How you can save when childcare costs are high
Jenny Goff (right) cares for a child at Central Park Child Care Center in Vancouver, Washington.
Ariane Kunze | The Colombian via AP
Childcare costs in the US have risen and many families are spending more than the government considers affordable.
According to one study, two-thirds of parents, 67%, spend 20% or more of their household income on childcare Current report by Care.com, which surveyed 3,000 US parents. That’s up from 51% who said they’ll be spending that much in 2022.
While 79% of families expect to spend more than $9,600 per child this year, many are spending significantly more. On average, families spend 27% of their household income on childcare, which means 59% of parents surveyed spend $18,000 per year per child, according to Care.com.
For the perspective that US Department of Health and Human Services considers 7% of income to be affordable for childcare.
“Childcare takes up a disproportionate share of household income, and a decade of rising childcare costs should be a wake-up call that the system as we know it is utterly failing the vast majority of families,” wrote Tim Allen, CEO of Care.com , in an opinion.
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Why are childcare costs so high?
Rising daycare fees are contributing to the rising cost of childcare, as well as inflation and changes in parents’ work status, according to Care.com.
Many daycares have been closed during the pandemic, leaving the few that stayed open with limited spaces. That led to long waiting lists — and fees for being on those lists, the certified financial planner said Sophia Bera Daigle, founder of virtual company Gen Y Planning.
Some daycares charge a non-refundable waitlist fee, which can be about $75, as well as a “new child fee” when registering at the center, which can range from $100 to $600, said Daigle, who is also a member of the CNBC FA Council. The latter is typically used to fund teacher training, books and materials for the classroom, she added.
“People have been on daycare waiting lists for much longer. In many metropolitan areas, it’s difficult to get your child into daycare,” Daigle said.
Parents are also faced with changes in their work situation. Some who had been working entirely remotely during the pandemic are now having to return to the office part or all of the time and are facing new childcare needs, Daigle added.
But the bigger challenge is access to health care, said Carolyn McClanahan, CFP and founder of Life Planning Partners in Jacksonville, Fla. When a family is unable to find or access childcare due to fewer providers, one parent may be forced to retire, depriving them of a second source of income.
“It’s hard not to be a two-income family,” said McClanahan, who is also a member of the CNBC FA Council.
How to plan childcare costs in advance
Some families rely on their friends and family members or even move to be closer to family. Others work multiple jobs or adjust their work schedules, Care.com found.
Financial advisors say there are several other ways parents can plan ahead to help cover childcare costs. Here are a few things families should be aware of:
1. Start building up emergency savings early
Childcare is just one of the many expenses involved in starting a family. Therefore, it is important to think about a financial reserve. Set up an emergency fund before having children. “Make sure you have enough savings to weather the storm of challenges that childbirth brings,” McClanahan said.
2. Try to eliminate high-interest debt
Eliminating any monthly debt payments before having a child can help cut expenses and free up money in your budget for daycare costs, Daigle said. As an example, she cites high car payments. The According to auto site Edmunds, the average monthly auto payment reached $733 in the second quarter of the year. “If they can pay off their car before the baby comes, that can really help,” she added.
3. Research the company’s child care services
Many employers offer what’s called a child care FSA, or dependent care FSA, which typically allows you to set aside up to $5,000 a year from your pre-tax paycheck, Daigle said. Families can use these funds for security eligible expenses for eligible dependents.
“You can request a refund … basically for the first $5,000 you pay in daycare costs,” she added.
https://www.cnbc.com/2023/08/07/how-to-save-on-child-care-as-costs-are-high.html How you can save when childcare costs are high
