Your Family's Need for Childcare

Does it make financial sense?

Your Family's Need for Childcare

Recent United States Census reports show that more than 8 million children under the age of five spend some part of their day in the care of someone other than their parents. Many of these parents had to make tough decisions regarding the care of their children.

Making the Cost/Benefit Analysis
For many parents, there is no question as to whether a childcare arrangement is necessary. Financial or other situational limitations require both parents to work full-time. Many other families, however, must weigh the costs—both monetary and emotional—of making childcare arrangements against the benefits of remaining employed. To make the cost/benefit analysis, start with a piece of paper. Make two columns, one representing the monetary expenses and other sacrifices of working, the other for the financial as well as nonfinancial gains from continuing to work. List the costs and benefits in their appropriate columns. Having both sides of the equation laid out right in front of you may help make the decision, if not easier, at least a bit more clear and well-reasoned.

Benefits of remaining employed may be tangible. Examples are the paycheck you receive and the health insurance or 401(k) plans your employer provides. There are other, intangible advantages too, such as the personal satisfaction a person receives from a job well done. Benefits may include the following:

• staying on a career path;
• keeping up with advances within your profession;
• having contact with other adults;
• travel (although this is a benefit to some and a detriment to others); and,
• social perks, such as lunches and recreational outings.

The most obvious financial cost of working and placing children in a day care setting is the fees for the childcare itself. However, there are other expenses of being employed as well. For example, many employers have a certain dress code they require employees to adhere to, which means employees must spend part of their income on suitable clothing for the workplace. Some employees are expected to eat out on their lunch breaks, resulting in more expense. Transportation costs, such as gasoline or train fare, also must be factored into a cost/benefit equation. Moreover, a significant portion of the second income may be eaten up by income tax, particularly if the primary earner's income puts the household into the highest tax bracket.

Besides the regular paycheck and nonmonetary perks, there are other forms of financial compensation that a second income-earner gives up to remain home raising children. A company may provide a 401(k) plan for its employees, but typically will have vesting requirements that dictate the employee remain with the company for a certain number of years before being entitled to the money. Leaving a job before vesting occurs can cost a high price in later retirement income.

Another cost can come in the form of missed opportunity to pay into Social Security. Many agree that this federal system of retirement benefits is seriously flawed and might not be available ten or twenty years from now. However, leaving paid employment to stay home with children might seriously affect a person's entitlement to Social Security benefits down the road.

Whether you are eligible to receive benefits at all depends upon how many credits you have earned, which in turn is based upon how much you earn in a year and the number of years you contributed to the fund. The amount of the monthly Social Security payment a retiree receives depends, in general, on average earnings over the course of his or her career. Taking a hiatus from working, even for just a few years, cuts into this fund. The difference in benefits later on may determine whether you can fully retire or will need to supplement your income even after becoming eligible for Social Security.

Nonmonetary costs are harder to evaluate. If your child is attending childcare outside of your own home, you must consider the stress of having to get him or her fed, dressed, and ready to go every day before you leave for work. You have to leave enough time to drop him or her off so that you are not late for work. Even if you have in-home childcare, if there is a crisis at work and you need to stay after your regular day is over, you must have a back-up plan for picking up your child from the day care provider. And you always have to be prepared for the possibility that either your child will be sick or the day care provider will not be available for some reason. The most important consideration, of course, is whether your child will thrive in a childcare setting—a factor that is discussed later in this book.