A play room at the Imagination Tree daycare in Calgary.Todd Korol/The Globe and Mail
When Ottawa unveiled a national child care program in 2022 that promised to deliver $10-a-day fees, it was trumpeted as a paradigm shift for working families.
But after navigating the daycare market for our toddler in both Toronto and Vancouver, I have found that while $10-a-day daycare slots exist, they’re tough to get.
That means there are families still scrambling to find affordable childcare, and in some cases, paying for unsubsidized private spots that can cost as much as $1,000 a month, according to the Canadian Centre for Policy Alternatives, after adjusting for inflation.
Given that the median after-tax family salary in Canada is $74,000 a year, it might seem like having the lower earning spouse quit and stay home is a logical choice. But even if daycare eats most of your paycheque, it still might make financial sense to keep working. Here’s why.
Daycare is not a forever cost
While daycare is a major household expense – some say on par with mortgage or rent payments – it’s not a forever cost. Once your kids go to kindergarten at age five, that cost is reduced to after-school care and slowly disappears at or before age 12, when they can legally be at home by themselves.
But a five-year window of financial daycare pain is miniscule when compared to the decades of earning potential – and rising income – you would be giving up.
Let’s look at an example. For the average Canadian family earning $74,000 a year after tax, let’s assume each spouse brings in $37,000 a year. Without a subsidized daycare spot, they could be paying $100 a day or $24,000 a year, eating up 65 per cent of one spouse’s after-tax salary.
For the first five years, it’s bad. But when you look out over the course of their career, the equation changes. During a 20-year career, they come out ahead by nearly $620,000, even without a single raise, promotion or investing their savings.
In fact, it would take multiple children and up to $200,000 a year in daycare costs to make staying at home financially appropriate.
Daycare costs scale down over time
In my experience, the hardest period to find $10-a-day daycare is from the newborn stage to 30 months of age, after which they become eligible for preschool. In Canada, infants require a lower caregiver to child ratio for safety, so it’s much harder to find subsidized spots when they are very young.
Once they turn 30 months, parents have a much better chance of finding subsidized spots since more children can be admitted per caregiver. Also, during the month of September, many children who have turned five go to kindergarten, opening up the spots in the two-and-a-half to five age cohort.
Even if the child care situation looks dire, parents should keep searching for affordable daycare to transfer to once they get older.
The other financial benefits of working
Outside a paycheque, work brings financial benefits such as CPP contributions, employer RRSP matching, employee share purchase plans and dental/drug benefits.
These additional financial benefits, when invested, could net you tens of thousands of dollars over the long term and reduce your time to retirement.
As a passionate advocate of the financial independence and retire early movement, it could seem strange that someone who wrote a book about quitting your job would advocate for working. But what I’m advocating for here is math.
Quitting your job should be done safely and strategically. That is, only once your finances make sense, and when your portfolio can support your living expenses permanently going forward. Deciding to quit prematurely or reactively, because it feels like you’re not getting ahead because of daycare costs, is not a mathematically sound decision.
I also understand that for some, this decision goes beyond finances and is more about what’s best for your family and that’s clearly perfectly valid. But if you love your job and want to continue working, but can’t justify it since daycare would consume most of your paycheque, don’t worry.
The math shows that your lifetime career earnings can greatly exceed this five-year slow down. Remember, daycare costs aren’t forever, and at 30 months of age, the child-to-caregiver ratios get better.
Kristy Shen and her husband Bryce Leung retired in their 30s and are authors of the new book “Parent Like a Millionaire (Without Being One).”
