NerdWallet's Smart Money Podcast - Nerdy Deep Dive: Why is Child Care So Expensive?

Episode Date: June 9, 2022

Child care costs are pushing budgets to the brink. In the first episode of this two-part Nerdy deep dive, we go behind the scenes to untangle one of the largest budget items for many families.  By listening to this series, parents and listeners of all stripes will become more aware of the system and know how to take advantage of supports that currently exist — while the fight for widespread policy changes continues. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

Welcome to the NerdWallet Smart Money Podcast. I'm Sean Piles. This episode, two NerdWallet writers, Amanda Barroso and Aliza Durana, are doing a nerdy deep dive into the cost of childcare, why it's so expensive, and what you can do about it. Hey, you two. Hello, Sean. You guys are in sync. I love it. Can you guys both give us a brief introduction so our listeners can get to know you and understand whose voice is whose? Sure. I'm Amanda Barroso, and I'm a personal finance writer here at NerdWallet. A little about my background and what brought me to this topic. I have a PhD in women's and gender studies and spent a few years in the policy and think tank worlds, writing about a lot of the issues that are facing women across the course of their lifetimes.

But maybe perhaps most importantly, I'm also a mother to a toddler. And over the past two years, I've had to navigate the vortex of childcare costs and pandemic parenting. And I'm Aliza Durrana. I'm an investing strategy writer at NerdWallet. But before I became a nerd,

I worked as a journalist covering work, housing, and social policy, including child care and paid family leave. And in 2016, I co-authored the care report with one of our interviewees, Bridget Schulte, which ran at The Atlantic. We evaluated the cost, quality, and availability of child care and found parents were making trade-offs in every U.S. state, while caregivers make poverty wages. And now Amanda and I have teamed up to revisit and unravel the cost of child care and how it's affecting family budgets. Great. And ahead of this series, we did a call-out for stories from our listeners

about how child care costs impact their budgets. And let's listen to one of the responses that we got. Hi, NerdWallet. Stacey from Denver calling about daycare. We were married for 14 years before we finally felt ready financially to have a baby, especially in Denver where daycare costs are really expensive. Currently we're paying $450 a week for one child

and I'm due to give birth tomorrow with our second. So the amount will double, but all of our regular income goes towards child care these days and our mortgage. It's been rough, but definitely worth it to have our little kids. Thanks. Amanda, can you give us a little bit of context to help us better understand Stacey's story? Sure, Sean. I mean, last October, the New York Times reported that Americans paid an average of $1,100 a month in child care costs. The report also found that countries considered quote-unquote rich dedicate $14,000 a year to toddler care, while the U.S. spends a meager $500. So we hear from Stacey here, and she's paying even more than those New York Times estimates. At $450 a

week, her family is paying $1,800 a month in child care, which will double to $3,600 a month when her second child is born. So just let that sink in. Unfortunately, this is the reality for many families. Parents work outside the home and need child care, and the costs are really steep. So out of curiosity, I went to Child Care Aware of America, which is a nonprofit that works to connect families with childcare across the country, to see what the annual cost of center-based infant care is in Colorado, where Stacey lives. Looking at the map showing costs state by state, I can see that in Colorado, the annual price for center-based infant care is $15,600 and 16% of the median household income. Jeez.

But if my math is correct, Stacy will be paying nearly three times that once her second child arrives. These are in 2020 dollars, and we know that costs are only on the rise. Right. And according to the Department of Health and Human Services, contributing more than 7% of your family income to child care is considered unaffordable. But for folks in Colorado like Stacey, who are allocating more than double what Health and Human Services suggests, sounds like a nightmare. Yeah.

And a lot of families across the country are in a similar position. So before I pass things off to you two, can you let us know what our listeners can expect from this series? Absolutely. So in this two-part nerdy deep dive, we're going behind the scenes to disentangle one of the largest budgetary items for many families across the U.S. By the end of this series, you will be more aware of the factors driving this expensive child care system, and parents will have a deeper understanding of the supports they can take advantage of while the fight for more widespread policy change continues on. We'll start by showing you how the U.S. child care system came to be so broken and help you understand where your child care tuition is going each month.

