I am writing this while deep in the throes of motherhood. There are so many changes to go through in motherhood (nap transitions, loss of personal time, loss of sleep), and income is most often one of them, in the form of the Motherhood Penalty.
I remember being judgey (before kids) wondering what parents with kids at home do all day.
I didn’t realize how much emotional intelligence I would need to be a parent. I didn’t think I would be this tired even though the kids are sleeping through the night. Caring for young kids is physically exhausting and I am in need of an afternoon nap myself, on a good day.
It is physically demanding work, you don’t get a break except after 6 hours when they nap, and you’re on your feet all the time or carrying almost 30 pounds of toddler when they are being clingy.
What’s the Motherhood Penalty? Here’s one example from my own situation.
After I had my first child, I was hoping to be making six figures very soon. Then I had my second child, took my second maternity leave and started working part time when I returned to work. I never got to that six figure salary even though it was a goal of mine since I was young.
At first, as a somewhat Type A personality who values freedom and hitting financial milestones, I felt a big loss. I was a little disappointed in myself that I wasn’t able to make my financial career goals.
However, those feelings didn’t last long. I have two healthy children and that’s more important to me than financial milestones. I have the ability to earn income and the health to take care of my family and I am very appreciative for that. I had a health scare and was hospitalized for four days a few years ago and it really gave me perspective of what I could have lost- my ability to function and take care of my children and even to work.
I have come to be grateful to be able to work a few days a week and then spend the rest of the time with my children. They are pretty cute and snuggly right now and being able to witness them achieving their own milestones is very rewarding. I mean, isn’t this what all FIRE minded people aspire to- to spend more time with their loved ones?
During my first maternity leave, the income hit was
a bit very shocking, but I was happy for my dividend income that I could reinvest, even though I wasn’t saving as much as I usually did. I tried some different ways to save money while on a low income.
Also, I was grateful to have parental benefits and leave since our southern neighbours are considered lucky if they get 3 months.
Table of Contents
What is the Motherhood Penalty?
The Motherhood Penalty is also called the Family Gap, or Motherhood Earnings Gap. It is when becoming a mother causes a negative effect on her wages.
According to this CBC article, women aged 25 to 38 saw their earnings drop by 4% in the 5 years after having their first child. The hit in earnings is even worse for younger women who become parents, with aged 25 to 29 losing an additional 14% over this time period.
In this Statistics Canada chart, it shows how much a mothers’ hourly earnings were below that of a woman who does not have children.
In addition, it makes sense that the more children you have, the more the wage gap widens.
As you can see from the above charts, the Motherhood Penalty isn’t just about the reduced income for the 12 or 18 months that you take off for parental or maternity leave in Canada.
It’s about the more flexible jobs you take on when your children are young, or the decreased number of hours that you are able to work, and the increased number of unpaid household labour that women tend to do more of.
I came up with some ideas on how to fight the Motherhood Penalty before you plan to have kids, here’s how.
Start Investing As Early As Possible
Probably the most important thing to do is to start investing in your early 20’s or as early as possible (maybe even 19!). I know it’s not something you will be thinking about in your early 20s (If I had a chance to talk to my younger self, I would have started saving and indexing more aggressively).
If you are planning to have children in your thirties (more moms are delaying having children until later nowadays), you will have your career more established and by the time you have children, you should have some money saved for retirement and that will be automatically compounding for you, thanks to the 8th wonder of the world, compound interest.
Let’s say you had $5000 to invest at age 20 and you contributed $500 a month. If you had your child at age 33 you will have $139,054 saved for retirement. If you had a 4% return on this amount in the form of dividends, you would have about $5560 annually in dividends.
This is about $463 per month, which you could use to contribute back towards your investments and compound it, if you were not able to contribute the $500 a month during parental leave.
If you did hybrid investing (investing in dividend paying individual stocks in addition to ETFs) you may be able to grow your passive income and not rely so much on your active income and have income paid out during your parental leave to re-invest or use for life expenses.
If you can keep that money in your retirement accounts and you are not able to contribute to them for a few years, you can still coast towards retirement.
