The Not-So Obvious Costs of a Two-Income Household

The framework of the average American household has seen a significant change over the past 75 years. Department of Labor reports indicate that in 1940, only 28 percent of women were members of the workforce, and only one out of every four workers was a female. By 1979, that number rose to 51 percent.

Today, men are the sole breadwinners in fewer than one out of four married-couple families, meaning a two-income household is now the norm among Americans. The most recent Census data place the median income at $51,017, with the average size of each household being 2.54 people.

Although there is a rise in earned income, there also come expenses associated with the two-income structure, which rise even more substantially in households with children. Carl Peters of Peters and Associates LLC is an expert in many areas of economics and finance, including structured finance and securities management.

He says these costs of course include expenses such as daycare and an additional vehicle, but he also adds in the additional social and emotional costs related to the absence of at least one parent in the household. Upon examining each of these expenses, is it worth it?

Childcare

One of the largest expenses a two-earner household faces is childcare. According to a report by Childcare Aware, the average cost of infant child care for one child at a daycare center ranges from 7 percent to 19 percent of the median income for a married couple. If your household earns the median income, you’re looking at a cost of between $4,592 and $8,673 annually for each infant child.

Clothing

Clothing costs include additional business clothing for the second earner and daycare attire for children attending childcare programs. Business clothing for the second earner depends on tastes, but costs range from less than $500 to $5,000 annually, according to one estimate. Costs of a child’s clothing varies based on the age of a child, your income level, and your individual preferences. However, Census data indicate that clothing costs for a middle-income family range from around $630 to $880 annually per child.

Transportation and meals

Along with a second earner in the household comes the need for a second vehicle, auto insurance coverage, and maintenance on that vehicle. Auto Blog estimates the average annual cost of vehicle ownership at $8,946 per vehicle.

According to an estimate by Forbes, Americans spend an average of $10 each time they go out to lunch and go out an average of twice per week. This adds up to a cost of $936 annually.

Taxes

Many tax benefits have maximum income limits, and the two-income structure may cause the household’s earnings to exceed those maximums. In a one-earner household, married couples with children may be more likely to apply for earned income credit and the child tax credit. In households where both parties earn at or above the median household income, they may lose out on some of these tax benefits.

To receive earned income credit, the adjusted gross income cutoff for a married couple is right around the median household income ($51,567 for couples with three qualifying children and $48,378 for couples with two children). The maximum adjusted gross income allowed for the child tax credit is $110,000 for a married couple filing jointly.

Source: Thinkstock

Social costs

Social costs include the reaction families have to the two-earner structure — costs such as materialism, isolation, and a decrease in the amount of time families spend together. Peters says these social costs are individual to each household and therefore “are not really quantifiable.”

When asked for his thoughts on the topic, Peters said, “Most households need two incomes these days to stay afloat … (and) the cost benefit analysis (performed) is from a materialistic standpoint.”

The bottom line

If both parents in a household earn the median income, how much of the second earner’s income is a net gain? After deducting for childcare, clothing, a car, meals, and tax benefits, that $51,017 goes down to around $24,000 – less than half the actual earnings.

“As a country, we spend more than we earn,” said Peters. This is true for households who have one, two, or even more earners.

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