Sunday, February 20, 2011

"But I HAVE to work!!" - Part One - Preschool

This is Part One of a four-part series:
Preschool      School-Age     Part-Time      Reality Check

Opening Disclaimer:   I am not writing this in any way to come across as judgmental toward working moms or to say that they have made the wrong choice.  What I am trying to do, however, is lay out the math to help a wife or mom who is struggling with the decision to work or not.  I am also trying to offer encouragement to stay-at-home moms who might be feeling a little pressure or guilt that they aren't "contributing" to the household finances, or to husbands who want to support their wives in their wish to be at home but aren't sure it can work.   I am not factoring in any of the "intangibles" in the equations - on either side.  Some women want to be in the workforce for their own personal enjoyment and the financial gains aren't a primary motivator.  On the other hand, some women want to be at home no matter the cost because of the benefits they see in their life, marriage and/or children.  I can't put a dollar figure on any of those things, so I'm not even going to consider them.  And of course bear in mind that I am not a financial expert, a tax advisor nor a lawyer.   

PART ONE - This post is very specifically targeted at moms of preschool-age children who are considering going to work full-time during the day.  

So.... you want to stay at home, but you're burdened by the numbers.   You're hearing loud and clear the voice of society telling you that you HAVE to work in order to do, to have, to be whatever it is that you're supposed to be doing, having and being right now.  Well... I beg to disagree.  I'm not planning on sharing all of our personal finances on this blog, because I'm pretty sure my hubby would be less than thrilled by that... but over the next little while I would like to address some financial questions and issues.  And this is the first, because this is the one that's heaviest on my heart.  I hate to see a mom of littles struggling with working a job she doesn't want to be in, just because she and her husband are convinced it's "the only way."  Let's just take a look at the numbers, shall we?   Because I am convinced that, short of a high-paying professional career, most of the time it just isn't worth it.

I've created a fictional set of characters and situations that I think is a fair representation of reality.  I've given them a few breaks and a few challenges, to try to reflect what might actually play out.  Obviously there are many variables that could apply - she may have a family member willing to take care of her children, or she could find a job working at home or that allows her to bring her children, they may or may not decide to buy a second car ... there are a lot of things to factor in but I've tried to lay out something that seems reasonable to me.  

Let's call our mom Jill.  Jill is in her early thirties, and is happily married to Jack, who makes about $50,000 take-home per year.  They have two children under five.  She has some college education and is qualified to work in administration.   She and Jack have decided that she should get a job in order to help pay down some debt they'd like to get rid of.  She's landed an interview for a position that pays $18.00 per hour, but unfortunately doesn't offer medical or dental coverage.  Thankfully, Jack's employer does offer coverage for the family, so they decide she should accept the position.  But she's not looking forward to having a job again after spending the last four years out of the workforce.  She is happy with their life and doesn't really want to change things... but she will if it will really help them get out from under some financial stress.  So she and Jack decide to give it a try.

Gross pay: $18.00 per hour, 35 hours per week (40-hour work week, 9-5 with unpaid lunch hour)
$630/week = $32760/year

First up: DAYCARE.   Jack and Jill have two children, age 2 and 4.  They'll get a better rate than they would if one child were an infant, but they are still looking at paying $50 per day for care.  And Jill got lucky - her neighbor runs a dayhome, so there is no cost to transport the kids to and from, and the neighbor is willing to let Jill run overtime by a few minutes here and there if traffic is bad without charging extra.  She also offers a family rate, unlike a daycare centre closer to her job which would charge $60.  
$250/week = $13000/year

Next:  TRAVEL.   Jack and Jill are both working full-time now.  Trouble is, their jobs are on opposite sides of the city, plus Jack starts work an hour earlier than she does.  And his job often requires him to work past five o'clock.  What to do?   Well, Jill appears to be sitting on a horseshoe as she happens to be friends with someone who does a carpool to the same building.  So she gets off easy with a $20.00 contribution to the gas fund each week.
$20/week = $1040/year

Another solution - Jill could drive Jack to work each morning, then drive to her job.  When her workday ends, she could pick up the children from daycare then pick up Jack from work, and if he had work to do in the evening he could just bring it home with him.  Unfortunately this is the sort of thing that leads us to the next cost...

