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Stay At Home or Pay for Daycare?

Posted By Jim On 09/23/2009 @ 7:36 am In Family | 85 Comments

We’re getting to the age when our friends are starting to have kids and so the topic of daycare has come up on a number of occasions. As a couple with no kids, we haven’t done the research but we’ve always known intuitively that daycare was expensive. In doing some research for this article, I was amazed at how expensive daycare was. A whole year for an infant can run you $18,000!

So in our modern age where you have two working parents, many couples have to decide whether they want to keep two incomes or drop down to one. If we were to make that decision, here is what I think we’d do in preparation.

Daycare vs. Stay At Home

While the start of the decision making process may seem quite analytical, the decision itself is almost entirely emotional. The numbers may force your decision but more often than not, they won’t and you’ll be stuck deciding between the non-financial aspects.

So here’s the million dollar question – Should Mom or Dad continue to work and pay for daycare, or be a stay at home Mom or Dad? The answer lies first in the numbers.

Cost of Daycare

For our analysis, I used the average weekly rate of the first three daycare facilities in our region on Google Maps that listed their rates online. The average rate, for five full days, was:

  • Infant/Toddler: $1,500
  • Two Year Olds: $1,200
  • Three & Four Year Olds: $1,100

Breakeven Point between Daycare vs. Stay At Home

If you have one infant and are paying $1,500 a month for daycare, that’s equal to a $2,000 a month salary in the 25% tax bracket. If you earn less, you should become a stay at home parent because you are spending more on daycare than you are earning at your job. If you earn more, then you have to decide whether the difference is worth the time away from your child.

This analysis simplifies the math tremendously. First, it assumes a marginal tax rate of 25% which isn’t accurate if you’re a single parent earning $24,000 a year (15% marginal tax bracket for the 2009 IRS tax brackets [3]). Secondly, it ignores all deductions from income.

If you have two children, say an infant and a two year old, then the total cost is $2,700 a month or $3,600 salary if you’re in the 25% tax bracket. Again, the decision is still the same. Do you stay at home and save the $3,600 or do you work and pocket the difference?

Non-Financial Factors

Arguably the biggest considerations you have for this decision are the non-financial ones. To simplify it, in daycare, your child gets socialization with other children. At home, your child gets more attention from the parent who is staying at home. There are obviously other considerations but those are probably the biggest arguments for either choice and they’re clearly non-financial.

The problem is you can’t assign a dollar value to those factors. How important is it for your toddler to interact with other children his or her age? Is it more important for a toddler to spend time with a parent at home?

The Decision

In the extreme cases, where you are earning less than the cost of daycare or where you are earning far in excess the cost of daycare, the financial aspects force a particular choice. It’s in those borderline areas, where the numbers don’t point to a clear answer, where the non-financial aspects used to decide. Like anything else in life, it’s not always about the money.

To the parents out there, if you went through this decision making process I would love to hear your thoughts about it. To the non-parents, is this something you’ve discussed? If so, what considerations have you talked about? I think a lot of people struggle with this decision and your insight would be invaluable.

(Photo: eugeniajulian [4])


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[3] 2009 IRS tax brackets: http://www.bargaineering.com/articles/2009-federal-income-tax-brackets-projected.html

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