The cheapest way to index is the sign up for a discount brokerage account and purchase an all in one ETF that rebalances automatically on a monthly basis so you can dollar cost average. ETFs are commission free with some brokerages like Questrade, or Scotia iTrade (49 of them).
Figure Out Equitable Finances With your Partner
Warren Buffett has repeatedly said that he most important decision in your life is who your life partner is going to be.
The right partner is so important. Someone who is supportive of your decision to continue working (or to be a SAHM too if that is your choice). Someone who will be hands on with the kids, wash the dishes, fold the laundry, change diapers, and who will be a team player and not just ‘help out’ or ‘baby sit’ 🙂
I know someone whose husband suggests that she stay at home with their kid instead, after going through 10 years+ of schooling to get her high six figure income (she is still working).
I know someone else who had a husband (note the past tense) who shouted in front of guests during a dinner party “Bethany, the garbage is full!” (names have been changed).
According to Stats Can, in 2014, 69% of families with children were dual earner families, up from 36% in 1976. More moms are working more now compared to a few decades ago.
Managing your money together as a couple is also very important. Some couples like to merge everything, some like to keep things separate, and some like to have joint accounts and also their own bank accounts.
If you have joint and separate accounts, it is important to figure out equitable finances with your partner. If you split every 50/50 that may be equal but it is not equitable, if you make different amounts.
If you cover the daycare expenses and the groceries, and your partner covers the mortgage and restaurant or takeout expenses, it might still not be equitable and can breed resentment (e.g. one partner may decide they want to spend less on takeout and the other partner will thus spend more on groceries).
Here are some ways to split finances when there is income inequality. And there will be income inequality. One of you will be on parental leave and the other will be raking it in, comparatively.
I view relationship finances as a Venn diagram (two individuals sharing commonalities and shared values) and hence a joint bank account is a great idea for the household and family expenses.
I don’t want to be financially dependent on a man so I like to have some income.
Keep Family Expenses Small
Some people feel that once you are expecting you need to get a bigger place right away. Babies don’t move around very much and don’t need much space at all. We lived in my one bedroom apartment until our second child came along. It got a little uncomfortable with pregnancy leg cramps sleeping on my futon, and my husband was sleeping on the Skip Hop play mat, but we managed.
This popular blogger, 600 square feet and a baby, housed her two children who are now school aged for 7.5 years in a one bedroom apartment with high ceilings.
She just recently announced that her family of four will be moving to a larger space. A one bedroom and den apartment and 900 square feet.
Keeping expenses small as long as possible is important to decrease the Motherhood Penalty. The more you will be able to save and invest towards your financial freedom.
Affordable Childcare is Worth It
I would say that the most important factor to decrease the Motherhood Wage Gap is affordable childcare.
There are people who know they want to be with their young children all day and there are moms who don’t want to be giving up their career. I applaud the moms who choose to stay at home, because I think it takes a lot of mental and emotional strength to take care of young children every day.
Some moms I have talked to gave up their careers because the childcare expense was too much, “Oh all my income would go to daycare expense” is what they would say.
If you do not want to give up your career that you worked hard to build, affordable childcare is worth it. In Quebec, they have daycare for under $200 a month. Unfortunately $100 a month childcare isn’t really available in Canada like it is in Sweden.
We currently have a very part-time nanny and preschool costs, and sometimes I flinch about our childcare costs, but I know that my sanity and continued career are worth it (haha). Also, these costs are temporary and taking a long break in my career would be more permanent. It would be more difficult to re-enter the workforce with a large gap between work.
I would also feel even more insecure with my job skills after a large gap. Going back after 12 months the first time was already scary enough with my mom brain, where I had difficulty forming complete sentences and talking to other adults.
Lessen The Invisible Load of MOtherhood
The emotional labour of motherhood can feel suffocating at times. Thinking about meal planning, thinking about which activities to register your child in, thinking about organizing play dates (pre-COVID of course), making sure your children have snowboots ready for winter, packing up clothes that don’t fit them anymore, signing up for baby freebies while pregnant, and even signing up for kids birthday freebies or planning Zoom birthday parties often falls upon the shoulders of mom.
Case in point, this twitter post went viral, this mom decided to stop doing household chores for 3 days and documented what happened when she did.
