The Personal Finance Podcast - The Insane Cost Of Childcare and Ways to Help Reduce That Cost!

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Starting point is 00:01:06 and what you can do about it. Up everybody and welcome to the personal finance podcast. I'm your host, Andrew, founder of mastermoney.com. And today on the Personal Finance Podcast, we are going to be talking about the insane cost of child care and what you can do about it. If you guys have any questions, make sure you hit us up on Instagram or TikTok

Starting point is 00:01:43 at Master Money Co. And follow us on Spotify, Apple Podcast, or whatever podcast. player you love listening to this podcast on and if you want to help out the show leave a five star rating and review on apple podcasts or Spotify now today we're going to dive into one of the biggest costs for parents in the u.s and it's the insane costs of child care and we're going to go through a number of different things because if even if you are planning on having kids in the future this is an episode that you absolutely need to listen to because most people don't understand

Starting point is 00:02:15 the cost of child care so today we're going to be going through the stats of child care child care costs. We're going to go through why daycare is so expensive, and that's where most people are spending the majority of their money early on. Then later on, when you get to the teenage years, obviously, there's extracurricular activities and a lot more expenses that come into play, but early on child care is very expensive and it's becoming a burden for a lot of people. When you need to consider, are you going to continue to work or are you going to put your kids into daycare and think through that process as well, depending on how much money you make, and how to decide if you should stay home or not? And then I'm going to give you 11 different ideas on

Starting point is 00:02:48 how to save money on child care as well. So this is something where you really need to figure out exactly what you want to be doing. You need to dial in your budget. And that is one of the most important things that you need to be doing early on. The reason for this is that if you are spending a lot of your income on child care, we'll get through the statistics here in a second. But if you're spending a huge portion of your income on that child care, your budget needs to be dialed in because you don't have as much disposable income as maybe somebody else who does. So this is very, very important to think through as you start to put together your financial plan. It starts with that budget. It starts with tracking your income. This is the time where you need to be probably doing that

Starting point is 00:03:27 most and dialing it in. Now, you've heard us talk about the reverse budget where you can actually save off the top and then spend whatever is left over. When you do that, it's important to understand that if you need to dial in your budget, if you need to get closer to the exact number, then you're going to have to track it line by line. Now, line by line isn't that bad if you just take a couple minutes every single day to dial that in. But that's number one thing that you need to be doing. when you start to think through this process. Now, even if you don't have kids, even if you don't have children,

Starting point is 00:03:53 you need to start thinking through this if you plan on having them in the future because this is a very important cost that a lot of people don't know how high it actually is. Now, I'm going through this right now. I have two kids that are in child care, full-time child care, they're in daycare while my wife and I work,

Starting point is 00:04:07 and this is a major expense within our budget line item. And so I understand how you feel if you are going through this as well. I know what the pressure feels like. I know exactly how this. is and the reality for most of us is we have no other option. Either you have to send your kids to child care so that you can get up, go to work, provide for your family and start to build generational wealth for your family as well. This is why we provide and build wealth is so that

Starting point is 00:04:31 we can provide these safe places for our family. So this is incredibly important to understand. But for the majority of Americans, to the majority of people across the world, child care is a very expensive line item within their budget. So care.com, it is the best. all encompassing data and statistic information about child care. And this is really important to understand because there's key findings in the care.com 2022 cost of care study. So the cost of child care for families in 2022, 51% of parents say they spend 20% of their household income on child care.

Starting point is 00:05:07 And 72% of parents report that spending 10% or more. So this is up from 70% according to data in 2019, where over 20% of parents' income are just going, straight to child care immediately. Now the quality of child care continues to be tough for a lot of parents where 43% of parents say it's much harder to find good child care as well. So you're spending all of this money on something and you don't feel you like you're getting quality child care. So we're going to talk through a couple of options on how to do that as well. And then if you continue to struggle to pay for child care, 59% are concerned about child care costs now than years

Starting point is 00:05:41 prior. And the cost of child care continues to rise where 63% report that child care is more than last year. And 72% say they are spending 10% or more of their household income on child care. And every type of child care is pricier than it was pre-pandemic. So a lot of different things are happening here where a lot of folks are putting a majority of their budget towards child care. This is a really important thing to understand. You have to understand this line item. And here's the national average child care rates if you're looking for something like this. So if you want to have a nanny, nannies were the most expensive way to have child care provisions. In 2021, the national weekly child care rates for a nanny were $694.

Starting point is 00:06:21 For a child care center, $226. For a family care center, $21, and after-school sitter, $261. Now, if you have two children, those averages go up as well, but that's per child, what's going on there. Now, they did survey the average person, and they're cutting back on the essentials like vacation, leisure activities, food and dining, clothing, extracurriculars. A lot of parents are cutting back on some of these things. in order to be able to pay for child care.

