The information in this article is not personal financial or psychological advice. Before making decision surrounding your finances and/or your family’s mental health you should seek personal advice from a qualified professional.
Unfortunately most of us do not live in a world where the family can afford the mortgage, the car, the bills and the general cost of living on just one income. Because of this I am often asked to help clients assess the financial implications of unpaid maternity leave and returning to work on a full or part time basis.
This decision can have long term implications for both your child and your family’s financial health.
In this article we will share some information about the psychological impacts of child care and also discuss the financial impacts.
I will also share a calculator that will help you work out the numbers surrounding the decision, and let you know about our upcoming webinar on the best way to save for private school fees.
Impact on your child’s mental development
Some things are more important than money. You child’s mental health is no doubt one of them. This means parents quite often start with this as the primary concern when it comes to making this decision.
I obviously can’t speak to this as I am not a psychologist, but I did run some questions past Dr Angela Joy from Logan Clinical Psychology and Dr Racheal Sharman, who is a Senior Lecturer of Psychology at the University of the Sunshine Coast.
Is there any research about the psychological effects of child care?
Dr Joy: “The research on the impact of child care really does seem mixed - there are some benefits and some potential down sides. The quality of the care is very important to minimising negative impacts, as is the ability of care givers to reconnect and bond with children when they are not in care. Personally, I don't think that there is a one size fits all approach as it really depends on the family.”
Dr Sharman: “The research unfortunately is a bit mixed; some suggest poorer behavioural outcomes with increased time in childcare regardless of any other factors. others suggest this may be overcome with "good quality" care. From a theoretical point of view, forming a secure attachment with at least one primary caregiver is essential for continued psychological well-being, the first 3 years of life in particular is vital to this aim. However, forming a secure attachment depends on engagement, quality of relationships etc. - not just "time spent with Mum/Dad" so there's a few other variables at play here as well. On balance, any family who can afford to have a good quality parent available for the first 3 years of life is most likely the ideal arrangement. At 3 years, most children are ready to branch out and start developing relationships with similar age peers (i.e. Kindy).
If the quality of care at home is poor (parent is sick, unavailable, unengaged etc.) then good quality child care is probably the better option. However, if the parent is involved and has good psychological interactions then staying at home will provide a significant boost to that child's potential well-being. Also, parents should really check out their child care provider quite thoroughly - go with your gut on this one; does the environment feel right for children; are the educators warm, kind, engaged; does the place put a smile on your face or cause you to cringe? I've inspected a number of kindys / child care organisations over the years that fall into both extremes of that spectrum!”
Stay at home parenting can have a large impact on the household budget. Can you comment on how financial stress between parents can affect a child?
Dr Joy: “If a child is raised by a full time stay at home parent who feels burnt out by parenting, unfulfilled, or under significant financial stress due to this situation it could be argued that some sort of day care could be beneficial. The mental health and stress of parents is so important. On the other hand, if it can be managed emotionally and financially, there are benefits from an attachment point of view to the consistent availability of the primary caregivers.”
Dr Sharman: “This is not an insignificant consideration, children from higher socioeconomic backgrounds also consistently outperform those from lower. Having said that, there is a chicken and egg problem in this research, in that people with higher IQ, better mental health etc. tend to earn (quite a bit) more. So, it's hard to comment on whether it is socioeconomic status per se, or the parental factors leading to high socioeconomic status thats create the better environment for the child. What I would advise here for your clients is to consider financial "wants" vs "needs". The BMW can wait, you can't get the time back that could have been used to build a strong relationship with your child.”
Is there anything else regarding a child’s mental health/development that might be relevant for this discussion?
Dr Joy: “Other things to consider are that teenagers also need a lot of parenting availability (even though they may act like they don't), so I think it is also important to consider the impact of decisions in the long term.”
Dr Sharman: “It's important to take into account individual variations here. There's not a lot to be gained by having a disengaged miserable parent stuck at home for the pure purpose of "being there". Also, some kids are dispositionally more anxious/nervous and may want to stay close to home vs naturally adventurous, social kids who enjoy spending time with kids their age. Parents need to consider their own well-being, as well as the personality of their child to come to a conclusion as to what will work best for them.”