Great. Well, I'll let you two take it from here. Before we get started, I want to note we'll be mentioning different types of child care in today's episodes. Child care comes in many forms. It could be mom, dad, auntie, grandpa, or a neighbor. It could also take the form of a nanny, in-home daycare, or child care center. Although a lot of our examples are from child care centers, that's not to say that families using other types of care aren't impacted by similar challenges. Most of this episode will focus on explaining the high cost of child care you may be juggling. In episode two, we discuss some of the tax, employer, and other benefits

you may be able to access to reduce costs, including the child tax credit. So the first thing parents need to know is that the ages zero to five represent a sort of no-man's land when it comes to child care. In other words, parents are expected to piecemeal a child care system together using whatever resources they have. Sometimes that means paying for full-time child care or relying on family and friends or finding half-day programs that allow for part-time work or some kind of combination of these options. To understand what's happening with child care between those ages of zero and five, we talked with Elliot Haskell. Elliot is the program officer for education policy and research at the Robbins Foundation, which funds early childhood education programs

in Richmond, Virginia. There's this interesting phenomenon where we treat the first five years of life very much as parents' personal responsibility, like good luck. And then from the time the child hits, you know, school age until the time they're graduating high school, then we're providing, you know, at least for nine months of the year and for seven, eight hours a day, free there's this void for young children where subsidized care and education systems don't kick in until kindergarten. Or, I guess maybe if you're lucky and live in a state with universal pre-k, you get some support when your kid turns four. by comparison we pay for k-12 education collectively but leave parents in the lurch for ages zero to five

another pressure parents face is just simply tracking down affordable and high quality care and some of this really depends on where you live let Let's hear from Elliot again and hear what he has to say about a phenomenon called child care deserts. Parents face a very constrained choice set that is defined by what's available in their area. Much of the country is what's considered a child care desert. There just aren't slots available, particularly for infants and for younger toddlers. For what they can afford, the financial assistance is pretty limited. So it can often be sort of an anchor around social mobility, where a family is not able to purchase a house yet because they're renting because they need to afford child care. They have to defer maintenance on a car because they have to afford child care, and that becomes a much bigger expense down the road.

So beyond finding someplace safe where your baby can grow and learn, parents face budget pressures and limited childcare slots. And to make matters worse, imagine you don't work a traditional 9-to-5 job, which is how childcare centers traditionally structure their hours. We heard from Leslie, a parent who decided to move her child from pre-K to public school in Florida next year and is still trying to fill in child care gaps. We can only afford to place our kid in child care part-time. We relied on grandparents to fill the gaps until COVID hit. We pulled our pillow out of child care and because my spouse worked out in the

world and I could work from home as an educator, I was saddled with double duty, squeezing in my grading before a kiddo woke up and letting kiddo have too much screen time so I could teach and, you know, pay bills. It was terrifying to make the decision to send our child back to school in August because they're high risk for COVID complications and vaccinations were not available for their age yet. And being in Florida, that also meant no mask mandate. But I'd started a new job outside of academia and I couldn't watch my child and work at the same time. We're moving our kid to public school next year, which will help us save a lot of money, but we still need to pay for before and after care. And summer? Well, nothing's open the hours we need.

Grandparents aren't available to fill in the gaps. In short, we just have no idea how we're going to do this. The system's not set up to support families of single parents or where both parents work, and especially if there aren't any other caregivers available to drop off, pick up, or watch the kiddos until parents are available. Frankly, we just can't afford to have any more kids, so we're not going to. Leslie's story highlights a real problem parents face, finding care that fills the gaps between school hours and work hours.

