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Having children brings many joys. But for women, it can also have a financial dark side. Becoming a mother often results in a loss of pay and opportunities for career advancement, a phenomenon known as the motherhood penalty. In fact, women experience a 60% decrease in income compared to men in the decade after their first child is born, according to PricewaterhouseCoopers’ 2023 Women in Work Index.

Many factors contribute to the motherhood penalty, and not every woman experiences it in the same way. Understanding the motherhood penalty can help women — and their families — sidestep this financial setback.

How Does the Motherhood Penalty Work?

If you want to avoid the motherhood penalty and keep your budget on track, it pays to know your enemy. According to a 2023 article published in the scientific journal PNAS, women’s diminished earnings after the birth of a child is driven by both a reduction in employment and by lower earnings for those who remain employed. Let’s look at each of these factors.

Despite the fact that women today have achieved historic levels of education and are working at senior levels in the corporate world, they are still more likely than men to cut back on their working hours or stop working altogether after a baby is born. Some women may choose jobs that allow for more flexibility in hours even if those roles pay less.

Discrimination is a more insidious factor: Women make up nearly half of all U.S. workers and do the bulk of consumer spending, yet some hiring managers still believe that women’s earnings are not as critical as men’s for household support. (A quick look at any parent’s money tracker app would reveal just how untrue this stereotype is.) When two women are similarly qualified for a job, the one without children tends to earn more than the one who has kids. And when men and women hold similar positions, fatherhood seems to confer a salary advantage in many occupations.

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Why the Motherhood Penalty Matters

Dual-income households have been the norm among married couples for decades, and most households composed of married couples with children have two working parents, according to 2023 data from the Bureau of Labor Statistics. Families with two healthy incomes are most likely to be able to afford a home, and to be able to cover other large expenses, including the cost of kids. (A 2022 report from the Brookings Institution suggests that the average middle-income family today will spend more than $310,000 to raise a child to age 17.)

But the motherhood penalty takes an especially hard toll on families led by women. According to the 2023 Census, 21% of U.S. children are growing up in a household led by a single mother, who often has no other source of income than her own earnings. The motherhood penalty may contribute to the fact that nearly 30% of single-parent families are living below the federal poverty level.

Factors Contributing to the Motherhood Penalty

As noted above, the unspoken ideas that women belong at home caring for their children, or that women are not vital contributors to their family finances, continue to be a driver of the motherhood penalty. This is despite the fact that households where two parents work outside the home is now the norm in the U.S.

But there is another troubling scenario. Women may leave their job because childcare costs more than they earn. The cost of caring for an infant in a childcare center averages $15,417 per year per child. In big cities, the number climbs even higher: Washington, D.C. averages $24,243, for example. And even when women don’t stop working, they may scale back their hours, or take more flexible but less well-paid positions.

The motherhood penalty is unfair, and one additional factor adds to the unfairness: In households with two working parents, where each parent earns roughly the same amount, women still spend more time on caregiving responsibilities than men do — 12.2 hours per week on average, compared with 9 hours for men, according to a 2023 Pew Research Center report. Women also spend 4.6 hours doing housework to men’s 2 hours. Women’s work may be valued less, but as the old saying goes, it’s never done.

Recommended: Pros and Cons of Salary vs Hourly Pay

Tips to Avoid the Motherhood Penalty

So what can women do to safeguard their finances from the motherhood penalty?

Consider your career choice. Women can begin to protect their financial future while they are still contemplating a career path. Some research suggests that the motherhood penalty disappears for mothers who work in business and post-secondary education. And in STEM careers, and fields such as medicine and law, mothers actually appear to earn more than women who don’t have kids.

Stand up for fair earnings. Exercise your right to be fairly compensated with every step you take in the working world. Applying for a job? Do your research to learn what is a good entry-level salary. Offered a position? Learn how to ask for a signing bonus — with unemployment relatively low, employers in industries from retail to engineering may pay you to come on board.

Change jobs. Women may be less likely to change jobs after becoming mothers, as switching jobs can be stressful and time off is often allotted based on seniority. Yet changing jobs is one way to bump up your salary. When you do switch, make sure you understand what is a competitive pay rate. A growing number of states, including California, Colorado, and New York, have passed pay transparency laws that require employers to post salary ranges when they advertise job openings.

