Tuesday, October 23, 2007

Stay at Home Parents Pay a Professional Price

When our twin sons were born, my wife and I faced a decision. We needed to decide whether my wife would take a break from the corporate life to stay at home with the kids. Having me leave my job was never an option since my income is substantially higher and, quite frankly, I don't think that I could become a stay at home dad and remain sane.

At the time, my wife was working her old job, and her salary was barely enough to cover day care costs for the three boys. So seemingly, the financial decision should have been a simple one. After all, why work if your entire salary gets immediately signed over to Uncle Sam and a couple of day care centers. Right? Not so fast.

Here is the trick. Parents contemplating the stay at home option tend to make the financial portion of their decision based on their current financial situation. However, there are three additional financial factors that need to be considered:

1. Loss of Experience - as your career progresses and you gain more experience, your compensation increases. Say you are thinking of taking a five year break from work to stay with your kids until it's time for them to head to kindergarten. During that period you lose not only your current income, but also any pay increases you would have gained had you continued to work. You also lose five years of experience which are directly translatable into compensation and probably into a more senior position at work.

2. Loss of Skill - the term "use it or lose it" may be a cliche, but it's right on the money. If you stay out of the labor force, your skills degenerate. Let me give you a personal example: my readers know that I hold a law degree, but I haven't practiced law in 8 years (I like to think of myself as a reformed lawyer). At this point most intelligent people would not hire me as their lawyer, and with good reason. I am so rusty and out of shape that I couldn't even credibly play a lawyer on TV. The same is true for virtually any other skilled or professional position. Your degenerating skills mean a lot less pay down the road when you do decide to jump back in the water.

3. Rejoining the Labor Force is Tough - I am currently in the process of hiring another member for my team. I am reviewing dozens of resumes, some of them sent by people with some useful background and experience but with some unexplained gaps in their work history. Now, I am sure that many of these gaps can be easily explained away, the problem is that I review a very large number of resumes and only have time to interview a limited number of candidates. Do you think I am going to choose to interview someone with a stellar and steady career track? Or someone which has some clear holes in their resume but which could potentially be explained away? Don't get me wrong, I am not saying that people with work history gaps can't rejoin the labor force, only that it is not an easy matter, and many find themselves accepting lesser positions to get back into the game.

I am not arguing against stay at home parents. However, I am suggesting that most people underestimate the long term financial implications of the stay at home parent decision. For many people staying at home with the kids turns out to be a very smart and emotionally satisfying decision, however before making that decision, be aware of all of the career consequences associated with your plan.

For those making the decision to go back to work, I have a couple of pieces of advice:

1. Don't Feel Guilty - many families feel that they are doing a disservice to their kids by sending them off to daycare at the age of only a few months. I can attest from personal experience that children of working parents can grow up to be well adjusted and happy adults. My parents both worked since we were very young and my siblings and I have all remained pretty much jail free and advanced degrees are common in my family. My own five year old is as smart and well adjusted a boy as you can hope to meet (if I do say so myself). He is a very happy child, in spite of (or perhaps because of) having started at family daycare when he was 4 months old.

2. Work to Pay for Day Care - many couples with more than one kid feel that one of them is simply working to pay for day care. Getting your paycheck and seeing that your take-home pay is more or less equal to the daycare bill, can be emotionally difficult. To cope with this, my wife and I made some adjustments. For example, we put all the kids on my company's health insurance. Health premiums are deducted from my paycheck leaving a bigger paycheck for my wife to take home. We decided that we would fund our medical and child care flex accounts all from my salary, for the same reason. Similarly, you can decide to stop contributing to your 401K for a short time, if this helps you to feel better about your salary.

These changes were more or less cosmetic. I mean after all, does it really matter which pocket the money comes from? It turns out that it matters a great deal psychologically.

3. Finally, Do what Feels Right - regardless of anything I said, or of anything anyone else may say, make the decision that feels right for you. You will not hear this frequently from a personal finance blogger, but to hell with the money. Happiness and your family are the most important considerations. Make the decision that will make you happier in the long run.

Coincidentally, Trent, from The Simple Dollar is apparently considering this very issue right now. Check out this very interesting post about his greatest financial concerns.

12 comments:

plonkee said...

You've articulated wonderfully the downsides that I notice about giving up work for children but can't quite express. As with any decision, its as well to think of all the implications.

Kyle @ Rather-Be-Shopping said...

Interesting topic and well done Shadox. This can be a very testy topic for many, me included. My wife and I made the decision for her to stay at home and raise our 3 children. We have not regreted it a moment and any professional loss is far outwieghed by what the children (and us) have gained from having a parent at home raising them. And I agree with you that kids who are raised in daycare can grow up to be well adjusted, but they will never get that precious time back with the ones who truly love them.

