Americans pay among the highest child care rates in the world. The average monthly price of preschool in the United States, at $1,019.37, ranks sixth in the world. We are joined (and outpriced) at the top of the list by other wealthy democracies like the Netherlands, Australia, Luxembourg, and the United Kingdom. For trivia buffs, Switzerland ranks at the top, with households paying a remarkable average monthly cost of $2,389.43 for access to preschool.
So compared to Switzerland, we’re doing ok. But the truth is, the cost of child care remains problematically high for many Americans. The Center for American Progress (CAP) notes that the cost of child care may actually match the cost of college in many U.S. states. This suggests that even the average middle-class family may feel added financial pressure to make ends meet because of this cost. (Speaking personally, I know we’re counting down the days until our daughter can begin to enjoy the benefits of our considerable property tax budget by starting her publicly funded kindergarten education in the fall).
Now, if you’re new to the parenting game and you’re just starting to realize that this whole thing might cost a lot of money, perhaps start with a look at 20 Financial Decisions All New Parents Need to Think About.
If you’re beginning to think about child care, or you’re already paying for it and you’d like to pay less, read on.
1. The Early Bird Gets the Coveted Spot at a Great Daycare Place
The sooner you start shopping for daycare options, the more options you’ll have to choose from. This matters a lot when it comes to getting the best possible fit for your needs and budget. This is especially true for those living in densely populated areas. The competition for slots at the most reputable, desirable, and experienced daycare facilities can be absolutely fierce.
As long as you’re paying as much as you might for college tuition, you have to think about this as an admissions process. Getting into the daycare of your choice requires preparation and planning. Finding yourself on the waitlist for a top daycare destination in your area is not out of the ordinary. And in the wake of the pandemic, getting into the daycare of your choice may only become more challenging.
According to NPR, daycare centers are facing serious labor shortages following the onset of the COVID-19 crisis. In January of 2022, NPR reported that more than 100,000 workers had left the industry since the start of the pandemic. So if you want any chance at controlling the cost of daycare while still finding a quality option, get your applications in as soon as possible!
2. Comparison Shop and Know the Going Rate Where You Live
Put yourself in a position to find the best possible option by doing thorough comparative research. Start by compiling a list of the reputable and desirable licensed child care options in your vicinity. Most of the reliable available data on child care costs is based on the average price of daycare services. But your price comparison may also include nannying options. Naturally, this type of one-to-one care will generally cost more than daycare, (though we do also suggest a few ways to offset the cost of nannying later in this article).
Whatever your preferences, identify all of your options and weigh the costs alongside the pros and cons offered by each option. This is a great time to crowdsource. Reach out to friends, family, and trusted members of your social media circle for advice on great daycare options. There’s nothing more valuable than first-hand experience.
Once you’ve got a list, compare your options, and don’t forget to measure them against general prices in your area. World Population View actually offers a map that allows you to compare child care rates on a state by state basis. This can provide you with a window into what other families are paying for child care in your state and around the country. Make sure that you land on an option that is, at the very least, priced competitively for your region.
3. Ask Daycare Providers About Financial Assistance
While you’re narrowing down your child care options, reach out to individual daycare facilities to find out about any financial assistance or scholarship opportunities. Some daycare programs will make aid available to families with demonstrated financial need. Others may have a designated number of available scholarships for students from a diversity of backgrounds.
Part of your comparative shopping process should include direct conversation with each daycare facility about their financial assistance programs. While the top daycare options in your area may not advertise it, many may have such programs. Those that don’t offer daycare tuition assistance may be able to direct you to a reputable third-party assistance program. In other words, it’s always a good idea to ask.
4. Maximize Your Tax Refunds
In addition to the tax credit that you already get for each dependent in your household, there are several additional tax benefits stemming from the basic cost of child care. Be sure that you understand and maximize these benefits. This includes the child and dependent care tax credit, the child tax credit and the earned income tax credit.
According to U.S. News & World Report, “The child and dependent care tax credit is available to families who paid care expenses for an eligible child or adult. The credit amount is based on a percentage of your adjusted gross income and can be no more than $3,000 for a single child or $6,000 for two or more qualifying children.”
