The two things most parents get wrong about childcare costs

Every week I have a conversation with new or expecting parents where I feel as though I'm stuck in a Groundhog Day moment. That conversation is about the cost of childcare and whether one partner (the woman in 95 per cent of cases) should go back to work.

Inevitably the argument presented to me is that if the female partner were to go back to work, childcare fees would suck up at least half her income and so it makes more sense for her to stay at home.

To which I reply, really? Does it?

Childcare starts to look less expensive when you consider all the financial factors. Photo: Tanya Lake

Childcare starts to look less expensive when you consider all the financial factors. Photo: Tanya Lake

Now, if we want to have a conversation around values and whether you both want one partner to remain at home because having a stay-at-home parent is important to you - if that's your choice, fantastic. That's a financial conversation worth having. For some couples, the value of one parent staying at home is the most important thing and the financial conversation at that point is around preparing for that.

However, if the childcare conversation is solely based around cold hard cash and the percentage of dollars lost by the woman going back to work, then I settle in and prepare for a debate.

Now, before we go any further, I should divulge that I co-own a long-day preschool, Thinkers.inq. It might be argued I am a little biased when it comes to parents using childcare. However for me, this is about creating a legacy in early childhood education and I see myself more in the education business than the childcare business.

You might think this is semantics but let's get back to the financial debate regardless.

I believe the argument presented to me at least weekly - that childcare isn't worth it because at least 50 per cent of a woman's wage is lost paying for it - is incredibly short-sighted. It's not considering all the financial facts. If you're only contemplating the woman's wage when assessing the financial cost of childcare you're only dealing with a tiny part of the equation. Instead, there are other costs you need to consider when determining if childcare is the right decision for you.

1. Please stop arguing that childcare is a percentage of one partner's income

I am always frustrated when the cost of childcare is presented as a percentage of the woman's income. And I always enjoy the lightbulb moment a couple has when I suggest to them that it should be a percentage of the entire couple's earnings. That's because, unless you're a single parent, the cost of having, caring for and raising a child surely should be shared by both parents. So, why are you only using one of your incomes when determining the cost of childcare? What is even more frustrating is when the percentage doesn't include the woman's superannuation. When childcare is calculated as a percentage of the couple's entire income (just as you do for schooling, clothing, food and every other cost) it often reduces the percentage of childcare down to a maximum of 20-25 per cent which is a far more palatable number.

2. Start to consider the real cost of lost superannuation

Sure, you could argue 20 per cent of your combined income is still too high and you continue to argue that one partner stays at home. But that's forgetting another cost of staying out of the workforce: superannuation. Let's assume the female partner had her first child at age 30 and stayed out of the workforce for 10 years. During that time let's presume her average wage would have been a conservative $50,000, which means $4750 super would have been paid for her annually. Over 10 years at a compounding interest rate of 5 per cent this would mean over $60,000 in lost superannuation during this time. Even if no more superannuation contributions were paid until retirement in another 20 years' time the superannuation balance relating to those 10 years of lost earnings would have risen to over $165,000. Now that's a serious figure and one that most couples aren't even considering when it comes to weighing up whether childcare is worth the cost.

It's an overly simplistic argument to suggest that because childcare costs up to (and in some cases more than) 50 per cent of a woman's income, she should stop working because it's not worth it. What is often forgotten is the superannuation cost for women and the ability to re-enter the workforce at an appropriate level when they are ready to return to work.

Of course, for some couples, the financial cost of childcare will always be irrelevant because for them, it's essential that one partner stays at home. For you, this article will be a moot point. For everyone else it's too easy to gut-react and decide that childcare is a large percentage of one of your incomes which for me, has always been an irrational argument. Instead, consider both the cost as a percentage of your total income and the longer term consequences of superannuation. After all, as the ad so famously said, you're worth it.

Melissa Browne is CEO of accounting firm A&TA and financial planning firm The Money Barre and author of Fabulous but Broke.

The story The two things most parents get wrong about childcare costs first appeared on The Sydney Morning Herald.

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