I was spending a lot of time thinking about what meals to prepare for my family every day, especially for lunch and dinners. I like cooking (especially with my air fryer or Instant Pot) but planning three meals and two snacks a day can be exhausting. I was doing a lot of meal prep at night time for the next day.
It hit me as I was rolling out pizza dough at 10:49pm, maybe I need to figure out a different way to preserve my ‘alone time’ (e.g. time when they are sleeping at night and I can actually think in silence and recharge my depleted introvert batteries).
After lamenting to a mom friend (in a high earning career) about my cooking burden, she told me she enjoys cooking, but she cooks only a few times a week. She makes enough so there are leftovers for the next day.
I decided to make this change for myself, and the relief from daily meal prepping was exponential. There was a reduction in the mental burden of figuring out what to make, less stress trying to prepare a meal while having a clingy toddler demand my attention, and also a reduction in time spent making the aforementioned meal.
My preschooler mentioned a few times after the change “Is this leftover food again?” and I was secretly relieved that I managed to stop myself from raising kids that aren’t used to leftovers (PHEW!).
Also, I became more open to getting takeout or delivery once every week or two weeks instead of being a home cooked meals 24/7 martyr.
Side Hustle with Work From home Jobs
Without the Internet the Motherhood Penalty would be very different and I think it would be much more difficult to close the Motherhood Wage Gap.
Nowadays, you can make money more easily because of the Internet. During nap jail times, you can sell flowers or create a flower arrangement side business on Instagram.
Heck, you can sell a lot of other products on Instagram, and you can freelance too (for example, virtual assistant jobs with Pinterest or something like that or as a writer for other blogger’s websites).
You could start a blog and work on it at midnight when the kids are asleep even but that takes a lot of time and energy to build up and profitable results may not occur.
You may be surprised or not to hear this, but there are many six figure income Mommy bloggers out there.
Take Advantage of Government Benefits
Finally, taking advantage of the government incentives available is also a good way to fight against the Motherhood Tax.
The Canada Child Benefit is a great non-taxable government benefit for families.
Here are some tips on how to maximize your Canada Child Benefit and here is a list of the Child Tax Benefit payment dates. The benefit is usually paid (by default) to the mother via cheque or direct deposit.
Another Canadian government benefit to encourage parents to save up for their children’s post secondary education is the Registered Education Savings Plan.
The government matches 20% of your contribution in the form of the Canada Education Savings Grant, up to $7200. You can contribute a maximum of $50,000 per RESP.
Although this doesn’t address the Motherhood Wage Gap directly, it’s less money spent towards saving up for your child’s post-secondary education.
For a checklist geared towards new parents in Canada, click here.
In the future (for retirement) there are OAS and CPP income sources. To project your future income sources to make sure retirement is looked after, Cashflow and Portfolios Retirement Projections are helpful.
The Motherhood Penalty Recap
The Motherhood Penalty is an income loss that often happens when you have children. There are ways to try and counteract the Motherhood Penalty but some of these have to be worked on well before you have children (for example, investing).
That being said, it’s hard to know in your 20’s what the future may hold. Delaying children may mean more difficulty to conceive and increased miscarriage occurrence in your late 30’s or 40’s.
If you decide to be a SAHM and not have an income, one way to keep the power balanced between your income earning spouse and you is to manage the household finances and know where the money is being invested.
I think that moms who are SAHMs are very strong (I do not have the patience to do it full time) and I am very admirable of women who can do that with grace. Sherry from Save Spend Splurge explains why people think she’s crapping over SAHMs.
Becoming a parent is one of the most significant events in your lifetime (I would argue the most actually) and motherhood comes with many changes to your life, including negative financial changes. Hopefully this post helps you think about how to mentally and financially prepare for the Motherhood Penalty that might happen to your finances when you have children.
How do you counteract the Motherhood Penalty?
GYM is a 30 something millennial interested in achieving financial freedom through disciplined saving, dividend and ETF investing, and living a minimalist lifestyle. Before you go, check out my recommendations page of financial tools I use to save and invest money. Don’t forget to subscribe for blog updates, a free dividend yield spreadsheet, and the free Young Money Bootcamp eCourse.