FOOD.   It's a given fact that working full-time means you don't have as much time to cook.  Convenience foods replace scratch cooking.  Lunches need to be packed or bought now for Jack, Jill and two children.  Eating out becomes much more tempting, and mailed-out takeout menus that used to be recycled are now pinned to the fridge.  Jill might find herself calling Jack to let him know there is an order at Pizza Hut with his name on it a little more often, especially if it's been a particularly long day.   There are two parts to this equation - an increase in grocery spending, and an increase in eating out.   Let's take a nice round number and say that the grocery bill jumps by $40/week.  Nothing too dramatic, because she's still trying to shop smart.  But it's the little things that add up - buying bread and cookies instead of baking, buying pre-prepped veggies to save time... and missing out on flyer specials because she didn't get a chance to look through the flyers this week, much less try to match them to coupons.   As for eating out - I'm going to use an actual number from my own records here and say that Jack and Jill have gone from spending $50 per month eating out, up to $250.  Sounds like a lot, doesn't it?  But what this breaks down to is $62.50 per week.  That is one nice meal out, or two inexpensive takeout meals, each week.  Not all that much after all.
Grocery increase: $40/week = $2080/year
Eating Out increase: $50/week = $2600/year

So far, Jill's actual income has dropped from $32760 to $14040.  Ouch.

Oh... wait... I forgot something, didn't I?   At her income level she'll have federal income tax deducted at the rate of 15%.   And provincial income tax of 10% (assume she lives in Alberta).  And EI.  And CPP.  Whoops.  Using CRA's online calculator and a gross weekly income of $630, Jill's deductions will be:
FED:  $55.20
PRV: $26.45
CPP: $27.85
EI: $11.21
Deductions = $120.71/week = $6276.92/year

So now she actually has $7763.08 to contribute to the household.  Hmm.

Of course now that she's working in a professional environment, Jill does need to improve her wardrobe a bit.  And she doesn't have a lot of time for visiting the thrift shop regularly these days, so she has to shop retail.  However she is very good at taking care of her clothes, and knows how to make her wardrobe work for her with basics and accessories, so she's able to keep it limited to a one-time shopping trip of $500 and a few new pieces through the year, plus a couple of visits to a local tailor.
Total cost: $700 for the year.

Let's don't forget the little things that go along with being in the workforce.  There are birthday parties, pot lucks, boss' gifts, lunches out, coffee runs... let's assume that Jill sticks to her guns most of the time, though, and keeps her 'latte factor' spending down to $25/week.
$25/week = $1300/year

Now we've knocked another $2000 off that number, just on personal things.  Oops.  $5763.08

There's another side of the coin that must also be looked at here, and that is losses.  Now that Jill has an income, there will be an impact on benefits their family now receives.

CCTB : was $249.23/month, drops to $110.03.  Loss of $1670.40 per year
GST/HST : already negligible amount due to Jack's income
WITB : already ineligible due to Jack's income

Finally there is the impact on Jack's income tax return.  With Jill having no reportable income, and two children at home, Jack could count on an income tax refund last year of $3767.06 (based on a net taxable income of $50,000).  However, now Jill is no longer a deduction, as she earns more than the basic personal amount.  So this year, Jill claims the kids and Jack is on his own.  The loss on his refund amount this year is significant - he actually ends up owing $103.04.  However thanks to the kids and her new childcare deduction, she'll get a refund of $3241.33.  So they come close to breaking even, right?  Maybe not... a net loss of $628.77.

We haven't even explored some of the pickier details, like... What if the daycare was farther away and Jill had to hire a taxi or take the bus to pick up the kids?  There are added health care costs and lost wages to consider due to the kids (and Jill) getting sick more often now that they are in daycare.  What if the carpool driver gets a transfer and Jill is forced to use public transit or they decide it is necessary to buy a second vehicle?   There is a lot to consider here.

Finally... and I put this last because it doesn't apply to everyone, but in practise it belongs in the first spot... if Jill's beliefs lead her to tithing from her paycheck, that will subtract another $2648.36.

Let's sum it up again, shall we?

Gross pay:  $32760/year
- Tithe $2648.36
- Deductions $6276.92/year
- Daycare: $13000/year
- Carpool $1040/year
- Grocery $2080/year
- Eating Out $2600/year
- Clothing $700/year
- 'Latte Factor' $1300/year
- Loss of CCTB $1670.40
- Loss on tax refund $628.77
= Financial Gain of $815.55

I think I've been pretty conservative in a lot of these estimates, not to mention given Jill a series of breaks in order to paint the most positive picture possible.  My conclusion remains what it was when I started: the financial gain from Mom going to work in no way balances out the costs incurred from it.  If there is a real need for added income, there are a lot of ways to earn that final figure without ever having to leave your home.  Assuming she didn't tithe, Jill's net financial gain was $3463.91.   That's just $66.61 per week.   Jill could earn that much easily by starting a small home business, or twice that amount by babysitting just one child for five days a week at $30.00/day.  (With the added benefit of 'business use of home' deductions that would negate any tax costs for doing so!)

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