With a toddler at home and another child on the way, Kevin O’Laughlin, CFP®, figures he and his wife will pay roughly twice as much for childcare in 2013 as O’Laughlin paid for a year of college. Still, he and his wife have decided it makes sense — financially and emotionally — for both of them to continue working after their second child is born.
Determining what’s best for a family — parents and children alike — isn’t easy, given the extremely personal, financially impactful and often emotionally charged nature of the decision. “It’s a complicated balancing act,” said O’Laughlin, a financial adviser with Affiance Financial in Minneapolis.
But with so much at stake financially and emotionally, it’s a discussion parents need to have, he asserts, adding that in the context of such a discussion, it’s important to keep in mind that “none of these life-planning decisions are purely financial.”
Still, because finances nevertheless do tend to figure heavily in a couple’s decision about working or staying home to care for a child, here are some suggestions from the personal finance experts at the Financial Planning Association® in Denver, Colo., to help simplify the decision-making process:
Start with some basic, high-level math. How much does each spouse earn in his or her job and how much does childcare cost? “It’s important to run the numbers so you know the break-even point,” said O’Laughlin. In doing so, be sure to figure tax benefits into the equation. A federal child and dependent care tax credit is available to parents who are working or looking for work to help cover the cost of childcare; parents can also use a tax-favored flexible spending account (FSA) to cover the cost of dependent care. For more information, check out www.irs.gov/taxtopics/tc602.html and www.babycenter.com/0_tax-time-flexible-spending-plans-versus-the-childcare-credit_3651253.bc
Expand the equation to account for other financial considerations, beyond just income vs. childcare cost. These considerations include the cost of transportation to and from work, the cost of maintaining a professional wardrobe, and the cost of replacing healthcare coverage that might be lost if a spouse whose plan you relied upon decides to stay home instead of work.
Determine the kind of childcare you want — and can afford. Is in-home childcare (such as with a nanny or family member, like a grandparent) a must, or are you willing to send a child to a daycare facility? The latter tends to cost less than the former, unless in-home care comes from a generous friend or family member at little or no cost.
Consider career path and professional priorities. How strongly does each parent feel about returning to work or about staying home to care for the child? How would taking an extended hiatus from work impact a parent’s career path, and their earning capability? Is a parent willing to sacrifice projected career (and salary) advancement to stay home and care for a child? Also consider job satisfaction — is one parent adamant about wanting to work, or not wanting to work?
Use the numbers to frame a broader conversation, but don’t rely on them exclusively. “It’s important to do the math and make the calculations, because that helps separate the facts and figures from emotions,” explains O’Laughlin. “But emotions and feelings are equally important. This is about cost, but it’s also about being happy.”
February 2013 — This column is provided by the Financial Planning Association® (FPA®), the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process.
The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.