How can I be financially secure as a stay-at-home parent?

When planning for or expecting your first child, one of your decisions will be about whether one parent should stay at home long term to look after the child, or if you will only take maternity leave.

You may even consider a compromise between the two – with one parent taking on less demanding work to dedicate more time to being the primary caregiver.

Your ideas may change after your child is born, but whatever you decide, before or after, here are a few things to consider about the role of a stay-at-home parent:  

Managing on one income

Being a stay-at-home parent, or stepping down from your working commitments, means forgoing some of your income.

You can soften the blow if you are able to save up in the period before you have children, but this is not always practical. In your early working years, you may still be studying, building your career or saving for a first home.

If you start a family without any financial backup, reining in your spending habits and living on a budget is the next-best step.

The birth of a child will change your spending habits as you will have additional costs like nappies and baby food, but you may spend less on entertainment and eating out.

A stay-at-home parent may save a little by not working - the cost of travelling to work and buying work clothes.

Use our Budget Planner to revise your budget and plan how to manage on one income. Read more: How do we survive the birth of a baby financially?

Recognise the value

A stay-at-home parent’s role is often underappreciated because it is unpaid, but it is certainly not worthless. Here are a few ideas to ensure both spouses appreciate this:

• Much more than saved costs: A stay-at-home parent saves a couple child-care and housekeeping costs, but the impact on your children may far exceed the expenses you are spared.
  
  Spouses need to acknowledge the value to the family of a stay-at-home parent caring for a child, or children, relative to the lost income. This will help the stay-at-home parent not to feel undervalued or taken for granted.
  
  
• Agree on how to spend the household earnings: If you have agreed that one of you will care for the children, you should also agree to share the working parent’s earnings. Discuss your household income and agree what to spend on running your home, your child or children, other essential costs, how much insurance you need, how much you want to save and the amount each spouse can spend guilt-free on the likes of sports, hobbies, gifts and self-care.
  
  The working or higher-earning parent should not feel entitled to more of the household money if both parents agreed that one would stop working, or work less, in order to care for a child or children.
  
  The stay-at-home parent should regularly share details about the household expenses so the working parent appreciates the costs and the stay-at-home parent does not have to ask for money to run the home.
  
  Sharing builds the trust in a relationship where one spouse depends on the other for money. Maintaining that trust needs constant work. If the working parent controls the money and what the stay-at-home spouse can do, the relationship can easily become toxic.

Lost retirement and insurance benefits

The parent who agrees to stay at home, not only gives up an income but gives up the benefits they would have enjoyed as an employee.

Losing the ability to save for retirement and the cover of insurance makes a stay-at-home parent particularly vulnerable to death, disability, illness and divorce.

As a couple you can combat this by:

• Maintaining retirement savings for the stay-at-home parent: Some countries, notably the United States, allow the working spouse to claim a tax deduction for contribution to a spousal retirement fund. South Africa does not.
  
  If the working spouse contributes to a fund for both spouses and the couple subsequently divorces, the non-working spouse will need to claim a share of a spouse’s retirement savings (pension interest) as part of a divorce settlement.
  
  The risk is that retirement savings can still be withdrawn on resignation and claims against pension interests can only be noted on divorce before retirement.
  
  Spousal maintenance on divorce is not always guaranteed and typically depends on how long the stay-at-home parent has been out of work and how employable they are.
  
  Ideally, the stay-at-home parent needs their own savings and should try to keep up their contributions and increase them by inflation each year. The stay-at-home parent may still be contributing less than someone who is working in an advancing career, but at least they will have a small nest egg of their own.
  
  Contributions to a retirement fund for someone who is not earning will not be tax deductible in the year in which they are made, but the tax deduction can be claimed on retirement.
  
  
• Life cover on the working parent: A stay-at-home parent is best protected with ownership of a life policy on the working parent’s life. Without an income, it can, however, be difficult to pay the premiums. The working parent should take out cover to protect the family, but stay-at-home parents are again vulnerable in divorce as the working parent may remove the stay-at-home parent as a beneficiary. Read more: Why is it important to name beneficiaries on a life policy?
  
  If the working spouse has group life cover through a retirement fund and dies before retirement, the trustees of the fund must consider all dependants, including the stay-at-home spouse, and should award the benefits to the dependants in line with their needs.
  
  But there is no guarantee of job security and keeping this cover. In addition, if your spouse enters another relationship, the benefit may need to be shared with more dependants. Read more: What happens to my retirement savings if I die before retirement?
  
  
• A stay-at-home parent should ideally be insured:  A stay-at-home parent should ideally have life, disability and severe illness insurance to cover the costs that could arise if that parent can no longer provide care for the children due to death, disability or severe illness. This cover will also cover additional costs that may arise as a result of disability or illness.  Read more: Do I need disability cover? and What is severe illness cover?

Stay financially involved

Many couples allow the more financially literate spouse to take the financial lead. Often stay-at-home parents are the least literate because they are no longer earning and are only dealing with the home budget.

However, both spouses should make the effort to ensure they are both involved in any financial decisions and aware of any debt the other spouse takes on. Pay particular attention to this if you are married in community of property and will share the debt if the marriage dissolves. Read more: Do you understand the ins and outs of your marriage contract?

A financially involved stay-at-home parent - even if she or he is only involved at a high level - will be more empowered in the event of death, disability, illness or divorce.

The stay-at-home parent should also have their own bank account and some form of credit to ensure that if ever they are on their own, they have a good credit report. Read more: What is my credit report?

Remaining skilled

Parenting teaches you hugely valuable life skills but unfortunately not always the ones employers are seeking.

Stay-at-home parents often realise when their children are older and involved in their own activities that they have the desire and the time to return to work, even if it is only part time. Unfortunately, their skills and experience are often lacking.

If you decide that one parent will stay-at-home, consider how that parent can reskill, or stay skilled and able, in order to re-enter the job market should she or he wish to do so. Alternatively, give some thought to self-employment or starting a business. Read more: Where can I get funding to start my own business?