Let's hear more about this from Dr. Shengwei Sun, Manager of Child Care Research at the National Women's Law Center in Washington, D.C. Families have different needs. You know, the child care centers that are operating on a 9-to-5 schedule doesn't meet the need for parents who have to work irregular hours or doesn't work nine to five or five days a week. So there has been less of a flexibility in more formal programs. So clearly there are challenges with simply finding child care in your area that you can afford and that works with your schedule. You know, I experienced some of this myself when I was pregnant with my daughter back in 2019. At the time, my husband and I were living in the D.C. area and literally had no clue where to start when it came to deciding what to do for child care. Luckily, we had some

good friends who had already had kids and they shared their experiences with various child care centers in the area with us. And they were also really upfront about the cost, which I appreciated. The one thing that really shocked me was their just absolute insistence that I get my name on the list during my first trimester because the area was just so competitive. Sort of the opposite, I guess, of the child childcare deserts that Elliot was telling us about earlier. I can remember feeling really panicked and I was like madly scheduling a bunch of tours and like a two week time span. My husband's head was like spinning around. And ultimately we found a place that we could sort of afford, but it was close by. It was walkable. And they had a spot for my daughter when my maternity leave was over. And for transparency, we paid $13.60 a month for child care, and that included snacks and diapers. And truthfully, we felt like we had won the lottery.

But now that I look back on it, it's like, wow, that was a really stressful and very rushed initiation into the world of child care. Wow, Amanda, my jaw dropped. I mean, $13.60 was more than the cost of Myron in Washington, D.C., and your experience really highlights the bind parents are in. Child care anywhere is expensive and hard to find or competitive to get into. But don't take our word for it. Check out this clip from another listener. Hi, my name is Ayla, and I have two kids, an almost four-year-old and a one-year-old. And we pay currently $542 per week for the two kids to go to daycare. My almost four-year-old goes five days a week. almost four-year-old goes five days a week. My one-year-old goes three days a week. And starting in September, that will go up $60,

bringing the total to $602 a week when my one-year-old goes to five days a week, because it's just not possible to keep him home anymore. And that means that our daycare costs will hit just over a third of our income. And, you know, our center is trying really hard to do a really good job, but I know that they are struggling with staffing issues. I know that they're still not making as much money as they should be given this important work that they do. At the same time, even though I wish I could help them pay their staff more, I don't know how much more I can take on. We've had 10% increases in costs every year for the last few years, and it's really breaking the bank. I know that in other places, care is much more expensive, but paying over a third of our salaries for not even the best care possible in the area

is hard to swallow. So I know that we're relatively lucky, but I feel like this is more money than it should be. And if daycare wasn't so expensive, I think I would absolutely be having a third child and having the cost of care being the only thing that's holding me back is frustrating. Thank you. Hearing stories from parents from all over the country who have had to grapple with child care costs is really powerful. Parents are clearly struggling to pay for child care, and it's a really prohibitive factor when it comes to their personal finances. Aliza, you know, you've worked on this issue for a while. I'd love to hear from you about

why child care is so expensive. When I write that check every month, like, where is that money going? So some of the costs go towards keeping facilities up and running. Think the rent, utilities, etc. But most of it really goes to the cost of labor, especially keeping adult and child ratios low in your child's facility. So making sure babies and their caregivers have meaningful one-on-one time is not only important for child safety and development, but also to comply with safety regulations. Let's get some more insight from Elliot about the child development aspect. What we know about young children is that they thrive, they grow, they learn, their brain develops on the basis of their relationship with their

caregiver. It doesn't matter who that person is, but to have that warm, attentive relationship for that child to know if I have a need, that need is going to be met. So you think it's kind of like a tennis match so that the baby points at a dog and babbles. And then, you know, the caregiver says, oh, you're looking at the dog, right? Like that helps the child make neural connections.

If you have too many children per caregiver, because they're also just anyone who was a parent who's listening to this, and I'm sure you both know, right? Like sometimes it's just physical needs. Yep, who's listening to this, and I'm sure you both know, right? Like, sometimes it's just physical needs. Yep, child diaper needs to be changed. You know, the child fell down and, you know, her knee needs to be tended to. If there are too many children, it becomes may impossible for the caregiver to provide that level of attention and that level of interaction that the children need.