Starting point is 00:06:49 Now, a lot of other folks, they surveyed, 31% are considering taking a second job. 26% are reducing their hours at work, 25% are changing job, and 21% are leaving the workforce entirely. I'm going to show you exactly how to do the math if you want to leave the workforce entirely or if you're even considering that.

Starting point is 00:07:09 I'm going to show you how to kind of think through that math, and it may not be exactly what you think. It's not just your income, minus how much child care costs. There's a lot of other considerations that you have to factor in when you think through this. Now, why is child care so expensive? Sometimes it's helpful to understand why it's so expensive. So I'm going to run through some of these numbers here just so you understand it.

Starting point is 00:07:27 We're not going to take a bunch of time on this. But first one is state labor laws. There's a lot of state labor laws that you have to have in place to make sure you have the right quality people in place. And that's good for every single person that's out there. Then there's location and real estate costs. A lot of child care centers have to pay rent or they own the real estate. And that's a high cost for them. Then there's insurance and licensing.

Starting point is 00:07:44 And this is a very high cost as well to have that insurance in place to make sure that you run that child care center properly. And then employee training and salaries. A lot of these employees do not get paid enough. They need to increase that pay so that they can have the best employees in place to take care of some of your children. And then lastly, obviously, business marketing. So there was a lot of surveys done.

Starting point is 00:08:03 And the average that someone should be charging with child care should be $350 a week to actually become profitable. Now, a lot of locations do not charge that much. So it's good to understand this early on. whereas that would be the average to become very profitable. So a lot of folks are charging less than that to be competitive as well. Now, before we dive into some of this deeper dive stuff, some of the caveats here is you should never sacrifice quality for price.

Starting point is 00:08:28 Your children are what matter most when it comes to making sure that you have the right things in place to have the proper childcare. So never ever sacrifice quality for price. It's very important to understand that because you've seen all the horrors. child care things on the news that have happened at daycare centers and things like that, never ever sacrifice quality for price. It's not worth the money to sacrifice that. Number two, we all have different ways of raising our children. So making sure that you can take whatever I'm saying with a grain of salt, you don't have to listen to me at all. I'm just giving you suggestions

Starting point is 00:09:00 as we go through this on how to reduce those costs, but still maintain the quality. Because the quality is the number one thing. Maintain that quality. You don't have to listen to me at all. This is just ideas. I'm throwing out ideas to you on how you can reduce some of those. cost as well. And so this is what we're going to be talking about today. We're going to be diving into how we can reduce these costs. So without further ado, let's get into it. All right, so here is how you should decide if you should stay home or not if you're in a two-parent household. Now, obviously, take whatever I'm saying with the grant of salt. You make your own decisions. This is something that you have to decide between you and your partner, you and your spouse, you and your significant other,

Starting point is 00:09:37 to understand exactly what you should do and what's best for your child, what's best for you and your career so that you can build that wealth and provide that generational wealth for you and your family. Now, if you're considering this, if you're running through this, maybe some of the things that you're thinking about is, well, my income is about the same as what child care costs or my income is just a little more than what child care costs. I'd rather just stay home and take care of the kids. And that's a great consideration. But there are some other things that you want to think through, especially if your long-term goal is financial independence or if you want to retire early. These are the folks that we're really talking to so you can think through, hey, will my extra income, maybe it's even an

Starting point is 00:10:11 extra 10 or $20,000 a year, will that help us reach financial independence that much faster as long as your children are being taken care of with the care that you can afford? So if you're considering not having child care for your kids, here's a couple of considerations to think through if you want to say yes to that question. If you feel the quality of care is subpar at the child care place that you can afford. Number two is if the job that you work at has no room to grow this. So this is an extremely important one to understand. Say you're making $40,000 a year and child care costs you $35,000 per year.

Starting point is 00:10:41 If you're working somewhere and that is what the cost differential is and there is no room to grow within your career and you're not loving your career, maybe that's a consideration where one of the folks in the family can stay home. Or maybe you can make money online to supplement that differential. So say, for example, you're working at that $40,000 per year job and your child care costs $35,000 per year. Well, can you leave that job if you don't like that job? There's no room to grow. And can you make some additional income online by starting a newsletter, a blog, maybe. you can sell things online, figure out something that you can do online in between maybe while the kids are napping or something along those lines. The next one is maybe you don't like your career and you're looking

Starting point is 00:11:20 to reset inside of your career. So maybe you want to go back to school and start a career in a new field. Well, this is an important time where you can start to do night school. You can do online school in between while your kids are napping. And this is a good great time where you could stay home, save that money and in addition be able to move forward in your new career. Also, another consideration is if you're not the primary benefit provider in the family. So this is health insurance. This is some of the other things like life insurance. If you're not the primary benefit provider, then maybe that's another consideration that you can think of. Or another consideration is you can work weekends on something else and make close to the same amount. Or your job allows you to take a leave of absence.

