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When deciding whether one parent should stay home with the kids instead of working, most families consider reduced household income first. But the true costs amount to more than just lost paychecks, and may include the loss of opportunities a second income affords.
At the same time, stay-at-home parenting can help families save big on child care and other expenses. How the math works out on opportunity costs vs. savings may be the deciding factor about one parent working. Here's what you should know.
5 Opportunity Costs of Staying Home With Your Kids
Opportunity costs are losses associated with choosing one alternative over another—in this case, choosing to stay at home with your children rather than work. Your family must consider the direct costs as well as the opportunity costs of having one parent stay home, including:
The loss of a salary is the most immediate cost when a parent exits the workforce to care for children. But even when it may make financial sense for one parent to stay home because child care costs meet or exceed their income, it can be an adjustment for a household to go from two incomes to one.
Before making the switch to having one stay-at-home parent based solely on child care costs, families must ask:
- Can the remaining income comfortably cover bills?
- Do we have enough in emergency savings?
- How would one parent exiting the job market impact health care costs?
Setting up a budget for the family can be a good way to track expenses and determine whether you'll be able to keep up with your bills and other financial obligations with only one parent bringing in a salary.
2. Retirement Savings
While it's hard to put an exact price tag on the loss of retirement savings for stay-at-home parents, Fidelity data shows these losses can be significant. According to the brokerage firm, a parent making $50,000 a year who takes a year off work could reduce their retirement savings by as much as $106,469.
If you can afford it, a spousal IRA may be a good way to combat some of these losses. As long as one spouse is earning income, you can stash some away in a spousal IRA and maximize your account limits for retirement savings.
3. Social Security Income
Stay-at-home parents may also miss an opportunity to increase their Social Security income. This is because Social Security benefits are based on a formula that looks at averaged income over 35 years of working. So any lost income could lower your potential Social Security income once you reach retirement age.
When stay-at-home parents retire, however, they may be entitled to a Social Security spousal benefit. They will receive Social Security income based on their spouse's earned income, up to half of the working spouse's Social Security income amount. This may be enough to make sure stay-at-home parents can still retire comfortably.
4. Career Development
This loss can be hard to quantify, but career development can be a high price to pay for stay-at-home parents with definite plans to return to the workforce. From missing on-the-job experience and losing out on continuing education to going without certification training, time away from a career may not be easily recouped.
Lost time in fast-moving, technology-driven roles may also be difficult to bounce back from. That's why stay-at-home parents may want to pursue relevant certifications or consider working part time to stay on top of new industry developments.
5.Yearly Raises and Tenure
Lost advancement at a particular company can have wide-ranging effects even after a stay-at-home parent returns to the workforce. Though they may be able to find a place back at their previous company, they may have missed out on things such as promotions, seniority increases (which can affect being granted time off or accrued paid leave), merit raises and yearly cost of living raises.
Unfortunately, it's also not uncommon for returning workers to be paid less altogether, which in turn affects other earning potential such as retirement savings growth and Social Security income.
Cost Savings for Stay-at-Home Parents
Of course, staying in the workforce and maintaining a salary, retirement contributions, and career development and advancement still may not be worth it if these benefits are outweighed by the costs incurred for caring for children while working.
No matter what kind of child care you choose, working outside the home can lead to significant costs. So it's important to think of year-round, day-to-day costs even after the kids are in school full time. Some average costs you may face include:
- Nanny costs: $612 per week, according to Care.com
- Day care costs: $300 to $340 per week, according to Care.com
- Summer camp care costs: $50 to $450 per day, depending on the type of camp, according to the American Camp Association
Jobs for Stay-at-Home Parents
Whether a parent stays home or works does not have to be an either/or situation. The explosion of work-from-home opportunities makes it easier to do both. Parents can balance opportunity costs and child care costs and still pursue some professional pursuits when they seek opportunities that fit their family's needs.
Roles that may fit well with a stay-at-home parent's schedule include:
- Online tutor: There are many different types of tutoring jobs online, with plenty occurring in "off" hours that allow tutors to work before breakfast or after their kids' bedtimes. These jobs may be helping high school students with homework or tutoring kids from other countries in English as a second language.
- Freelance writer or editor: Freelance writing or editing can be a very flexible part-time gig for stay-at-home parents. With customizable timetables, freelancing can offer stay-at-home parents with the right skills a steady source of income in freelancing.
- Customer service agent: To avoid overhead, many companies outsource their customer service to remote workers. This can be a great opportunity for stay-at-home parents, especially chat-only jobs that don't require you to work from a quiet home free of potentially screaming kids.
- Day care provider: If you're already going to stay home to care for your kids, why not invite a few more while their parents head off to work? A home day care can be a convenient solution for stay-at-home parents looking to bring in a little extra income. You'll need to be licensed, but if you have the space, materials and desire to care for children, you may be a good candidate as a provider.
- Furniture or clothing flipping: For an income stream that is truly time-flexible, flipping goods on second-hand marketplaces can provide a fun hobby with decent earning potential.
- Part-time work from current employer: Some employers may be willing to negotiate part-time or freelance work to hang on to a good employee even while they devote most of their time to their family. Negotiating with your current employer for part-time projects may be an ideal way to keep your hand in at work.
Making the choice for both parents to work or for one to stay home with the kids is highly individualistic. But doing the math and finding a balance between lost income and child care costs—as well as considering milestones like seeing your child take their first step or being able to take a tropical vacation together as a family—can help families feel more confident in their decision.