Monday, February 21, 2011

"But I HAVE to work!!" - Part Two - School-Age

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

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

Let's return to Jack and Jill a few years down the road.  They decided to continue as they were until the kids were both in school, because they didn't see a real financial benefit from the prospect of Jill going to work full-time before then.  Well, the kids are now both in school.  They board the bus at 7:30 am and get home at 4:00 pm each day.  So it's time to reconsider.  As it turns out, the same job is available again, and Jill is excited by the idea of getting back into the adult world.

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 who are now ages 5 and 7.  The neighbor offers before and after school care, which includes getting the kids to and from the school bus, plus a healthy after-school snack.  She charges $15/day per child with a small family discount, so the cost is $25/day for both kids.
$125/week = $6500/year

Next:  TRAVEL.   Jill's lucky horseshoe is still intact and she can continue carpooling with the same neighbor.  Gas prices have gone up a bit in the last few years, but she still gets off pretty easy with a $25.00 contribution to the gas fund each week.
$25/week = $1300/year

Since the daycare is so close to home, Jill of course just walks over to get the kids when she gets home from work.  She gives the kids a drink and quickly gets something on for supper while waiting for Jack to get home.  He still works some evenings but is usually home by 6.

FOOD.   I'm keeping these numbers the same as the previous scenario, just for simplicity.
Grocery increase: $40/week = $2080/year
Eating Out increase: $50/week = $2600/year

So far, Jill's actual income has dropped from $32760 to $20280.  

Let's don't forget about those payroll deductions.   I am optimistically assuming that tax rates have remained steady.  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.  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 $14003.08 to contribute to the household.

It's been a few years since she really did much with her wardrobe, and looking at her closet  Jill realizes that she really does need to update her look before entering the workforce.  Daycare costs are a lot lower now that the kids are in school, so she decides that she can get away with a little bit of indulgence.  She doesn't go too far with it, though.  She makes one "good" shopping trip and spends $500 on basics that will get her through the day.  Then through the year she spends another $500 picking up accessories, a few tops to change up her look, a new pair of shoes shoes, a classy briefcase, and a nice new coat.
Total cost: $1000 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 still 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.  $11703.08

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
UCCB: remains the same as it is not income-dependent
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 (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.  Remember that when Jill had no reported income, Jack had a refund amount of $3767.06.  With Jill earning as much as she is, he now has to pay in $103.04.  However, let's look at Jill's return... thanks to the kids and her new childcare deduction, she'll get a refund of $1616.33.  So they've only lost $2253.77.

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: $6500/year
- Carpool $1300/year
- Grocery $2080/year
- Eating Out $2600/year
- Clothing $1000/year
- 'Latte Factor' $1300/year
- Loss of CCTB $1670.40
- Loss on tax refund $2253.77
= Financial Gain of $5130.55

Again with this scenario, I think I have overall been pretty realistic.  If anything, I suspect I am overly optimistic about how things would go - it's very possible that eating out just once or twice a week is a low estimate.  It's possible that the family would decide Jill needed her own vehicle, which would easily add an extra $300+ to each month's expenses.  But sticking with the numbers I've used, Jill is seeing a net financial benefit that works out to $98.66 per week.  As before, Jill could earn that much easily by starting a small home business, or 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!)

Tomorrow I will look at this again, from the angle of Jill going to work part-time, working a few evenings a week.  Not an ideal situation from the perspective of family life, but one that does bear consideration.

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