Don’t share your status. It’s unlikely that you’ll be asked during a job interview if you have caregiving responsibilities, as doing so may violate federal and state laws. But many women casually disclose that they are parents during the interview process without thinking twice about it. Avoid talking about your personal life when interviewing for a job and consider that many employers examine applicants’ social media feeds during their screening process.

Advocate for fair pay and families. Research suggests that moms in women-dominated and low-paid professions face the greatest motherhood penalty. To help promote equitable pay that can sustain families, you can support raising the minimum wage. Lifting your voice in favor of government support for affordable childcare and for mandatory paid parental/caregiver leave can also help ensure that women who want to stay in the workforce after having a child can afford to do so.

The Takeaway

Despite the fact that women are working outside the home in historic numbers, the motherhood penalty still exacts a perilous price for many women and their families. Acknowledging that women are financially penalized for becoming parents is a first step in fighting back against the stereotyping and discrimination that is often at the root of this problem.

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FAQ

What is meant by the motherhood penalty?

The motherhood penalty refers to the fact that women’s earnings suffer after they have children, sometimes due to discrimination in hiring or the awarding of promotions, and sometimes because women scale back on work or stop working altogether after having a child.

How does the motherhood penalty affect a woman’s career?

The motherhood penalty results in lower earnings, and because future earnings are often based on current salary, the diminishment in income often persists as a woman progresses up the ladder.

How can I avoid the motherhood penalty?

A primary way to avoid the motherhood penalty is to know your worth. Do your research on salary before taking a job, and reevaluate your salary at least yearly by looking at comparable positions.

Photo credit: iStock/Pekic

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SORL-Q224-1860153-V1

Money management — how to save, budget, and invest — is a vital life skill that isn’t part of most school curriculums. As a result, it often falls to parents to prepare kids for this aspect of adulthood. The trouble is, talking about things like spending, saving, and taxes with your kids may not come naturally, especially if you were raised in a “don’t talk about money” household.

So when — and how — do you start talking about money with your kids?

Generally, it’s never too early to begin teaching kids about the concept of money. You might start just by normalizing conversations about money, so kids feel comfortable asking questions. Other easy strategies include offering a piggy bank to young kids, to introduce the concept of saving, and providing an allowance to older children, which helps them learn to budget and manage their own money.

Read on to learn more about some of the best ways to teach kids about money and put them on the path towards financial health and independence.

Why It’s Important To Teach Kids About Money Management

Whether it’s the importance of saving or how to open a new bank account, money lessons help ensure that kids will make smart financial decisions in the future.

Children who are introduced to basic financial concepts at an early age are likely to feel more confident about their spending habits and have less financial anxiety when they’re older. Teaching young children simple lessons about money management also makes it easier to impart more complex financial lessons as they get older. This can help set them up for success when they get that first summer job, go off to college, and enter the working world.

Money Management Explained

First, let’s look at the big picture. Helping kids understand the basics of money management is important…but what is money management anyway? Some adults can’t answer that question, let alone explain it to their children.

Simply put, money management refers to how you handle all of your finances. It involves keeping track of what’s coming in and what’s going out (and making sure that latter doesn’t exceed the former), being smart about debt, and setting money aside for both short- and long-term goals.

While adults generally understand that saving money is important, it typically takes an engaging approach to get kids psyched about hoarding their pennies rather than spending them on a video game. With the right strategies, however, teaching kids about money management can wind up being a satisfying and fun experience for the whole family. It might even give you a renewed focus on your own money skills.

Money Management for Kids in 6 Steps

Here’s a look at some of the best ways to boost money management for kids.

1. Start Early

Children as young as three years old can start to grasp the basic concept of “We need dollars to get ice cream.” Talking about money in a positive, or simply neutral, way and being transparent about your own financial life (“I got paid today,” or “I need to pay bills tonight”) begins to ground kids in the ebb and flow of finances. It helps a child learn the value of money.

Parents can use a routine trip to the grocery store to point out price tags and how some things cost more than others. Asking a salesperson or cashier, “How much is this?” can clue children in to a transactional truth: You have to have money to buy something. Paying bills in front of them helps them understand that families also have household expenses.

2. Provide an Allowance

Offering an allowance can be a great way to teach kids to manage money responsibly. The ground rules for a child’s allowance vary from family to family; some start a child off with an allowance at age five, and others at age 14. How much kids get also varies widely and is entirely up to you. One rule of thumb is to match the number of dollars per week with a child’s age, such as $10 a week for a ten year old. You might also ask around among other parents to get a sense of the “going rate.”

