Staying Home Vs. Daycare: A Financial Conundrum

By Amy Bell | November 24, 2009 AAA

You've got a baby on the way, which means you're faced with that age-old parental dilemma: should you stay home with your child or send him off to daycare? Most moms and dads make this tough decision based purely on emotion. However, there are quite a few financial consequences to each choice, as well.

If you have a bun in the oven and you're struggling with the "daycare vs. staying home" conundrum, here are some financial factors you should keep in mind, as you weigh your options. (Becoming a full-time caregiver again presents many challenges - including making ends meet. Find out more in Raising Grandchildren A Financial Feat.)

  • Daycare Costs Big $$$
    On average, U.S. parents pay more than $679 a month, or a whopping $8,150 a year, to send their babies and toddlers to full-time daycare, according to a report from the National Association of Child Care Resource & Referral Agencies (NACCRRA). Depending on where you live and the child care center you choose, you could end up shelling out up to $14,000 a year. Ouch!

    There is a little bit of good news: the older your child is, the less you'll have to pay. The same report shows that the highest cost for daycare for a four-year-old in the U.S. is $10,700 a year - still nothing to sneeze at. When you think about all the other things you could do with that much cash, giving up your job to become a stay at home mom or dad may seem a little more appealing.

  • Staying Home Also Costs Big $$$
    You read that right - staying home with the kids will cost you a bundle, too. (Why do you think they call this a conundrum?) If you choose to quit your job and stay home to raise your kids full-time, it could cost you enormously - about $1 million, according to some economists. Of course, that's the total amount you'll lose over the years, not what you'll use right away. No matter how you look at it, that's an unbelievable chunk of change.

    So, why is the price of staying home so high? You can blame it on the phenomenally steep "mommy tax," according to Ann Crittenden, a former economics reporter for The New York Times and author of The Price of Motherhood: Why the Most Important Job in the World Is Still the Least Valued (2001).

    Crittenden, who left her career to become a stay-at-home mom, says that decision cost her a whopping $700,000. You may be thinking, "That was one well-compensated writer, right there," but that amount represents more than her salary. Not only did she give up her income, but she also lost her retirement savings, pension and all the other benefits associated with her job. Of course, she points out that she doesn't regret her decision to stay home and raise her son. But figuring out just how much she'd lost had to hurt in the pocketbook area.

  • Those Who Earn Less, Spend Less
    You may think that your family could not survive on just one parent's income, but that's probably not the case. While it may seem that you're bringing home some major second income bacon, you probably spend a lot more, too.

    Think about it this way: how much do you pay for fancy business suits, dry cleaning, traveling, gas, eating out and other job-related expenses every year? Throw the expense of daycare and taxes on top of that mountain, and the bacon you're bringing home may not seem that significant after all.

    This is what stay at home mom enthusiasts call "the cost of work", and it ain't cheap. Once you take some time to calculate just how much that second income is worth, how much it actually contributes to your household, you may discover that it's a no-brainer for you to quit your day job and stay home with the kids. (Use this quick parental guide to help your child learn this process and establish good habits, in Filing Your Child's First Income Tax Return.)

  • Leaving the Workforce Could Cost You Future Jobs
    So, let's say you've decided to give up your career and stay home to raise those precious little rugrats. You figure once the little one heads off to elementary school in six years, you can always go back to work. That way, you'll have the best of both worlds. Not so fast.

    If you drop off of the workforce radar for six years (or longer, if you have multiple children), do you really think you'll be able to walk back into your office and say, "Here I am, ready to re-start that wonderful job I had six years ago!" Unfortunately, it doesn't work that way. After all, you've spent the last six years or so changing diapers, kissing boo-boos, finger painting and chasing kids through the park - all admirable skills, but not necessarily what employers are seeking. (Unless, of course, you're applying at that same daycare center that pilfered thousands of dollars from you a few years before.)

    In other words, when you choose to stay home with the kids, you don't just give up your current career. You may be giving up future jobs, as well. That means you could lose hundreds of thousands of dollars more in the long run.

Only You Know the Right Answer
You can run the numbers until you're blue in the face, but more than likely you'll make this decision just like every other parent: with your emotions. If you're incredibly passionate about your career and feel as if you'd be losing a limb if you left your job, you should probably suck it up and pay for daycare. On the other hand, if the thought of being separated from your little one for even just a few hours a day causes you to sob uncontrollably, you're probably meant to stay at home.

Of course, there are many alternative options. You could start a home-based business, work part-time or schedule your hours so that either you or your spouse are always at home with the kids. No matter what route you decide to take, one thing is clear: no one else can make this tough decision for you. You'll have to solve the daycare vs. stay-at-home puzzle on your own.

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