situation was formulated after taking into consideration that 4.6% of two-parent families have stay-at-home dads, while 29% of two-parent families have stay-at-home mums. This hypothetical situation also acknowledges and takes into consideration, statistics from the gender pay gap reported by Australia’s Workplace and Gender Equality Agency.