The Hidden Penalty of Motherhood

And how it impacts women's careers

mother holding child
••• Catherine Delahaye/Getty Images

Being a mother can be extremely rewarding in many ways, but it can have unintended consequences for moms who want to pursue a career while raising a family. The so-called motherhood penalty can affect women as they attempt to make a steady climb up the career ladder. That can impact their ability to build wealth and create a secure financial future. 

The motherhood penalty may not be fair, but it's a reality that many women face. Understanding how this penalty is imposed on mothers—and how it affects their career outlooks—is essential for women as they shape their financial plans

What the Motherhood Penalty Looks Like

In general, the motherhood penalty assumes that mothers aren't able to maintain the same professional footing as women who don't have children or their male colleagues. This can play out in the workplace in several ways, but perhaps the biggest sting is how it affects a woman's earning potential. 

According to a report from Third Way, a national think tank, the typical mother sees her earning power drop by 4% for each child she has. Interestingly, the opposite is true for men. Upon becoming a father, men see their income rise by 6%. That inverse relationship suggests that employers may still largely view men and women in traditional roles, with women as caregivers and men as breadwinners. 

Alternatively, the drop in earnings experienced by mothers may be a result of them taking time away from work to raise their children or downshift into a part-time or lower-paying role to be more available to their family. Women spend a combined total of 32 hours per week on childcare and housework, compared to just 18 hours for men, according to the Pew Research Center.

The motherhood penalty can manifest itself in other ways. The 2017 Women in the Workplace study found that 39% of women believed that their gender would make it harder to get a raise or promotion, or generally get ahead at work. It can become even more difficult for women to advance when they're also mothers. Employers may question a mother's ability to meet the demands of her professional role. Consequently, they don't offer opportunities for advancement, and the result is that many mothers plateau professionally.

The motherhood penalty also applies to women who are re-entering the workforce after taking a hiatus to care for children. A study published in the American Sociological Review found that stay-at-home moms are half as likely to land a job interview as mothers who had been laid off from their previous job.

Countering the Effects of the Motherhood Penalty

The motherhood penalty can't be eliminated overnight. Despite changes in gender equality at work, many women will continue to face its effects. For those considering motherhood, it's wise to have a solid plan in place for securing financial health. The centerpiece of that plan should be your retirement outlook. 

Earning less means you may have less income available to save for your later years. In that scenario, women need to take full advantage of opportunities to grow their savings. That includes saving enough in your employer's 401(k) or a similar tax-advantaged plan to qualify for the full matching contribution. Adjusting your contributions by 1% annually is a way to step up your savings rate gradually so that it rises in tandem with your income.

If your employer offers a high-deductible health plan, a Health Savings Account is another avenue for saving in a tax-advantaged way. These accounts offer a triple tax benefit: tax-deductible contributions, tax-deferred growth, and tax-free withdrawals for qualified medical expenses. Yearly contributions limits for 2021 are $3,600 for singles and $7,200 for families.

What many aren't aware of, though, is that after age 65, you can withdraw HSA funds for any reason, without a penalty. You only have to pay regular income tax on the withdrawal. In a pinch, an HSA could be used as a retirement savings supplement, which is a plus for mothers who haven't fully met their retirement goals. 

You are allowed to roll over your HSA balance each year and earn tax-free interest on the growing balance.

For married mothers who are stepping away from work temporarily, a spousal IRA may be another way to save. With a spousal IRA, your spouse can make an IRA contribution on your behalf, even if you don't have an income of your own. The contribution limits are the same as traditional and Roth IRAs: $6,000 for 2020 and 2021, plus an additional $1,000 catch-up contribution if you're 50 or older. 

Use Career Breaks Wisely

If you spend time out of the workforce to raise children, getting back into the job market may be more difficult after an extended break. For that reason, it's important to make the most of the time you're at home. 

Stay abreast of the latest trends in your industry and consider expanding your skill set during this time. Update your resume while addressing any gaps in your knowledge base. Remember to stay in touch with members of your network, while also forging new professional connections.

Most important, get crystal clear about your vision for going back to work. Setting your expectations for what you want to achieve professionally and as a mother can help you maintain a balance between the workplace and home. Despite the challenges, many women are finding ways to do just that.