To me this means you cannot be one dimensional in your thinking. Though a good outcome is unlikely if you are a full-time stay at home parent, and;
- Your family’s income is not enough to pay for all your expenses,
- You start to build up credit card debt
- You start to stress about money
- You start to argue about money
- Your relationship with your partner suffers potentially ends as a result
- You do not have the money to have important shared experiences with your family later in life (think family holidays)
Decisions are never made in isolation. More of one thing generally means less of something else.
Impact on your family’s financial health
The financial impact can be complex and highly dependent on your unique financial circumstances. Here are some of the things you should consider:
Child Care Rebate, Benefit and Subsidy
Until Mid-2018 you might get 50% of your child care costs up to $7,500 back as a tax rebate plus child care benefit depending on your income. However things are changing after 2018, so I will quickly explain how that will work. The government is combining the rebate and the benefit to create a child care subsidy.
The percentage of the child care fees rebated (paid by the government) depends on a few factors. The main one is your annual family income as per:
There are a few things that might mean you get a smaller % than the above graph:
1. Your family income is above $185,710 and child care costs more than $20,000 p.a. per child
2. Your child care costs more than $11.55 per hour per child for a centre, $10.70 per hour per child for family day care or $10.10 per hour per child for before/after school or vacation care.
3. You or your partner not meeting an activity test.
Balancing Income, Tax and Child care.
It is possible that you are financially better off staying at home looking after your child than working with these new changes.
Here are some examples that I ran through GPA FP's “Stay at Home vs Child Care Financial Impact calculator”.
What you are looking at is your income minus tax minus child care costs. You earn more net of those costs working 2 days a week than 5.
Here is another example where the hourly rate is less, but the combined income gives you a $10,000 per child subsidy cap if you were full time but no cap at part time:
This means your financial benefit for working 5 days rather than 4 days a week is negligible ($8 a day)
But of course most situations will end up looking something like this:
If you would like a copy of the calculator then contact me on
One step back, two steps forward
For most people starting a family is the most expensive time in their life. It starts with a wedding which averages at $36,200 according the Australian Governments Money Smart Website. This is then followed by a honeymoon, buying or upgrading to a family home, a family car, maternity leave, medical costs, nappies, and finally (as in the end of the beginning) child care.
This can cause people to go backwards financially. If this happens in an uncontrolled fashion it may cause a financial hole that will take decades to dig yourself out of.
However it can be done in a controlled fashion where you ensure:
1. You know exactly how far and fast you are going backwards.
2. You know you are not going to go so far backwards you will need to take on high interest debt or go into default on loans.
3. You know when and how you are going to start saving money again in the future.
4. You know you are still going to have enough money in the future to achieve other goals that are important (e.g. travel or retirement)
5. You know how you are going to be alerted if things are going off track
This is obviously what financial planning is about, so if you do want to learn more about how to create a financial plan feel free to contact me or book an appointment here..
Another financial factor to be mindful of is your ability to re-join the workforce. Before I was born my mother was in IT. Back then it was not PC’s but big mainframes. There were computers the size of a room that were coded in a specific language. By the time she was ready to rejoin the workforce a few years later, PC’s were in and mainframes were out. Her skills had been made redundant and she would effectively need to start her career from scratch again. These days the pace of change is even faster.
What else you should be looking at
Some decisions can have very big effects on your financial future. Choices around child care can be one of those decisions.
If you are unsure about what you can afford and would like to map out a financial plan that includes maternity leave and part time work then GPA Financial Planning can help. Book a free strategy session here.Book a Free Strategy Session Here
Another important decision you might be making about this time is should you fund private education, and if you decide you will, how are you going to pay for it?
In January I will be running a webinar about the options you have for saving for your children’s education. I will be discussing offset accounts, education bonds, and investment accounts amongst other options. Webinar:How to save for private school - register here
Otherwise, if you have an questions, feel free to contact me at firstname.lastname@example.org
Article by Matt Boxer - GPA Financial Planning
The Eight Best Ways to Save For Private School
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- Can Insurance/Education Bonds Work?
- How About Super?
- What Works out Best Mathematically?