How to Budget for Daycare or Alternative Childcare Costs

It’s no secret that having children is expensive. In fact, it’s estimated that raising a child to age 17, as of 2017, costs a staggering $233,610. Paying for day care can be one of the major financial challenges for working parents. It’s a common issue. Recent statistics show in nearly half of all two-parent households, both parents work outside the home.

Many parents are also choosing to return to work after having children; 71% of women with children under age 18 are a part of the workforce, according to the Department of Labor. Other parents use the income from side gigs to support their family. Here, we explore the average cost of childcare, some saving strategies to help pay for childcare, and how childcare cost reform could benefit us all.

How Much Average Daycare Costs Are

The average cost of childcare ranges from $5,400 to $24,240 annually, depending on location and age of the child, according to information from the Economic Policy Institute (EPI).

Childcare also accounts for a large portion of a family’s annual income, the institute found. Adding insult to injury is the fact that many families pay out of pocket for childcare—and it is inflated partially due to the low caregiver-to-child ratio.

For example, the EPI found that childcare in Ohio for a 4-year-old cost $7,895 annually, while infant care costs $9,697 per year, which is 3.1% more expensive than rent in that state. Planning for these ahead of time can help you avoid new baby debt.

In Alabama, childcare for 4-year old costs $5,184, and infant care is $6,001. In New York, the costs increase dramatically to $12,258 and $15,394 for child and infant care, respectively. California is also pricey at $11,475 for annual childcare and $16,945 for infant care. Keep in mind that these are only the estimated costs of childcare for one child. Once families have more than one child, their childcare costs can double. This is why some choose to open a savings account for their new baby.

Alternatives to Daycare Costs for Working Parents

With price tags like this, parents may consider alternatives to traditional childcare. Working from home is one option. It’s definitely a growing trend, with 51% of all employees now working remotely. However, it still may be necessary to obtain some sort of childcare, depending on the demands of the job. Hiring a part-time caregiver or local teen may be a good option in this situation.

It also may be wise to utilize tax-advantaged accounts, like a Dependent Care FSA, which allows you to contribute pre-taxed dollars to an account earmarked for eligible childcare costs. Eligible costs include preschool, day camp, even care for dependent adults.

The Child and Dependent Tax Credit is another great way to take the sting out of growing childcare costs since the amount you can claim is regardless of your income and it directly reduces your tax bill, dollar-for-dollar.

Other options to consider are nanny shares with other parents or friends with children, or even utilizing the onsite daycare at your workplace. Many onsite daycares allow you to pay fees pre-tax, which can also save you money.

How Daycare Costs Might Change

In recent years, many policymakers and leaders have pointed out that the rising cost of childcare is unsustainable for many American families, especially those working minimum wage jobs.

A major issue with the financial obligations of childcare is how costs vary so greatly from state to state, making budgeting for care more difficult. For example, monthly childcare for a 4-year-old range from $399 to $1,593 per month, depending on geographic location and age of the child.

Keep in mind costs can also be affected by the number of children a family has. Childcare costs can quickly balloon in families with two or three children.

Another factor that supports childcare cost reform? In 33 states (and the District of Columbia), the cost of infant care is more than the cost of in-state tuition at a public, 4-year college. Now that’s a reason for reform.