The statistics surrounding childcare are utterly mind-blowing. Research shows that families pay around $13,000 per child per year for childcare services. It’s an astonishing fact: for families with both parents working, it accounts for about 10% of a family’s income and up to 35% of single-income household earnings.
It leads to a fundamental problem for the working population: how do you look after your children while also saving for the future? Childcare costs are so extreme that they could delay your retirement by years or force you to retire with way less money than you hoped, which may push you into taking on part-time jobs.
The question we’re interested in answering is whether there are ways to reduce the childcare burden for working families, or if this is something you have to learn to live with. What makes childcare so expensive – and how can you prevent it from damaging your retirement savings?
High Demands Meet Limited Availability
There is an undeniable fundamental problem in the childcare industry: you see extremely high demand for these services, though availability is often limited. Further research indicates that over 66% of children aged five or younger now require childcare because both parents are working. However, the childcare industry simply does not have the resources to deal with this demand.
Why?
When you look deeper into the industry, you identify a couple of key hurdles:
- Regulatory demands
- The cost of employment
Childcare regulations often demand that there’s a specific staff-to-child ratio in place at all times. Depending on the state you live in, this may be about 1 member of staff for every 3 children. The ratio will usually increase as kids get older — you can normally have 1 staff member for 8 preschoolers, for example.
As a consequence, these regulations mean that childcare providers need to do one of two things:
- Employ enough workers to meet the demands of families
- Limit the number of children they can look after
Navigating The Rising Costs
In either scenario, you end up with the cost of employment going up for childcare providers. If they choose the first option, they’ll have to hire enough staff to keep up with the demand, which puts a strain on their budget. If they choose the second option, they won’t be able to take on as many clients, which caps their potential earnings. For households, this translates to childcare providers raising their costs to either help them pay for their staff or to ensure they make enough money even though they provide limited services.
That’s how you end up in a situation where families have to spend tens of thousands of dollars per year on childcare services, making it arguably more damaging than the rampant healthcare cost crisis for retirees.
Au Pairs Provide Cost-Saving Benefits
It’s important to note that the cost of childcare normally looks at the more traditional services available to families, such as:
- Daycare centers
- Nannies
Both charge per child, but there’s a potential solution that could yield massive savings for families: hire an au pair.
An au pair is a young person who comes and lives with your family in exchange for helping with childcare and some smaller household tasks. They usually come from different countries to live in a new country and experience a different way of life. Families are still required to pay au pairs for looking after their children – but you’re not charged per child.
It can help you cut costs from over $1,000 per child per month to something much more manageable. Will it save money if you only have one child to look after? Probably not. However, the savings continue to increase as the number of children increases. A family with three kids who need childcare during the week could save an absolute fortune with this method.
If you take the average $ 13,000-per-child cost per year and multiply it by three, you’re spending $39,000 a year on childcare alone. While au pair rates vary, they typically cost around $1,800 a month. Generally, this is the case regardless of how many kids you have. In this particular example, that works out to $21,600 a year to look after your three children. You now have around $18,000 in your bank to put towards retirement savings or investments that help you grow your wealth for the future.
And that’s just the savings for one year.
The Work-From-Home Solution
The only other solution that could help families save thousands on childcare is to work from home. Some businesses now happily support this method of working. In fact, many offer it as a temporary solution for mothers or fathers who have young children. Working from home allows at least one parent to always supervise their children. And, it also allows them to ensure their child gets the proper care they need.
Even if you’re able to work from home one or two days a week, it can dramatically reduce the cost of childcare per child. In an ideal world, you’d be able to work from home permanently and negate the need for any traditional childcare services. This, in turn, would save a fortune and allow you to retire much earlier than anticipated.
The obvious downside to this solution is availability. Not every business will let people work from home. This means you either have to find a new job or nip this option in the bud. There’s also the worry that, if only one parent can work from home, they end up taking on too much of the childcare burden, which puts strain on their relationship.
Childcare Continues To Be Expensive, But Solutions Do Exist
The bottom line is that childcare will always be expensive because of the way it works and the regulatory demands in place. The good news is that solutions do exist, particularly for families with multiple children. Au pairs represent an excellent alternative to daycare or nannies. And, you could also try to negotiate a work-from-home contract with your employer.
When it comes to thinking about retirement or looking ahead to the future and ensuring you set yourself up well financially — including following smart financial guidance for parents — you need to address the rising costs of childcare before it bleeds you dry.
Image credit: Photo by Markus Spiske