Here’s a look at the two common ways to structure allowance.

•   Chore-based allowance: With this set-up, a child does chores in order to get paid. This system can instill a strong work ethic that will benefit children in the future. Some say a drawback of this method is that it could send a message that household chores are optional. But for many families, it works well.

•   Fixed allowance: Here, you agree to pay your child a set amount of money every week or month no matter what. Separately, they are expected to do their chores and help around the house because they are part of the family. This arrangement allows a child to feel part of a greater whole — to be responsible for the tidiness of their room and offer to help with the dishes because that’s what family members do. Some may argue that paying children an allowance that isn’t chore-based could compromise their work ethic or promote a sense of entitlement, but it’s really up to each family to determine what works best for them.

3. Encourage Saving and Goal-Setting

Just as adults are motivated to save when they want to have enough money for, say, a vacation or new car, your child may be incentivized to save a target amount for a specific purpose. Or, you may have a child who just wants to see how high their savings can go — that’s fine too! You can encourage them to save just to find out how much they can stash.

You might also offer rewards for reaching savings milestones. For example, you could make a deal that if your child saves a certain amount, you’ll kick in a little bit more. This rewards them for exercising restraint, and it’s similar to a vesting or “company match” principle, which you could explain to an older child.

4. Give Them a Place to Stash Their Cash

For younger kids, keeping money close at hand can work well. Having their own piggy bank or child’s safe can also make saving more fun. For older kids, you might want to open a savings account in their name. Many banks offer savings accounts specifically geared toward children and teens. Typically, these are joint or custodial accounts that come with parental controls and tools that teach financial education.

5. Introduce Them to Credit

As teenagers become more independent and start driving themselves around, consider enrolling your child as an authorized user on one of your credit cards. This can not only be helpful in the event of an emergency, like a flat tire, it’s an opportunity to discuss how to be responsible with credit. You can explain how credit cards work differently than debit cards and how interest racks up quickly if you don’t pay off what you charge in full by the end of the billing cycle.

6. Explain Budgeting When They Graduate From College

Once your kids are earning money regularly and responsible for paying their own room and board, it’s a good idea to help them draw up a budget based on their salary and estimated expenses.

There are all kinds of budgeting methods, but they might start with the basic 50/30/20 approach. This involves putting 50% of their earnings toward needs, 30% toward wants, and 20% toward savings (including any money they are putting into a retirement plan offered by their employer). If their employer offers any matching contributions to their retirement contributions, encourage them to take full advantage, since this is essentially free money.

Fun Ways To Teach Kids Money Management

To make financial literacy fun and engaging, try one of these four money activities for kids.

Go Thrifting

Buying second-hand clothes can be a great way to teach kids how to be smart spenders. You might first go to a regular clothing store and look at the price tags on new clothing, then head to a local thrift store and compare prices. Consider giving your child a set amount they can spend on second-hand clothing. You can then enjoy watching them try to get as much as they can for their money.

Encourage Some Sibling Rivalry

If you’re teaching more than one child about money, consider setting up a competition to see which sibling can save more by a certain date. You might set a goal, such as saving a specific amount or towards a specific item, then offer a reward to the winner.

Set Up a Lemonade Stand

Letting kids set up and run a lemonade stand can help them learn valuable lessons about money, including earning income and entrepreneurship. It can also help them build confidence, resilience, and management skills. Plus, it’s fun. Just be aware that many states require kids to have a permit to operate a lemonade stand, so the first step is doing a bit of research.

Play Financial Board Games

Classic board games like Monopoly and Payday can also be great money activities for children. In Monopoly, for example, players buy and trade properties, develop them, and collect rent. There is even Monopoly Jr. for younger kids. Other fun money board games for your next family game night: the Game of Life, the Allowance Game, the Stock Exchange Game, and the Sub Shop Board Game.

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The Takeaway

Teaching kids about money and how to manage it can prepare them to be financially responsible adults. By offering an allowance or payment for doing extra chores, kids can learn the value of money and rewards of saving and delayed gratification. Helping older kids learn how to budget and set up a bank account can instill a sense of confidence and independence, not to mention pride.

