Career breaks to have children are a major contributor to the gender pay and superannuation savings gap that affects the financial security of women.
Natasha Janssens author of Wonder Woman’s Guide to Money says that for a 25-year-old woman on a full-time yearly income of $60,000, she stands to lose roughly $170,000 in superannuation by taking five years out of the workforce between age 35 – 40 and $400,000 if she takes ten years out between 30 – 40 years.
While taking these career breaks are often referred to as a “choice” that the primary carer, namely women, make, the cost of childcare is a key family financial consideration and a critical enabler of female workforce participation.
Indeed the Grattan Institute suggests that Labor’s recent childcare announcement to increase subsidies, is one of the most valuable policies in next week’s federal election.
“We are selling ourselves short as an economy by not having more women in the workforce and childcare is one of the core enablers to that,” says Deloitte Access Economics partner Nicki Hutley.
“Governments need to invest in this and remove the barriers that many women are experiencing.”
According to figures provided exclusively to the Australian Financial Review by the Grattan Institute, many low-to-middle income families are running their current households at a loss to childcare payments.
Here’s a look at how you might calculate the current subsidy, compared to Labor’s.
For single women earning an average income of $52,000 a year (the average wage of a full and part-time female employed person), which is roughly $200 a day excluding tax, the cost of 10 hours childcare at an hourly rate of about $12 an hour is roughly $120 a day per child, excluding the current subsidy.
Less the subsidy of $102 or 85 per cent, the net out of pocket cost is $18 per child.
But if this woman is part of a dual income household and the main breadwinner is earning average male full time earnings ($93,000 a year), the subsidy becomes less at $70 a day or just under 60 per cent (assuming she works full time). They pay $50 a day for care.
Under Labor’s proposed childcare policy changes, the cost of childcare would be free for this woman on $52,000 if she is single.
Or if she is part of that dual income family discussed above, the out of pocket expense would be up to $40 – a subsidy of $80 a day, or 67 per cent.
Essentially the more children in care, the higher the cost. The dual-income family above will pay $100 for each day of childcare if the second-earner works full time under the current scheme, or $80 a day under the ALP proposal.
On top of all this, as families weigh up the cost of childcare, they will do so by considering their personal income tax rates, travel to work and child, the withdrawal of family tax benefits, and the Medicare levy.
Such costs are why so many families question whether the lower-income earning partner, typically a woman, should be working at all even if that means putting her long-term financial security at risk at a time of rising homelessness among single elderly women.
“I understand why many women weigh up childcare costs with working, but I think it has very material risks attached to it, and not just for the woman’s career prospects but for the whole family’s financial security,” says Gemma Dale Director, SMSF and investor behaviour nabtrade.
But there are other things that should also be considered when weighing up the cost of returning to work in light of childcare costs.
1. Quality of care. This is a paramount decision and shouldn’t be dismissed entirely by financial decisions.
2. Long-term financial security. How much do you (either parent) stand to gain in superannuation and pay rise progression by returning to the workforce versus staying out?
3. Skills progression and relevance. Consider the impact on your skills.
4. Keeping your contacts up to date.
5. Mental health. Studies often show that our mental health can be boosted by work participation.
Shamini Rajarethnam Chief Executive Officer at skin care company Rationale, also adds that positive role modelling was key to her decision to pursue her career after having children.
“I believe I am a better mother and wife because I am a working woman. I want my daughter to have a positive role model to look up to and understand it is just as much part of my identity to be working as it is to be her mother.”
For many parents, short-term cash flow issues and the emotional reality of seeing less of your children in their “only little once” years, outweighs the long-term financial gains. And this is a costly setback for particularly for women in retirement phase.
While taking a long-term view on superannuation may seem obvious on paper, engagement remains an issue.
Indeed, a survey based on 1,000 respondents on behalf of CUA found that a third of Australians don’t know their superannuation balance.
“If I said to you that you would lose $400,000 in your retirement savings by staying at home to look after your kids full-time for the next ten years, would you still think childcare was too expensive?” said Janssens.
“I am not seeing families have that discussion.”
“We really need to shift parenting and the cost of childcare discussions from being a Mum’s responsibly to the parent’s responsibility.”
This Financy article was first published in the Australian Financial Review and has been republished here with permission.