How to save on child care
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Raising a child is becoming increasingly expensive, making it difficult for parents who need to work, run errands or enjoy a date night once in a while. Between nanny salaries, day care center fees and other forms of care, annual child care costs are putting severe financial strain on many families.
Two-parent households are paying an average 10.6% of their median income for just one child’s care, according to a 2018 report from Child Care Aware of America, a nonprofit advocacy group. For single parents, it’s more dire: care costs consumed between 27% and 91% of their median income, according to the report. That’s way over the benchmark for affordability set by the U.S. Department of Health and Human Services of 7%.
Costs average between $9,000 and $9,600 a year for all types of child care, but many families pay much more, according to the Child Care Aware of America report. If you are looking for ways to save, here are 10 ideas to help you lower the high cost of care for your little ones.
Want to learn more about financially preparing for a baby? Check out our guide.
The Child and Dependent Care Tax Credit allows you to deduct child care expenses for children under age 13 while you are working or looking for work. You can deduct up to $3,000 for one child or $6,000 for multiple children. You’ll get a percentage of the amount paid back as a tax credit, with the percentage based on your income.
You may be able to deduct the cost of some kids’ activities, like day camp, if they enabled you to go to work, according to the IRS.
“There's no question that one of the best tools out there for parents to utilize is dependent care flexible spending plans,” says Robert Greenman, lead advisor at Vista Capital Partners.
Check to see if your job offers a dependent care flexible spending arrangement. You can stock up to $5,000 a year pretax to use for child care expenses. That’s like getting a discount equal to your marginal tax rate.
“aving $5,000 a year to pay for child care pre-tax is better than nothing at all,” says Greenman.
Low-income families may be eligible for assistance from the federal Child Care and Development Fund. These funds are distributed through state programs. To qualify, you generally must be a parent or caregiver for a child under 13 and be using child care services to go to work, job training or school.
Look for programs in your state using ChildCare.gov’s online state resource locator.
Military families often have particular child care needs, due to deployments and the need to accommodate parents’ service duties. Military bases typically have day care centers that charge according to the family’s total income.
There are also a variety of federal child care subsidies for each branch of military service and the Department of Defence. For example, the Army provides income-based subsidies to cover the difference in cost between civilian child care and on-base care, when on-base care isn’t available. Find information specific to your branch of service at Child Care Aware of America.
Nannies are the most expensive form of child care, costing an average of $580 a week or more than $30,000 a year, according to Care.com.
But there are ways to get a better deal. One solution is a nanny-share, when two or more families pool their kids together and chip in for a single nanny to watch them all.
“It’s simple and extremely cost effective,” says Randy Bruns, senior financial planner at Model Wealth.
Bruns said he knows a family that cut their costs by 25% by teaming up with a neighboring family with a baby of about the same age. They share a nanny for around $18 an hour, while the usual rate was $12 for a single child, he said. This type of situation can be a win-win if you find a compatible family.
If you want live-in child care, consider the advantages of hosting an au pair — particularly for families with several kids. An au pair is a young person from another country who comes to the U.S. through a government-regulated cultural exchange program, to live with a family and care for their children.
Average fees for au pairs run $390 a week, according to Care.com, about 30% less than for the average for nannies. In addition, an au pair can expand the horizons of the whole family in intangible ways, exposing children to foreign language and culture. You can be matched with an au pair through an agency that vets applicants and provides child care training.
Curious about which states are the best for raising a family? Check out our Family Friendly Index.
Day care costs an average of $211 per week for one infant about $10,000 a year, according to Care.com, though prices range widely. Chances are the good, affordable day cares in your area will fill up quickly.
To get a spot in a desirable day care, particularly in big cities where demand is high, start researching and signing up for waitlists before your baby is even born.
In competitive markets, like Seattle and Washington, D.C., parents have reported paying “wait-list fees” of $50 to $100. With thousands of dollars at stake, it might be worth it to save your place in line for an affordable day care as early as possible.
A local church might run a top-notch day care that is considerably less expensive than commercial options. Some churches have reported surging demand for their well-established nursery schools and preschool programs, with even non-religious parents signing up.
Secular families may find a church-based day care to be a feasible option, especially in the case of a program that has been well-respected in the community for decades.
Some children and parents really enjoy the cozy setting of home-based day cares, which are often smaller and less expensive than day care centers. Family care centers charge an average of $195 a week to look after your child in the professional care provider’s home. That’s about 8% less than for day care centers, but your savings could be even greater.
Before you visit a provider, you can look up the licensing requirements for home care in your state at ChildCare.gov, so you’ll have a better idea what questions to ask. Recommendations from other parents who have used the service can be valuable in helping you make your decision.
Babysitters charge a national average of $16 an hour, according to Care.com. Going out for dinner and a show could easily mean $80 spent on child care. If your friends are experiencing similar pains, consider organizing an informal babysitting co-op. Get a group of willing parents together, large or small, and set up some ground rules.
It could be that all the kids gather in one family’s house each Friday night on a rotating schedule, while the other parents get a night off. Or each time you babysit for four hours you receive a credit for four hours of babysitting at a later date. Choose your co-op partners wisely and communicate with them clearly, so each member gets to enjoy some free babysitting.
No matter how you manage child care, you need to stay on top of your finances. The easiest way is with a budget — we’ve got an downloadable one for parents here.
Image: Luna Pimental
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