Many of the child care workers themselves are stressed out about finding child care for their own children, which is, again, not what you want if you want to have a system that's promoting child development and healthy relationships across the board. So let me get this straight. We need well-trained and supported caregivers not only to keep ratios low, but also to form developmentally healthy relationships with the children in their care, right? But they're making poverty wages? Let's hear from Sheng Wei, who can help break down this disparity between pricey tuition and poverty wages a bit more. There's also the argument that child care workers earning poverty-level wages are actually subsidizing the public with their low wages. Before the pandemic,

child care was already a broken system, and that's a consensus. So families, for example, on average spend about 13% of their income on child care for young kids, while child care workers have been earning really poverty level wages, which barely increased over the past two decades. Okay, child care is expensive to provide because of the important interactions between baby and caregiver. But has it always been so expensive? The answer is no, but probably not why you'd assume. Child care has actually shifted many times across U.S. history. How so? Before the U.S. developed factories in the 1820s,

child care was often shared communal activity, especially since work and care took place in the same space, like a farm or shop where adults of all genders took care of little ones. Really, only the wealthy and white elite had child care provided by servants or enslaved women of color. And as the U.S. industrialized, many people left home for the first time to go to work in places where they couldn't safely take their children. You know, I'm thinking back, I can't imagine wrangling my toddler while trying to do like manual labor that required any sort of focus or precision, much less around heavy machinery. So how did those families make it work? Well, workers mobilized actually. In response, Henry Ford began piloting what's been coined as a family wage. He offered to double the minimum wage to encourage men to work and women to stay

at home. This encouraged what we think of today as a nuclear heterosexual family model with a lever to beaver style mom and dad. Okay, so let me ask you this. Why didn't this model work out? Why isn't it common to see employers paying a family wage today? The family wage today? The family wage was a dream that really never came to fruition on a large scale. It was only briefly accessible at a specific time in history for specific types of workers, most of whom were white men. While Ford was the main game in Detroit, especially during the early 1900s, he competed for scarce workers, but as other employers emerged and workers migrated

to new industrial jobs, the problem of needing to give workers something special disappeared. So in a way, the family wage is a kind of cultural hangover. Families can survive with one income and one caregiver, but this image of family life only existed for just a brief window in time, and even still only for like a pretty small slice of Americans. Not to mention the damage that it did to women's future employment prospects, because it basically put them in a financially dependent position to their husbands or their fathers. But in the 20th century, a couple things happened, actually, a growing economy pulled more people into the workforce. And at that same time, the women's movement fought for women's rights to work if they wanted to, and jobs that weren't really limited.

So it used to be that like women were basically be a secretary, a nurse or a teacher. And the women's movement at the time really tried to expand a vision of like what kind of work women could do. And that sort of leaves us to where we are today. If the adults are working, who is taking care of the kids? Exactly. And on top of that, families of color and single moms didn't get to benefit from early U.S. welfare policies like the GI Bill or homeownership, which allowed for white male led families to build wealth and stability. Ultimately, rising costs and decades of stagnant wages drove folks into the workforce. In fact, families where women are the primary earners is on the rise. And we're not just talking about

single mothers here. A 2020 study by Glass, Raley, and Pepin, who are scholars in the field of sociology from UT Austin and the University of Buffalo at Pepin, who are scholars in the field of sociology from UT Austin and the University of Buffalo at SUNY, revealed a spike in the share of married women who are primary earners from 15% in the year 2000 to 40% in the year 2017. Wow, okay. So it sounds like what we've witnessed over the years is a fairly dramatic shift in the role of mothers in American family life, in part as a response to a lot of these economic factors that you're pointing out. So, you know, speaking of economic factors, this April, the Bureau of Labor Statistics reported that inflation was up 8.3% from 2021, which is a 40-year high. I know I've personally felt it going to the store, that kind of thing. And people are paying more for everything from groceries to housing to gas. And so for many families, a single income just isn't enough to cover the cost of their needs today. These kinds of financial pressures can be really tough on parents emotionally too.

Let's see what Elliot has to say about the kinds of tough decisions parents have to make. Parents don't have a full suite of choices about what to do around child care. And as a result, they're often forced into care work situations that not what is their ideal and is not what they think works best for them. And that has all sorts of implications for a marriage or a partnering relationship, for stress levels for parents, and that all tracks right down onto child development. Much too often, this ends up disproportionately falling on the mother, you know, should the mother go back to work when essentially 90 to 100% of her salary would be eaten up with child care costs. And so that's not a true choice. The pandemic amplified some of these tough choices for parents and especially for mothers.

