The Pros And Cons Of A Dual Income Household

Glockenspiel
The famous Glockenspiel depicting some jousting scene at the City Center, Marienplatz

As a working mother I’ve often struggled with mommy guilt, in my case the guilt of working and leaving my child in the care of someone else.  The sadness is always the strongest right before my maternity leave would end which happened pretty recently, about two months ago.  While I’m very fortunate to love my job and have a lot of flexibility, I still often wondered if I should be at home with my babies instead of in my office doing what I do.  I had thoughts of quitting my job or becoming per diem which would allow me to work a few times a month only, but would also mean I would lose almost all my benefits.  I really wish the US had a better maternity/family leave situation, but I know I was fortunate enough to be able to get 4 months of leave as it is.  In the end it’s a very personal decision for each family and sometimes there is no choice for families either way.  We ultimately decided I would go back to work as planned and so we remained a dual income household, but just for fun let’s go through the pros and cons of a dual income household from a strictly financial standpoint.

PROS

Generally more income: There are two incomes, so yea more income!

Greater protection against sudden financial catastrophe:  When you have two incomes, if one of you gets laid off or fired then there’s always at least the other income no matter how small it is.  When you have one income and you get laid off or fired, you have no income.  Same is true if one spouse gets suddenly ill for a prolonged period of time or suffers a major disability.  Incidentally, single income households need to more adequately have sufficient life insurance and probably disability insurance in place.  Also if all your benefits such as health-care, dental & vision, flexible spending accounts, retirement account and match, come from one spouse’s job, then all those would disappear too if they had to leave their job for whatever reason.

Easier to save sufficiently for retirement:  While you can certainly open a spousal IRA for your stay at home parent and everyone can open a taxable account to save in, without access to a 401k or similar employer-sponsored retirement account, it’s a lot harder to save adequately for two people’s retirement tax-efficiently.

Less likely to divorce:  I didn’t just make this up, there are studies that show that marriages where both partners work are less like to divorce.  Also look at this article from divorce360.com (which I don’t actually know if it’s a super reputable site but seems like it has a lot of info on divorce).  And divorce is costly.  Most people end up poorer after a divorce.  Only the women who marry really rich guys without a prenup end up richer or visa versa.  For the vast majority of us, both partners will end up financially disadvantaged after a divorce.

CONS

Taxed more:  When two people both make income, well obviously they’ll pay more total taxes.  So that makes sense, more income, more to tax, but unfairly enough, when two people work and both make similar incomes, you actually end up paying more taxes being married than if you were two single people filing separately.  Yup it’s called the “marriage penalty” and I think it sucks.  Marriage should be rewarded or at least treated equally to two single people incomes.

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For example, if two people both earn $150,000, as single people they would fall into the 28% marginal tax bracket and each owe $35,036 in federal taxes.  However, if these two people married, their combined income of $300,000 would push them into the 33% marginal tax bracket, and they would collectively owe $74,412 in federal taxes.  That means they actually pay an extra $4340 in federal taxes filing married than if they were two single individuals filing separate!  The marriage penalty only gets worse the higher both spouses’ incomes are.

High cost of childcare:  If both parents work then you gotta shell out for childcare and good childcare usually isn’t cheap.  Depending on how much your spouse or partner makes and how much your childcare costs their take-home income might almost be a wash after taxes.  Imagine if you will one parent makes an income of $65,000 and they have 2 young kids they have to send to daycare that costs $1500/month each (even after sibling discount) which is $36,000/year of after-tax money of which only $6000 is deductible.  That is already approximately 55% of that one parent’s gross income and that percentage will only increase after you pay taxes on that $65,000.  Even after they start regular school, working parents often have to shell out for after-school care and childcare during all school breaks: summer, winter and spring.  Unless your spouse is a teacher.

More likely to outsource cooking, cleaning and other household duties:  When one parents doesn’t work and is a stay at home parent, usually they not only watch the children, but they also cook, clean and do laundry along with managing many other household stuff.  When both parents work, while not impossible to keep up with all the household management needs, especially if both parents chip in (*ahem* husbands), but let’s face it you’re more likely to outsource these duties to a cleaning lady, restaurant take-out or private chef, dry-cleaning and laundry service.  You’ll probably spend a little more for convenience like grocery delivery or other convenience services than if one of you were a stay at home parent.

More money, spend more? Or idle hands shop more?  This one is up for debate.  Some might say if you make more money, you’re more likely to spend it so you’re not really making more.  Some might say a stay at home parent who is frugal in nature might take more time to clip coupons and look for the best deals and save money for the household.  OR they might be bored and shop more and/or go out to more lunches with friends and indulge in hobbies.  So yea, really depends on you and your spouse’s finance personality here.

So there you go, pros and cons of a dual income household from a strictly financial viewpoint.  Obviously there are many more psychological pros and cons that are beyond the scope of this post and rather personal for each family that weren’t discussed.  Did I miss any financial pros or cons?  Anyone feel very strongly about either being a single or dual income household?  I’d like to hear from you!  Thanks!

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