Wednesday, 7 September 2011

(Non) Working Mums

There's a certain amount of brouhaha in Britain this morning regarding child care costs.

One thing that's is undoubtedly true is that the cost of someone else looking after your pre-school child is, and I have no better word for it, ridiculous. In a smallish town where I live it ranges from £250 to £350 per week for under twos. This makes it well over a £1000 a month, a sum that is very obviously out of reach for all but the very well off. 

It is also quite easy to do the sums that will tell you (and many mums) that they are actually better off financially if they stop working and look after their children full time. The savings in child care costs alone would justify this for a lot of people, and when you add the tax and other credits offered to unemployed as well as stay-at-home mums, it is unsurprising a lot families find the decision for mum to stop working a no-brainer.

But, I'd argue that it is in all but very few cases a totally miscalculated and wrong decision. How so?

It should be quiet simple to see, really. A no-brainer, some may argue. True, in the short term, while you're looking after your kid (or even worse a few kids in sequence) you are saving money. A lot of money. Or so it seems. But what about future earnings? Do these ever enter the minds of both the "savers", their "advisors", and  the "critics"?

Let's see how loss of future earnings (and some other factors) should be seriously considered...

Let's assume that the cost of child care rises with inflation. Let's also assume that the wages rise with inflation, too. I know they neither of this may have been true over the last several years, but in general this is true. And you'd be excused for saying, look, these cancel each other out! And indeed they do: 

If you're earning exactly as much as you're spending on childcare as you're earning then your net income will be zero regardless of whether you work or not. If you earn a £1000 and pay a £1000, if next year costs rise to £1010 and your earnings follow suit to the same £1010, then working or no working you'll find your pockets empty. 

Obviously, if you would earn less than a £1000 (say, per month) working would actually net you a loss on top of before inflation one (e.g. your wages rise from £900 to £909 while your costs rise from £1000 to £1010, your net loss has risen to £101 from £100). 

But, at the same time, if you earn more than your child care cost outgoings, provided both rise the same in percentage terms, you will actually start having a bit of disposable income (£1000 vs £1010 for child care and £1100 vs £1111 salary will net you a cool quid). So, if you're earning at least as much as the cost of childcare you may be losing money every year, all other things being equal.

Now comes the next interesting bit. Vast majority of people, when working, are getting better at it, and many even stand a chance of promotion. This usually leads to salary increases above the inflation rate. This in turn makes the calculation above even more favourable for someone who chooses to go to work and pay for child care. So you may even earn yourself a cool two quid a month!

And now to the most interesting part of my argument...

Assuming you plan to return to work at some point after your child care duties are over you may find rejoining the workforce a bit deflating - at least when it comes to income. The best you can hope for is that your (re)starting salary would be exactly equal to what you had before you quit, possibly increased by the rate of inflation. And even if it is adjusted to reflect the inflation you will still have missed out on the chance of getting any performance related raises and/or promotions. 

Not only that, but you also start your hunt for more money, with the skills that may have been current a few years ago. If you're lucky, they may still be applicable and will need only minor updating that can be done on-the-job and with no serious loss of either pay or performance. If you're only mildly unlucky, you may need to slow down your first job while you get up to speed and thus delay your next chance of above inflation raise. Moderately unlucky, and you'll find you have to accept a job at a lower grade than your last one, thus landing a nice little pay cut. Even worse, and especially if you decided to have more than one kid's worth of break from employment, you may find you need to spend time (and hopefully not your money as well) on learning whatever passed you by in your absence, essentially prolonging your unpaid maternity leave.

Now, if these are not things one should seriously consider before quitting a job to look after the kids I don't know what are. Add to that the fact that kids attending pre-school usually end up better socialised and with a possibly better trained immune system, and the stay-at-home thing should look a lot less attractive. Who would easily pass on a chance of having a healthier and better adapted kid, and at the same time having more to spend on them (and oneself, of course)?

I know, I know. This whole calculation at some point seems to stop working completely for the poorest amongst us. But I'd argue that those same poor who find themselves either already unemployed or employed in really low paid jobs may be at an even greater loss. Why? Because they should be all the more eager to either find that first decent job and/or improve themselves (and their wages) on the one they do have. Adding another few years of continuous unemployment to your dole record is a very good way of never actually getting a job. And having to re-start ones career - whatever that career is - from scratch is a frustrating experience at any rate, and probably a demoralising one, too.

Last not before I conclude (and by no means unimportant!): I may have mostly referred to stay-at-home mums. However, the very same applies to dads as well. It is a different issue altogether that women are mostly the ones choosing to (or pushed into) being stay-at-home parents. Yet another issue is that men still tend to be paid more than women for the same jobs, thus exacerbating the potential loss of earnings while on paternity leave. So, now may be the time to re-read all of the above making sure to mentally replace avery "mum" (or "dad" for that matter) with a PC "parent".

Oh, and dads, do be fair to your mums and don't make them stay at home. It's probably going to hurt both of you (and your kids) in the long run...