Shadox said...

Kyle, staying at home is a very appropriate and emotionally important decision for some couples. I have absolutely no beef with that. I am a big believer in doing what will make you happy in the long run, regardless of what others may say.

The goal of my post is to highlight some of the factors that people do not weigh correctly in making the decision to stay at home.

juicefairy said...

Great article. I have been discussing this topic with my Mom recently, although I am no where near ready to start a family. It is hard for me to imagine giving up my job when I have kids because my career has been so important to me for so long (and I am not talking about financially). If I stayed at home for a significant time it could take years for me to get back to where I am now (and that is not very high up on the ladder). With technology changing so fast now adays it is a struggle.

Brip Blap said...

Well done, Shadox. I had a very different take on this on my blog, but I'll agree with you that - strictly looking at the financial aspect - there is a price to be paid. I think I would echo Kyle's comment and add that right, those kids may grow up to be fine at day care, but in a sense it's also the parent's loss of time. I know that personally I miss my son A LOT during the day - I'm usually off for work at 7:30 and home around 7:00 most days. That means 5 days a week I only see him for an hour or two. My wife (who left an analyst position at an investment bank to stay home) would really miss her time with him if she only saw him an hour or two per day. Plus, the weekends becomes less about children and more about catching up on errands, doing all the stuff that was tough to do when we both worked.

But, all that having been said, I get that you were discussing the financial impact. Your point #1 just was asking for a contrary view, though :)

Deborah said...

Very good post. I actually was out of the paid work force doing anti-tobacco work for several years. IMHO, that work gave me broader and far more exceptional skill set, communication, media literacy, organization, editing, reading legal papers, understanding the levels of government and areas of responsibility, the list of skills is enormous.

I learned far, far more useful and diverse skills that would be beneficial to many businesses that I ever did doing two university degrees, however, that absence from the work force has been irrecoverable and there was a complete lack of recognition of the value of my skill set.

Seriously, this year is the first year my income is exceeding not my father's pension level, but my grandfather's pension level.

Debbie M said...

I just finished a whole book on this very topic, The Feminine Mistake. The author's point is that it is a mistake not to think about these financial issues.

Another sacrifice is losing contributions to your 401k while you are out of work.

Another one is that the stay-at-home parent is financially dependent on the other parent; in the event of death or divorce, that person could really be in trouble.

Also, I feel like there's a lot of pressure on the one in the workforce to have a very steady income, which gives them less flexibility in finding work they like.

The book's author admits that it is very difficult to work while you have young kids, but that it is very satisfying and that things get easier.

Shadox said...

Guys, thank you for all the great comments. You all make some very good points and I think I will write another post on the subject to beef up the discussion:

Juicefairy - it's all about doing the thing that feels right to you, while understanding the consequences, of course.

Brip Blap - I read your article on the topic and completely agree that there are big benefits to staying with the kids. You are absolutely right in saying that the parents need the time with the kids just as much as the kids need the parents.

Deborah - I hear the frustration in your comment. You are right to be frustrated. Unfortunately, corporate America likes boxes. If you don't fit into the box you have a harder time of making your career grow. Honestly, when I hire people I am probably to blame for much the same errors. In my defense, trying to pick the right candidate from hundreds of applicants is hard to do. You place your bets where you think you have the best chances of getting a pya back.

Debbie - you make some very good points. I will use your comments as a basis for discussion in my next post on the subject. Thanks for participating.

Debbie M said...

shadox, I just want to note that the points I brought up were from the author of that book.

Nivek said...

Great post! I've done the stay-at-home dad thing twice and I'm a big believer in having a stay-at-home parent. I did not have a difficult time re-entering the job market but that may be because I used the stay-at-home time to add to my education and certifications.

Lindsey @ Enjoythejourney said...

Yet, at the end of one's life, I've never once heard anyone say "gee, I wish I would have WORKED more."

I've done both sides of the coin. Currently at home, but I was a former working mom. I know the guilt and sacrifice associated to both sides of the coin, and in the end we do what is best for our families. I try to see it that way, at least.

In the end, our kids grow up and we can't get that time back. Honest to Betsy, I'd rather sacrifice, lose my position at work, and be there for the little moments with my kids. You can't get those back, but you can always work, somewhere in some job.

Shadox said...

Lindsey, I respect your decisions. The point is, you know that you made some sacrifices to stay at home. That's the important thing.

Your comment about always being to find some kind of job is probably true. But what if that's not enough? I knew some fast-track women lawyers whose careers were totally derailed by staying at home for a few years. And what of the MBA Director of Marketing who is going to be relegated to a low level marketing position? Is ANY job good enough for her?