The ultimate guide to saving on child care
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While parenthood isn’t cheap to begin with, childcare is one of the biggest expenses families face. A look at the numbers proves what a huge burden paying for childcare has become — especially for families with average or low incomes.
In the state of Massachusetts, for example, full-time care for an infant cost an astronomical $20,125 in 2016. Single parents in Massachusetts earned a median income of $28,389, meaning they would have to pay 70.9% of their income for daycare. Even married couples who earned an average of $117,2017 that year would have to fork over more than 20 percent of their gross pay for care for one child.
Other states present similar quandaries for parents, and that’s true even in states where daycare costs are lower. A good example is the state of Utah. Here, the annual cost of infant care in a center ($12,249) is 45.5% of the $26,942 median income for single parents.
It gets worse. According to the 2017 Parents and the High Cost of Child Care Report from ChildCare Aware, the price for child care for two children exceeds housing costs for homeowners with a mortgage in 35 states and the District of Columbia. Now, that’s a problem.
Childcare options to consider
Fortunately, you do have some say in how much you pay for childcare, since there are multiple options available. Childcare options to consider include:
Daycare centers are a popular option for parents since they provide standard and predictable care they can count on. Many parents choose a center so they will always have a place to take their child while they work, and many daycare centers offer educational programs, playgrounds, and hands-on activities for kids. Daycare centers can be less personalized, however, which is why many parents prefer one-on-one care.
Infant care in a daycare center cost $10,926 annually on the national level in 2016, while in-home daycare centers cost $7,961. Annual prices for toddlers were $9,562 and $7,398 respectively that year. If you want to pay less for daycare but still want to use a center, you’re almost always better off choosing a small in-home daycare.
Many families who don’t want to deal with a daycare center choose to hire an in-home nanny instead. This choice comes with the benefit of having childcare come to you versus driving to a center. Your children will also receive personalized care and the undivided attention of their nanny.
According to Care.com, nannies earned an average of $13.63 per hour or $28,354 per year in 2016. Nannies with college degrees earned more. Also keep in mind that there are tax implications that come with hiring an in-home nanny. For example, you may need to withhold federal and state taxes for them, and you will likely need to pay for unemployment plus social security and Medicare taxes on top of their salary.
Au pairs are similar to nannies in the fact that they care for your children in your home. However, they are typically brought overseas for the program, and they live under your roof. Au pairs can be a good fit if you don’t mind providing room and board and want live-in help, but not everyone wants or needs 24/7 assistance. Also, au pairs can be a lot more expensive than traditional daycare centers.
Costs for au pairs vary depending on the agency you work with and other details. However, you may need to pay a match fee ($400+) and an annual agency fee ($7,800 – $10,000) on top of a weekly stipend of $200 – $250. In total, these costs can add up to $20,000+ per year on top of room and board.
A babysitter is another option to consider if you only need sporadic care. The benefit of a babysitter is the fact that they may come to your home and they can be less costly. On the downside, babysitter care may be less reliable since your provider may not watch children full-time and may need to pursue other types of work.
Babysitters earn an average of $13.97 per hour, although their pay varies depending on where you live, how many kids you have, and the caretaker’s level of experience.
Can you afford to be a stay at home parent?
With child care costs eating up a large percentage of many parent’s salaries, some ultimately decide to stay home full-time or work only part-time. While this option can make financial sense, there are long-term considerations to make as well.
Spending time out of the workforce can make it more difficult to find work once your children reach school age, for example. Parents who stay home several years may also lose career momentum and miss out on promotions based on their decision. For these reasons and others, parents must evaluate the costs of missing out on work while their kids are young — even if daycare costs are eating up a large percentage of one parent’s salary.
New tax credits, flexible spending accounts, and state subsidies
While it’s unlikely that child care costs will go down any time soon, there is some good news on the horizon. For starters, the recently passed tax reform bill doubles the Child Tax Credit from $1,000 to $2,000. This tax credit is also available for married couples with adjusted gross incomes of up to $400,000. The previous rules phased this credit out for couples with incomes of $110,000 or more.
Second, you may be eligible to contribute to a Flexible Spending Account (FSA) — a pre-tax account you can use to pay for eligible childcare expenses. These accounts can save you 30 percent or more on childcare, and they may be offered through your employer.
The Child Care and Development Block Grant Act (CCDBG) was signed into law in 2014, provides ongoing subsidies for low-income families who need help covering childcare expenses. Under this law, almost all states were forced to increased income limits for families eligible for subsidies to 85 percent of their state’s median income.
Since state childcare subsidies are governed the states themselves, however, you’ll need to research health and social services, financial assistance, and resources on a local level. This map from ChildCare Aware can connect you with the appropriate services based on where you live.
Using your credit card to leverage childcare for rewards
If you can afford childcare but want a return on your investment, you can also consider leveraging this sizable expense to earn credit card rewards with a credit card. For this strategy to work, you only need to confirm that your daycare provider accepts credit cards as payment.
Many of the top cash-back credit cards offer 2% back or more for ongoing expenses – essentially free money, provided you pay your credit card bill in full every month. If you spend $20,000 per year for care at a corporate daycare center, a card that offered 2% flat cash-back would net you an easy $400 in cash back, for example. You may also be able to earn a signup bonus for getting a new card and meeting a minimum spending requirement within a few months.
Travel rewards cards can also help you turn your childcare expenses into free airfare, hotel stays, and other perks. If you’re going to pay for daycare every month, you might as well get something back.