In addition, families who are eligible for the child tax credit may receive a refundable amount of $2,000 per child. The earned income tax credit, available to eligible low- and moderate-income families, may offer access to additional credits. If you’re not sure how to apply for all of these credits, consider a consultation with an accountant before filing your taxes. Ensure that you get all the credits and deductions to which you are entitled as a way to offset child care costs.
5. Talk to Your HR Department About Child Care Perks
Employers are coming to increasingly recognize the critical role that reliable child care plays in keeping workers happy, focused, and available. As a result, more employers are expressing a willingness to provide practical and material support to employees managing child care expenses. According to What to Expect, “Benefits like educational assistance, transportation benefits, adoption assistance, gym memberships — they may even have negotiated a special rate with a nanny placement agency — are all ways you can cut costs, adding to your revenue stream — and helping to make child care more affordable.”
Your employer may offer such programs, even if they aren’t widely advertised to employees. If you work for a company with a Human Resources department, make an appointment with your representative. Ask about assistance programs and additional benefits that may be available to employees with children. If your employer offers these benefits, it means they are a part of your employment contract. Ask your HR rep how you can maximize the benefits to which you are entitled.
6. Open a Flexible Savings Account (FSA)
You can also take preemptive steps to minimize your overall tax burden by opening your own Flexible Savings Account (FSA). This allows you to set aside as much as $5,000 per year, tax-free, for child care. According to Care.com, this can save taxpayers as much as $2,000 per year. By the way, this sum can be used not just for preschool but for summer day camps as well.
According to Care.com, “Set aside the amount you truly need because funds in the account at the end of the year will be forfeited. And keep good records, as you must submit reimbursement requests to get the money back. Each spouse can contribute to an FSA account, but total family contributions cannot exceed $5,000.”
Be aware that any tax-sheltered sum placed in an FSA would reduce the size of your child care tax credits. But reaching the full annual contribution would ultimately produce greater savings than this credit.
7. Look Into an Au Pair Program
Again, while a significant amount of data on this topic is driven by the cost of daycare, there are several affordable alternatives both to daycare and traditional nannying. Participating in an Au Pair program is one such alternative. With an au pair program, you would typically provide housing for an international student in exchange for child care support. This is a popular program in which young visitors enjoy an immersive cultural experience in the United States and your family gains a reliable source of in-home child care.
It goes without saying that simply providing room and board to your caregiver could result in significant savings versus the hourly cost of nannying or tuition for daycare. As an important caveat, au pairs are generally not professionally trained child caregivers. This means that this is an arrangement that might be better suited to a family with slightly older children. If you’d like to learn more about this option, be sure that you explore the au pair program only through a verified and trusted exchange forum like Au Pair In America.
8. Explore Nanny Share With Close Friends and Neighbors
While one-to-one nanny care is certainly among the most expensive options for child care, the pandemic might have actually helped to bring families together around the concept of nanny sharing. Here, a few friends and family coordinate schedules and budgets, arranging for shared child care coverage. The math here is pretty simple. With a capable nanny and a few reasonably well-behaved children, just two families could save a fortune in child care costs while giving their nanny a pretty good bump in earnings.
9. Consider Reputable Non-Profit Child Care Providers
If you’d prefer a cost-effective environment where your children can play and interact with others, explore licensed non-profit child care settings in your area. Reach out to churches, synagogues, mosques, YMCAs, and other community based organizations (CBOs) in your area to find out about affordable child care options. What to Expect advises “In addition to government programs, some nonprofits offer child care services on sliding-scale fees based on income. Centers that aren’t nonprofits might also offer similar programs or scholarships for low-income families. Don’t be afraid to ask.”
10. Think About Telecommuting if Possible
If all else fails, you may be able to work from home in order to offset the number of hours for which you require child care coverage. We’re not going to lie to you. Attempting to get in a full day of work while “watching” your child is not particularly easy. There’s a good chance your kid(s) will exceed their maximum allowable minutes of screen time on most days. But it is free, so if you have the kind of job (or the kinds of kids) that make it possible to balance both, ask your employer about telecommuting. And consider that the savings from telecommuting are actually far greater than just the reduced costs of child care. To find out how, check out 10 Ways Telecommuting Can Save You Money.
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Of course, child care is hardly the only new budget item you’ll need to consider if you’re having a baby. From building a nursery to baby proofing your home, from diapers to formula, you have a lot to consider. Get started with our look at What to Budget for a New Baby.