Ways to avoid the high cost of childcare

Quick insights

• Staff wages, facility costs, childcare ratios and government regulations can contribute to the high cost of childcare.
• Exploring employer subsidies and pricing options may help reduce childcare expenses.
• Alternative childcare settings like nanny shares, in-home daycare or community programs may provide less expensive childcare options.

Parents who are beginning to research childcare options might have some initial sticker shock. Daycare can often be one of the biggest expenses in any family’s budget.

Where a person lives can determine how much they spend on childcare, but it is not uncommon for a family to spend a significant portion of their income on childcare.

So why is the cost of childcare so high and what can you do about it? Read on to learn more.

Why is daycare so expensive?

Unlike primary and secondary education, childcare does not typically receive substantial public funding, placing the financial burden on parents. In addition, daycare facilities must meet rigorous standards to legally operate, and those standards can result in higher fees and costs for daycare owners.

Some factors that contribute to the high cost of childcare include:

Facility costs

Daycare facilities operate out of brick-and-mortar locations, which means there are associated operational costs.

Those costs can include rent, expenses and building maintenance—all which can be significant costs. In addition, depending on the center’s policies, they may also supply diapers, wipes and food to children in their program.

Daycares also often invest in creating stimulating and comforting spaces for the children. This could include toys, educational materials and safety equipment.

Government regulations

Daycare facilities are regulated by state and local governments, which have strict operating standards meant to keep children safe. Daycare owners may need to purchase insurance and pay licensing fees to operate a childcare center. A business accident and labiality insurance policy can be a significant cost for a daycare operator. Similarly, a state may require licensing fees or certifications that can be added expenses.

Staff wages

Daycares often seek to hire qualified, reliable staff and may want professionals with education or childcare experience or credentials. Staffing in general requires compensation, which can be a large part of a company’s business expenses.

Staff-to-child ratios

States mandate certain ratios of childcare workers to children for safety reasons. For example, a state might mandate that a childcare facility has one worker for every four kids.

Often the ratio is tied to the age of the child, with younger children and infants requiring lower staff to child ratios than preschool aged children. Regardless of the number, maintaining these ratios may require hiring more staff, which will also contribute to higher costs.

Age of the child

Many childcare centers operate on a sliding payment scale, with the cost of daycare most expensive when children are the youngest. Infants require more specialized care, making daycare for younger children more expensive than for older children.

Strategies for affording daycare

We’ve explained some of the reasons behind the cost of childcare, but knowing the reasons will not lessen the cost. There are some strategies you may be able to employ to lessen the cost of childcare.

Employer sponsored subsidies

Your employer may offer subsidies for childcare. These subsidies are often a pre-tax payroll deduction where money is automatically transferred into an account dedicated to childcare expenses.

You will likely need to opt in to this benefit and will be able to choose, up to a certain amount, how much money you want to contribute. The total amount you choose will be divided by the number of paychecks you receive, and that amount will be deducted from your paycheck and transferred into the account.

Payment plans

Daycares and childcare providers may offer flexible payment terms. You may be able to pay monthly, weekly or quarterly. Having options may make it easier for you to budget and plan for the cost of daycare.

Some daycares may also offer a sliding fee scale tied to income or may be willing to negotiate a lower rate with you. Many daycares offer a sibling discount, so if you have or will have more than one child in daycare at the same time, ask about their payment policies for families with multiple children.

This will vary by daycare, so check with your facility to see what, if any, payment plans or discounts they may offer.

Government programs

You may qualify for government programs that provide tax benefits or programs to help cover the cost of childcare. Two notable programs include:

• The Child and Dependent Care Credit: If you paid certain childcare expenses, you may be able to claim a tax credit with respect to these expenses. It is claimed on a federal tax return, thereby potentially reducing the claimants’ federal tax liability. Consult a tax professional regarding your eligibility.
• Child Care and Development Fund: This federal fund, also called the Child Care and Development Block Grant, provides funding to states for childcare subsidies for low-income families with children under the age of 13.

Exploring cheaper alternatives to daycare

Some parents may prefer a licensed daycare with professional staff and an established pre-K curriculum. However, there are options beyond a traditional daycare setting that may serve as a cheaper alternative.

In-home daycare

Often less expensive than center-based daycare, in-home daycare locations are run out of a provider’s home. In-home daycares may be smaller and require less regulation than a traditional daycare while potentially offering a more personal and less costly service.

However, in-home daycares can differ in terms of quality and professionalism, so it might be beneficial for parents to carefully review the caregiver’s qualifications and experience to ensure it aligns with their expectations.

Family care

Enlisting the help of family members, such as grandparents, to care for children can significantly reduce or eliminate daycare costs.

Alternatives such as family care often provide more flexibility and lower costs, though they may not have the formal structure and resources of established daycare centers. Family members also may be less reliable or consistent than a daycare center with multiple staff members to cover childcare in case of caregiver absences.

Community programs

Local community centers, churches or non-profits sometimes offer daycare services at reduced rates based on community support and volunteer involvement. You may want to explore community resources, such as subsidized programs through churches or non- profit organizations, if you’re researching cheaper daycare options.

Nanny share

Hiring a private nanny is often more costly than a daycare. However, establishing a nanny share or co-op childcare arrangements with other families can reduce the cost. Nanny shares can be set up in whatever way benefits the families who are creating it.

The families in the share will split the cost of the nanny’s services according to the rates of the nanny and their individual needs. When considering costs, keep in mind that some states require that the family (or families) pay employment taxes on nanny services so you may want to factor that into the cost of your nanny share.

Flexible work arrangements

A post-pandemic world has opened new opportunities for remote work, hybrid schedules and flexible work arrangements. Your employer may provide alternatives to a standard working schedule that can help you eliminate the need for full-time daycare.

In summary

Childcare can be a significant cost for many families for several years. But the costs are temporary. Children age out of childcare and costs generally diminish as children get older.

While you may experience some initial shock and budgeting challenges when first utilizing childcare, it is a temporary cost. Planning for the years you will need to pay for daycare can make it easier to evaluate its impact on your finances in the long term. Once your kids outgrow the need for daycare, parents may want to reallocate that part of their budget from daycare costs to a savings account for their children.