I can empathize with your plight and the temptation ... IMO you have to do what you feel is right for you and your business so that at the end of the day you are happy and thriving.
As for what I would do ~ personally I am all about karma and rely greatly on word of mouth advertizing as the cheapest and best form of keeping my business thriving .... so in this case I would suck up that I have made a commitment to this client whose signed a contract and paid a deposit and has done nothing 'wrong' in regards to their end of the deal aside from having a child who is younger than ideally desired.
I would do this because of karma ~ I would very upset if the shoe were on the other foot and a client had signed on with me, committed to me and than decided 'oh something betters come along and we want out of our contract now' so I would not want to put that energy out there to come back to me by treating someone else in the same manner!
I also would not want word of mouth traveling to my community to becareful of signing on with me because I terminate clients willy nilly if something better comes along ... I personally only terminate a contract if A) the client is not following it so I have legal grounds or B) the client or clients child poses a physical risk to myself / the children.

































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