It’s no secret that having kids changes everything. And I do mean everything. Particularly when they’re in the infant stage. As a parent, you are responsible for every one of their needs in order to survive. To say it’s a tall order is an understatement. Now, experiencing parenthood is one of the greatest joys of life but it comes with many changes and much responsibility.
One of the most significant changes is the financial obligation that comes with a new member of the family. To be clear, for most people (and in my experience) the value of a child in your life is well worth the cost. Don’t let this insight hold you back from growing your family, but do plan and budget so that your new family isn’t thrown for a financial loop.
This post will focus specifically on the cost of child care, so while strollers and high chairs are important and costly, we’re going to dive into child care. According to data from Child Care Attendance Automation, 11 million kids under the age of 5 are in some type of child care arrangement in the U.S. 11 million! That’s almost 3.5% of the U.S. population! On average, they spend about 36 hours per week there. My point is, it’s a very real cost for many families and presents a difficult decision with regards to the impact on their household finances.
According to data from the Economic Policy Institute, infant care costs exceed the average cost of in-state college tuition at public four-year institutions. I bet you didn’t expect to read that! The unfortunate irony of the situation is many parents are likely working overtime to pay their own student loans and also paying out the “you-know-what” for child care. So let’s look at what child care actually costs.
The range of child care costs largely depends on where you live. For instance, in South Carolina you might pay about $350 per month in child care while in Washington DC, that cost rises to almost $1,500 on average. Take D.C. for instance, the average earnings for a two income household is a little less than $130,000. The average cost of childcare for the average two income household is almost 14%, of GROSS INCOME. Granted, it’s expensive to live in DC and thus, incomes are typically a little higher. Consequently, child care is a little higher as well.
The difficult decision must be made regarding whether or not both parents continue to work outside of the household. So, here are a couple of points to consider when wading through this decision:
- Is the cost of care worth the income you earn?
- This will vary from family to family, but a good rule of thumb to use is 3x. Does paying for child care allow you to earn 3x that cost?
- How is your savings impacted?
- Does paying for child care cost allow your family to save money? In other words, by forgoing the income your family would have earned eliminate your ability to save money?
- Are you comfortable with the quality of care for your child will receive?
- Do you feel comfortable with the level of care your child will receive? Or is that something not worth outsourcing?
- Could you work part time and have part-time care?
- Is there a balance you can seek to achieve? Can you work part-time and does your child care provider offer part-time care?
For many families, the answer to this question changes with the addition of the second child. Let’s look an example of a two-parent, two-child family (an infant and a 4-year-old). Their child care cost can range from about 19% to almost 30% of total family budgets. For older children, the costs range from about 12% to 21% for families with a 4-year-old and an 8-year-old. Depending on the difference in wage earners, once the second child is born it becomes more common to see one parent stay home as it can be a cost savings of over $25,000 in after-tax dollars. Recently, we’ve seen an uptick in the number of mothers staying at home. After decades of decline and a drop to 23% in 1999, the number of stay at home mothers rose to 29% in 2012. Back in 1967, by contrast, almost 50% of mothers with children under age 18 did not work outside of the home.
Maybe you feel comfortable with this decision but maybe you aren’t sure what to do…Wela is here to help! We have conversations all the time regarding decisions like these and help provide an objective viewpoint to help you see all sides of the decisions. Sign up for your free user account here, and start talking with our team today.