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FAQ

When should you start teaching kids money management?

Children as young as three years old can begin to understand the concept of paying for something and saving money in a piggy bank. Some parents start giving kids an allowance between the ages of five and seven, which can help them learn basic financial literacy concepts like saving, spending, and sharing. As kids get older, you can gradually introduce more complex concepts like budgeting, investing, and “good” vs. “bad” debt.

What are the benefits of teaching kids money management?

Teaching kids about money has numerous benefits. It instills financial responsibility, fosters good habits early on, and prepares them for real-world financial challenges. It also encourages critical thinking, goal-setting, and independence in making financial decisions.

How do you teach kids the value of money?

You can teach the value of money through hands-on experiences and age-appropriate activities. Encourage earning money through chores or tasks, involve them in family budgeting discussions, and demonstrate the consequences of spending choices. Emphasize the importance of saving for goals and how to differentiate between needs and wants.

How do you organize your kids’ money?

You can organize a kid’s money by helping them establish savings goals, allocate their money into different categories (such as saving, spending, and giving), and track their progress regularly. Consider using tools like jars, envelopes, or savings accounts to physically or digitally separate their money.

What is the 3 piggy bank system?

The “three piggy bank” system involves dividing money into three categories: saving, spending, and sharing. Each piggy bank represents a different purpose, teaching kids to allocate their money wisely. They learn the importance of saving for future goals, budgeting for everyday expenses, and contributing to charitable causes or sharing with others. This system helps instill foundational money management skills in a simple and practical way.

Photo credit: iStock/kate_sept2004

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SOBK-Q224-1855684-V1

Net asset value (NAV) is an important metric for knowing how much each share of an investment fund, like a mutual fund or ETF, is worth. However, NAV alone cannot tell investors everything they need to know about potential investments.

Calculating NAV is helpful for fund valuation and pricing. Still, there are times when it is more beneficial to look at other aspects of a fund, like total return, to determine investment opportunities. Nonetheless, investors need to know how to calculate NAV, when it makes sense to use it, and why.

What Is Net Asset Value (NAV)?

Net asset value, or NAV, represents the value of an investment fund. NAV, most simply, is calculated by adding up what a fund owns (the assets) and subtracting what it owes (the liabilities).

NAV is typically used to represent the value of the fund per share, however, so the total above is usually divided by the number of outstanding shares. This makes it easier for investors to value and price the shares of a fund. Mutual funds, for example, use per-share NAV to determine their share price.

The NAV will also change daily because an investment fund’s assets and liabilities change daily based on market prices.The assets of an investment fund include the daily market value of the fund’s holdings, which are usually securities like stocks and bonds. The liabilities of a fund are usually debts owed to financial institutions and expenses, like salaries, operating costs, and other fees.

The Securities and Exchange Commission (SEC) requires that mutual funds calculate their NAV at least once each business day. Most mutual funds perform their calculations after the major U.S. securities exchanges close for the day.

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NAV Formula

Net asset value, as mentioned above, is calculated by taking a company or investment fund’s total assets and subtracting its liabilities. This figure is usually divided by the fund’s number of outstanding shares because NAV is generally represented on a per-share basis. The formula looks like this:

NAV = (Total Value of Assets – Total Value of Liabilities) / Number of Shares Outstanding

How NAV Is Used for Investments

NAV can be used for investments, and by investors, in a number of ways, often depending on the specific type of asset an investor is analyzing. It can give investors insight into a fund’s performance, but doesn’t necessarily tell the whole story.

Mutual Funds

Mutual funds are usually open-ended funds, meaning that investors buy and sell shares of the fund from the fund directly and not on an exchange like a stock. Because these funds don’t trade on an exchange for market prices, NAV is used to price the fund’s shares.

Mutual funds calculate their NAV per share daily, usually at the end of the business day, and that is the price an investor will pay to buy or sell shares in the fund. Every mutual fund company has its own cut-off time for buying and selling shares. After that time, investors buying or selling shares will get the fund’s NAV for the day after their transaction order is received.

💡 Recommended: Understanding the Different Types of Mutual Funds

ETFs

Exchange-traded funds (ETFs) and closed-end funds are similar to traditional mutual funds, but one big difference is that investors can buy and sell ETFs throughout the trading day for a market price and not the NAV per share. Investors can make buy and sell orders for traditional mutual funds once per day and only at their published NAVs.

