Your Wallet: The rising costs of childcare
Danielle Kurtzleben, economics correspondent for Vox, says childcare is far outpacing the cost of other services in the U.S., “the cost of childcare in America has risen far faster than the cost of everything else in America. If you look at the consumer price index, as I did in one of my articles, I looked at it over the last 20 years, the consumer price index went up roughly half as fast as the cost of childcare. So childcare is really outstripping a lot of other things. It’s a really heavy burden on parents up until their child hits that age of 4 or 5.
On the reasons why
“There are a lot of theories out there of course and there are plenty of things that play into it. One theory that I’ve heard quite a bit, especially here in the Washington D.C. metro area, is the question of regulations. Of course you want well-qualified people watching your children in a very safe environment and you don’t want 50 kids to one childcare giver. So of course plenty of regulations are great, but I have heard parents complain about excessive regulations, about a building having to be completed for so long before kids can start, the number of people required per child. Things like this can play into it and can raise the price, and depending on the standards of any given local area, that can push the cost up. But that is just one thing. There are all sorts of other things. Another thing is just that everybody needs it and clearly there are plenty of parents willing to pay high prices just to get their kids taken care of while they go for work.”
On the effects of high childcare costs
“In some states the median cost of out-of-pocket childcare expenses as a ratio to the median earnings of a single mom can exceed 1/5 or even get up to 1/4 of those paychecks that those single mothers are earning. That is huge and in some places that’s like paying a second rent. That’s gargantuan. And it creates this tough choice for those moms and it creates a tough choice for mothers in partnered or married relationships, as well. It’s not always, but often women end up bearing the brunt of childcare taking on a lot of it themselves and more often than not women will be the ones who stay home to take care of a child. And so yes, there is the potential that this is keeping women out of the labor force, this is bringing down their labor force participation. And one case study that you can look at against the U.S. is France, where there are more state supports for child care. The gap between men and women in labor force participation in France is much smaller than it is in the U.S. And one idea that has been floated is that it’s because France gives parents a little bit more help than we do here in the U.S.”
On how the U.S. compares to other countries
“In terms of the OECD, which is of course a big group of developed countries, we are pretty high in terms of how much we pay. In terms of the net amount that we pay that is, the percent of family income. So this takes into account how much money you make in any given country. According to recent figures from the OECD, American parents ended up paying, in terms of their net cost, the percentage of their net family income, child care related cost this is, so there are a few things folded in here, ended up being something to the effect of 40% of net family income. Now that’s huge. But you compare those to other countries, some other countries like Switzerland, Ireland and the U.K., are the only ones ahead of us. But you have dozens behind us. And plenty of other countries, the net cost is much lower. And part of that is government offsets. Childcare benefits from governments. The Netherlands does this pretty generously as does Belgium. And there are also some tax reductions in some countries, as well. There are two sides to this coin. If your state is helping you out a light on your child care, that money has to come from somewhere and it is probably coming from tax payer pockets.”
We invited Lauren Lyons Cole, personal finance writer for The Street, to suggest some tips for parents looking to lower their childcare costs
Look towards family: Weekend listener Chris from Milwaukee mentions that the $1,000 per month he pays for childcare can act like a second mortgage. Perhaps spending that money on an actual mortgage or rent can help. If your parents live in another city, it might be worth moving them closer to home to help with taking care of the kids.
Tax credits: You can claim up to 35 percent of your childcare payments to a maximum of $3,000 per child or $6,000 for more than one child. There are additional tax credits in 24 states.
Employer benefits: Some employers offer a Flexible Spending Account, which uses pre-tax dollars to pay for child care. This might impact the use of a tax credit though
Lauren also suggests not staying at home and leaving your job. Though the money on paper could cancel out, years of lost wages and gaps in employment could affect your earning potential down the road.
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