We know that when the pandemic hit in March 2020, women left the workforce in droves when money got tight and child care was literally unavailable because of the lockdown. You know, women were forced to leave their jobs because they had to take over child care. And not only that, but some of them had to do virtual schooling as well. And they still haven't recovered those losses. Let's hear from Bridget Schulte, longtime journalist, author, and director of New America's Better Life Lab, about how parents are doing more than two years after the pandemic uprooted American life. You can certainly talk to people or look at any survey out there. Parents are, they're at the end of their rope. The levels of burnout and stress are just at astronomical levels, particularly for mothers. Schools were

closed. Schools went online. Childcare centers shut down. And a number of women, they were forced out of the workforce because they couldn't find childcare. So here we are two years after the pandemic started, and we're still missing nearly a million women who haven't returned or haven't been able to return to work. And not everybody even had that choice to be forced out, so to speak. We have the largest share of children really in the world who are being raised in single parent families. So there's no options there. So families have really borne the brunt of a lot of the pandemic disruptions. And I think that if people didn't know or weren't paying attention before about how the childcare system is broken, I think there's a real

recognition now that it is. What I worry about is that we're not going to act on this crisis. Parental burnout is certainly a very real issue. In fact, a new report from researchers at Ohio State University found that two-thirds of working parents show symptoms of burnout brought on by stressors of pandemic parenting. Some of the symptoms of burnout listed in the report are exhaustion, irritability, and feeling emotionally detached or overwhelmed with parenting tasks. You know, that list hits a little bit close to home, and I can certainly admit to feeling those things at one point or another over the past few years. I think early on, especially one thing that added to my frustration was paying for child care that me and my family weren't actually utilizing.

In the first few months of the pandemic, we continued to pay full tuition because we didn't know how long the pandemic would last, which at this point seems pretty laughable, right? You know, we also wanted to make sure that the center was able to function and pay its rent, pay its workers, even while it was closed and everyone was on lockdown. So I guess in other words, we just wanted to make sure that our care existed when the pandemic was over. We wanted it to still be standing and we just wanted to make sure that our care existed when the pandemic was over. We wanted it to still be standing and we still wanted to be able to use it when things returned to normal. The pandemic revealed the fragility of child care centers.

They were already operating on razor-thin margins, like you described, Amanda, and when parents pulled their children out of concern for their health and safety, many centers did have to close. This meant that child care workers who were already underpaid suddenly lost their jobs. According to the Berkeley Center for the Study of Child Care Employment, the child care workforce is 11% smaller than at the outset of the pandemic, and wages remain low. The median wage of child care workers is just $13.22 an hour. Shengwei told us more. And now the pandemic is pushing the system to a breaking point and amplifying pre-existing inequalities. Providers are considering quitting or closing down their business in the next year. Over half of minority-owned centers are in danger of shutting down.

And this also means that centers that serve working-class families or families in rural areas and low-income families are especially in danger of closing because they can raise the costs. The pandemic certainly amplified what was already broken about the child care system for both providers and parents. And I think the end result is just a lot of financial stress for both parties. So now I'd like to return to the stories of parents that we featured on this episode. These stories come from all over the country, and they really highlight the exorbitant costs of child care and the ripple effect that it has for other areas of their lives. And to the parents who are listening today, we want you to know this. Your instinct might be to feel like you're not being frugal enough or doing all the things when it comes to managing your finances. But the truth is that the child care crisis in America is a structural problem forcing many parents to make really difficult decisions in

order to make it work financially. Because in reality, there is no actual choice. No amount of personal finance hacks will fix this problem. That's all we have for this episode, but please stay tuned for part two, where we'll get into what tax, employer, and other benefits may be available to parents to help defray some of these child care costs and create a little breathing room in your budgets. If you have questions about managing the cost of child care, reach out to us on the Nerd Hotline by calling 901-730-6373. That's 901-730-NERD. Or if you want, email us at podcast at nerdwallet.com. Also, visit nerdwallet.com slash podcast for more info on this episode. And remember to follow, rate, and review us wherever you're getting this podcast. And here's our brief disclaimer, thoughtfully crafted by NerdWallet's

legal team. Your questions are answered by knowledgeable and talented finance writers, but we are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. And with that said, until next time, turn to the nerds.