One of the more powerful personal finance articles I’ve read was titled “You cannot afford to be a SAHM“. (It’s dated November 2016, but I read an earlier iteration of the article more than 5 years ago.)
I’ll quote the key paragraph:
You. Cannot. Afford. To. Be. A. Fulltime. Stay-at-home-mom. You just can’t.
It’s a forceful article. The author, Emma Johnson, says:
“It makes zero financial sense for any of those 5.1 million women in the United States who are stay-at-home moms (thanks, Census data). That is about one in five married-couple families who have decided to put their family’s futures in jeopardy.”
Johnson talks from experience:
I was married to a really nice, devoted guy who made a handsome income. We had a baby, bought life insurance, set up automatic contributions to our retirement accounts and emergency savings, and even started a college fund. He had disability insurance, but that never came into play after he fell off a cliff and nearly died of a brain injury – of which the lingering and devastating symptoms played a big role in dissolving our marriage.
The key message, to my mind, is that by taking an extended period of time off work when you have children, you’re exposing yourself (and your family) to some really substantial risks.
It doesn’t just relate to stay-at-home-mums. It relates to stay-at-home-dads, too.
This blog is made possible by Fairhaven Wealth, my independent, fixed-fee, advice-only financial advice business.
(For what it’s worth, I’ve been a stay-at-home-dad. And mums, if you need someone to explain to your husband how challenging child-rearing can be compared to working in an office, I’ve got your back. I found looking after children harder than working!)
Some risks, like losing your partner to death or disability can usually be insured against. But other risks need to be managed.
One of the biggest financial risks that any of us face is career risk. And taking an extended period of time where you’re not cultivating your career is exposing you even more to this risk, creating the potential that you will become financially vulnerable.
Many people look at the cost of childcare (which isn’t cheap in NZ, but is much cheaper than in Australia: take my word for it) – and think that it makes better financial sense to just stay at home and look after the kids.
But staying engaged in the workforce, even if you’re breaking even with childcare costs, is doing a lot to manage the risks associated with your career. And you’re exposing yourself to opportunities.
There are a couple of financial consequences relating to being out of the workforce. The first is better known than the second:
- After people take time off, they often don’t get back to the same earning level that they did before. Part of this might relate to prioritising flexible work arrangements over income. There might be other more politically-charged factors, which I won’t go into here.
- If you take several years out of your career, you’re actually cutting the higher-earning years out, not the lower-earning years. Let’s simplify by saying you have a 40 year career and during your career, your income increases steadily. If you cut 5 years out at any point, you’re actually cutting your 5 highest earning years out. (I’m simplifying, but I want to get the message across.)
I’m not saying you need to go straight back to work!
To be clear, in pointing out these risks, I’m not saying you should go straight back to work after having a child.
It’s valuable to take time off. It’s good for you and your child.
I know from experience that the shape of your life changes dramatically after having children. It’s hard to have two people working full-time when they have children at school between 9am and 3pm, with loads of school holidays.
But there are ways of managing this.
Take my situation, for instance. I could be working full-time as a lawyer or in a similar role. However, I’ve set up a business that complements and builds on my experiences. This gives me greater flexibility with my time and gives my wife the opportunity to prioritise her career.
Furthermore, what I’m doing does not detract from my career. In fact, everything I’ve done with my business and this blog would probably be useful for my career if I wanted to re-enter the traditional career track. If anything, I’m probably creating greater opportunities than I had beforehand.
Everyone’s situation is different. But there are probably strategic steps you could be taking to manage your career risks despite having children. You may even be able to create opportunities.