Disappearing Income - managing the rising cost of childcare
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Disappearing Income: Managing the Rising Cost of Childcare
“Aghogho Oluese quit her job when she got pregnant with her second child. ‘The cost of childcare was so high that I would've only netted $500 a month if I had stayed in my former job,’ she said. Since then, she's launched Baby-Led Weaning For Busy Moms, a guide and recipe blog to help moms introduce solids in babies' diets. She provides the bulk of childcare for her two children but still pays to build her village.”
Source: Kelly Burch at Business Insider
January 13th, 2025
As a financial advisor, I often encounter clients who are overwhelmed by the prospect of planning for child care costs. It's a topic that can be intimidating, especially given the high prices we often hear about. Today, I want to share some insights from a recent article that puts real numbers to these costs and offers a clearer picture of what parents across the U.S. are actually paying.
Child care costs in America are undeniably high, but they vary significantly across states. According to recent data, the average annual cost for infant care ranges from about $5,000 to over $20,000, depending on where you live. That's a wide range, and it's important to understand where your state falls.
Key Takeaways
The most expensive states for child care are generally in the Northeast and on the far West Coast.
However, even in "cheaper" states, child care can still claim a significant portion of a family's income.
Why?
D.C., the nation’s most expensive place to pay for daycare, faces several crises:
A shortage of workers
An all urban geography (no sprawling suburbia)
Regulations around higher education requirements for childcare workers.
This is leading families with young children to leave the DC area. The population of children under five in D.C. fell by 7.8% between April 2020 and July 2022.
Source: https://worldpopulationreview.com/state-rankings/child-care-costs-by-state
What this means for you:
Don't let national averages scare you off. Research the specific costs in your area and start planning early. Perhaps consider the tradeoffs of moving. Use tools such as Winnie to estimate daycare costs and Care.com to estimate the cost of a nanny. Alternatively, consider if a “nannyshare” with another family could work. Things to consider for nannyshare—which house will the kids spend time at and what hours will they be covered? Are the kids matched in age and needs? For nannies—pad your budget for days off and sick days. You typically pay your nanny on holidays when they do not work.
If you have multiple children re-run the numbers on a nanny vs two spots at daycare or if you have space in your home consider having an au pair live with you.
Bottom Lines:
Child care costs can range from $800 to over $3,000 per month for a single child.
Many families are employing creative solutions, such as relying on family members or adjusting work schedules. One mom of 3, also featured in Kelly Birch’s Business Insider article, keeps costs low by bartering the skills of her husband, who is a chef and leaning on close friends who are childless by choice who are willing to pitch in with childcare to enjoy some of her husband’s cooking.
The type of care – from in-home nannies to large daycare centers – significantly impacts costs.
Don’t forget your other financial priorities - make a plan that continues to incorporate retirement and education funding. The ideal time to super-fund your 529 is (perhaps unfortunately) the exact same time that childcare costs occur, so keep in mind you will have to split your available cashflow across several needs.
Author: Hannah Farrow
Date Published: 01/13/2024
Service Highlight: What Happens When You Schedule a Call?
We meet with potential clients at least twice before signing:
Discovery Call: We get to know you over a casual half-hour conversation. We want to hear about you, we share a bit about us, we answer any top-of-mind questions.
Wealth Map Meeting: Think of it as a try-and-buy. You sync your accounts with our financial planning software; we then go through one-by-one and discuss each one. At the end, we share an illustration of your household net worth, which is yours to keep.
If there’s a good fit, we can make it official after this meeting, and your data is ready to go. If it’s not the right fit today, we hope you leave with a positive impression of our firm, and we’ll be on your list if your needs change over time.
We keep the process pretty calm:
Our focus is giving you information to make your decision: You’ll talk with a financial advisor – not a sales person – in both these conversations. Sharing facts, answering questions, weighing tradeoffs – that’s what we do for a living. Expect a calm conversation, not a sales process.
It’s a two-way street: Before we take a client, we need to feel confident that we can provide meaningful ongoing value. We’ll tell you if we think you’re not a good fit for our firm. We’re in a long-term business, after all, and we hope we’ll be on your list if your circumstances change over time.