Actually, It Totally Makes Sense to Pay the Nanny More Than You Earn

Investing in yourself might be the best way to manage the short-term financial stress of paying for care—a move that economists argue offers significant long-term benefits.


After getting through those first few bleary-eyed months with a newborn, many mothers face the tough choice of whether to go back to work, stay at home or find a part-time solution. There are many factors to consider—cultural and self-imposed expectations of motherhood, job satisfaction, and career goals.

But often, financial pressures outweigh everything else. That pressure sometimes means women are back at work before they are ready. But the opposite can be true too: some mothers who want to go back to work find they need to stay home with their kids because quality childcare is just too expensive or unavailable.

Many women, especially those with more than one child, will struggle with this choice, knowing that a significant amount of their income will just go to cover childcare costs. Does it make sense for a parent to work if they have to spend most, or even all, of their salary on childcare?

This is a dilemma that I understand well. When my second child was born, the part-time editing and freelance research work that gave me some needed flexibility with my first child started to make less and less financial sense. Until my oldest goes to kindergarten, my take-home pay covers childcare costs for two kids, and in a good month, maybe our groceries too. Am I working just to send my kids to daycare, I often wonder? If I’m just barely breaking even, does it even make financial sense?

The answer, perhaps surprisingly, is often yes, according to some economists. This may come as welcome news for women craving the intellectual stimulation and adult companionship of work but who are suffering from daycare sticker shock.

What you save on childcare versus what you give up in income doesn’t paint a complete picture.

Childcare costs vary dramatically across the country—a family in rural South Carolina might pay $344 a month for one preschool-age kid, while a family in Washington DC spends nearly $1,500, according to the Economic Policy Institute. But regardless of location, childcare can amount to a substantial chunk of a family’s budget. Altogether on average, raising a child in the US can costs $13,186 in first year, according to a recent survey by Lendedu. Daycare fees for infants actually exceed public university tuition in 33 states.

“It’s a very natural thing to compare what you’d save on childcare to what you’d give up in income,” says Michael Madowitz, an economist with the Center for American Progress. And he and his wife have been there: “We had two kids in rapid succession, and there was a point where they were both in full-time private daycare. I would say that’s what we could afford, but we actually couldn’t,” he said. For several months, they were paying more for childcare than he was making in after-tax income.

As difficult as that was, there are other factors that should go into that decision, he argues.

Each year out of work can cost a family significantly more than three times a parent’s annual salary in lifetime income.

When a parent stays home to care for a child, they lose not only their income but also retirement savings, opportunities for career advancement, and pay raises. Over time, this can really add up. In fact, according to a report authored by Madowitz and his colleagues at the Center for American Progress, “each year out of work can cost a family significantly more than three times a parent’s annual salary in lifetime income.”

Madowitz developed a calculator to help families see how much it actually costs to take time off to care for their children.

For example, imagine a woman who has her first baby at 26 years old, the average age of a first-time mother in the United States, and quits her job that pays $44,000 a year to stay home with her children for five years. In the first five years, she obviously will forgo $220,000 in immediate income, but over her lifetime, she’ll lose over $700,000 in lost wages, lost wage growth, and lost retirement savings.

“If interrupting a career to care for a child jeopardizes a parent’s retirement or means that a family cannot afford to send a child to college without borrowing heavily, this parental care is anything but free,” Madowitz and his colleagues wrote.

Investing in yourself might be the best way to manage the short-term stress for the long-term benefits.

The US Department of Health and Human Services classifies childcare as affordable if it costs less than 10 percent of a family’s income. (Though this may be an unrealistic guideline: the Economic Policy Institute found that Louisiana is the only state where this is even possible for families.) Nonetheless, Madowitz’s findings suggest that—assuming you have the desire and the choice to go back to work—it might actually make financial sense to spend an even larger portion of your income on childcare.

Of course, Madowitz points out, the benefits of returning to work are spread out over decades, while the costs of childcare must be paid upfront. This puts many families in a very difficult situation. Do they try to manage the short-term financial stress for the long-term benefits?

Clearly, this is not even an option for some families. For the increasing number of single-parent families, “staying home to raise one’s children is just not a feasible alternative,” said Sandra Black, professor of economics at the University of Texas at Austin. “High childcare costs force these women to choose lower quality options, which research has shown is not good for the children.”

More affordable childcare, and therefore more women in the workplace, will not only help individual families but the whole economy, economists argue.

Since 1990, the United States has seen a decline in women’s labor force participation compared with other countries. In a survey of 22 industrialized countries, the U.S. fell from 6th to 17th in the proportion of working women. Researchers estimated that this was due in part to the United States’ relative lack of family-friendly policies, including paid maternity leave and affordable childcare. A 2015 study by the US Department of Labor found that if American women worked at the same rate as women in Canada or Germany, countries with more family-friendly economic policies, there would be five million more women in the workforce, translating to an additional $500 billion in GDP.

As Angel Gurría, secretary-general of the Organization for Economic Cooperation and Development once said, “women are the most underutilized economic asset in the world.”

All of which, I must say, helps alleviate some of the guilt I’ve felt over my choice to go back to work in my barely break-even situation. Despite the near-term strain, I’m investing in myself, in my career, and in my—and my family’s—financial future. I’m playing the long game.

Liz Savage is a freelance writer and editor. She lives in San Francisco with her husband and two children.