ETFs are still required to calculate the fund’s NAV once per day, like a mutual fund. Additionally, an ETF’s NAV is calculated approximately every 15 seconds over each trading day and published on various financial websites.

Because ETFs tend to trade at a premium or a discount to their NAV, traders often compare market prices and NAV to take advantage of the differences and make investment decisions.

Example of Calculating Mutual Fund NAV

As an example of calculating mutual fund NAV, imagine that mutual fund XYZ has $100 million worth of investments in different securities, based on the day’s closing prices for each security, and $10 million in liabilities and expenses. The NAV for this fund would be $90 million. If the fund has 5 million shares outstanding, the NAV per share for mutual fund XYZ would be $18.

The NAV for mutual fund XYZ can be calculated using the above formula:

NAV = ($100,000,000 – $10,000,000) / 5,000,000 = $18

How to Interpret NAV Results

A fund’s NAV alone doesn’t tell investors much; a high NAV for one fund is not necessarily better than a low NAV in another fund. Similar to stock prices, a high stock price doesn’t necessarily mean the stock is a better investment than a stock with a lower price.

Looking at a fund’s NAV and comparing it to another fund does not provide investors insight into which fund is the better investment. It’s more important for investors to look at NAV alongside other factors, like the fund’s past performance, the allocation of securities within each fund, and how it performs compared to benchmark indices like the S&P 500 Index.

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Why Do NAVs Change?

A mutual fund’s NAV will likely change every trading day because the prices of securities in which the fund invests are likely to change every trading day, affecting the total assets in the fund. It’s also because the number of outstanding shares held by investors often changes daily, as new investors buy shares and existing investors sell.

Other factors can also impact a fund’s NAV. For example, the fund’s management fee and additional fees that add up to the fund’s total expense ratio will come out of the fund’s total assets, thus affecting NAV. In addition to management fees, expenses can include costs related to the administrative, compliance, distribution, management, marketing, shareholder services, and record-keeping of the fund. It’s common practice for mutual funds to assess this debit on the fund’s assets every trading day.

When NAV Isn’t Everything

If a mutual fund invests in dividend-paying stocks or fixed-income assets, these securities’ dividends and interest payments go to the investor. Additionally, a mutual fund may distribute realized capital gains to shareholders. These payouts reduce the fund’s assets and result in a lower NAV. Because these benefits lower a fund’s NAV, it shows that NAV may not be the only figure to pay attention to when analyzing the performance of a fund.

When analyzing the performance of mutual funds, it can make sense to look at metrics other than NAV alone, like investment yield and the funds’ total return. The total return considers capital gains and losses from all of the securities the fund invests in, as well as the dividends and interest earned by the fund, minus the fund’s expenses.

The Takeaway

Net asset value, or NAV, is a daily calculation that can track the value of a mutual fund, ETF, or money market fund. But while this figure can be helpful to gauge a fund’s performance, it isn’t the only metric that investors should consider. Total return, yield, and fees are also important figures when making mutual fund investing decisions.

Remember that NAV itself doesn’t tell an investor everything that they need to know, but is just one metric or data point that can be used along with an array of others to analyze funds.

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FAQ

Is net asset value the same as price?

NAV and share price are two different things. Net asset value is the value of the investments within a fund, or the value of a portion of the fund. The share price of a fund, though it may be related, is different from that value.

Why is net asset value important?

Net asset value is important for investors because it describes the total equity or value of a fund. It can help determine the value a share of a fund has, and can help investors evaluate the overall value of an investment.

Is high NAV good or bad?

NAV on its own doesn’t tell investors a whole lot, so whether NAV is high may not be good or bad. What’s more important is how high a fund’s NAV is relative to other metrics, which may include its market price.

Is it good to invest when NAV is down?

If a fund’s NAV is down, that could be a sign that the fund’s performance is suffering. But it doesn’t necessarily mean that it’s a good time to invest in that fund, or a bad time to do so – other metrics must be considered along with NAV, at any given time, to determine whether an investor wants to alter their position.

What is an example of a NAV?

An example of NAV could be $18, and that would be calculated looking at a fund’s underlying securities. You’d need to rope in assets and liabilities, and calculate accordingly to find NAV. Again, $18 is just an example, as NAV could be any dollar figure as it relates to the fund’s assets and liabilities.