Starting point is 00:11:55 So that's a really cool perk that a lot of jobs are allowing now is where you can take that leave of absence. Now, when not to leave. These are some of the considerations of when not to leave yourself. So you feel your mental health would be strained if you stayed home with your kids. This is a big one for a lot of people. They don't understand the mental health aspect of just being home with your kids all day long. So if you feel like that would be strained from you staying home, then maybe that's a consideration to stay home. Or if your child is thriving at daycare, that's another reason why potentially you would want to continue to work instead of coming home, even if the differential is not that great. Or if you love your career and there's room to grow. This is the biggest one,

Starting point is 00:12:32 because if you love your career, there's room to grow. There's no reason to stay home just for a $5,000, dollar differential, even if it's break even, because what you're getting there is the potential to earn more income. And as you earn that income, you can put that towards financial independence. Or if your benefits are the main benefits of the family. Say, for example, that your health insurance is amazing and your health insurance is the main benefit. That's a cost you have to factor in when you're running these numbers. Even if your salary is exactly the same as what the daycare salary is, you have to factor in your benefits. And say, for example, your spouse or your partner does not get any benefits, well, your costs are going to rise immediately by another $2,000

Starting point is 00:13:11 $2,000 per month just for health insurance alone. So you got to understand and consider that as well. Now, if you have no desire to run a business on the side to earn more income, that's another consideration to stay at your job. If your work brings you joy and satisfaction, obviously, our money is there to bring us value, bring us joy. And if your work brings you joy satisfaction, it's something you've always wanted to do, then that's another consideration to not leave. If your income is far greater than child care, that's another consideration to not leave. obvious consideration if you're a single parent or the only income earner, you definitely don't want to leave in that situation. Or if you need to buy a house soon or you're going to make

Starting point is 00:13:43 a huge purchase soon, you definitely don't want to leave because those two incomes look better on your mortgage statement. You can get better interest rates, all those things. So if you're considering buying a house within the next year, banks look at your income first. They look at your job, your W-2. That's another consideration to stay working during that time frame. And if you anticipate a pension to be vested soon, that is another consideration as you go through this process. So there's a bunch of things you have to think through when you are considering, hey, should I stay home or should I continue working? And so we're going to show you how to do the math on this, because the math is very, very important. A lot of people only consider one thing. They consider

Starting point is 00:14:17 income versus how much child care actually costs. But the real math is income minus expenses, obviously, minus benefits minus tax breaks. So a couple of things to consider here is the benefits we've already talked about here as we've talking through the show, but your benefits that you have in place at your job. If you were the primary benefit holder, meaning you have the health insurance, you have other benefits that come into play. Maybe you have an extended time off, like you have four to eight weeks time off or even longer that you can utilize because you've been in that company a long time. These are all things to consider because if you get paid for some of these things, then you have this time off in longer

Starting point is 00:14:52 stretches. But also the tax breaks. So child care is a tax deductible event, meaning that if you pay child care, obviously not if you can pay a nanny under the table or something like that, you're not going to get the tax breaks on this. But if you send your children to daycare for it, example, you get a tax deduction on that money that you spend at daycare. You have to consider that number in there because it's significant. Say, for example, you're spending $30,000 per year. And so you got to look at that and say, hey, how much money does this save me per year in taxes as well? So it's income minus expenses and then you got to look at your benefits and the tax breaks as well. And there's other things that you can have in there with the benefits, like a pension. If you have that pension coming soon

Starting point is 00:15:30 and that pension is going to be vested, then it may be worthwhile just staying that extra year to get that pension invested, that way you can actually earn that income throughout your lifetime and have that available to you as well. So think through these four things before you actually make this consideration. And now we're going to jump into the 11 ways that I have that you can save on child care. I remember when I needed to hire someone fast, but finding the right person quickly felt impossible. And if you've ever been there, you know how stressful this can be. That's where indeed comes in. When it comes to hiring, indeed is all you need. Instead of struggling to get your job post noticed, Indeed's sponsored jobs help you stand out and hire faster.

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Starting point is 00:19:13 through some of those as well in the future. So number one is to ask family for help. So a lot of people now are getting their in-laws or their parents to come and actually help and take a day or two to reduce the cost of child care. So for me personally, we had my mother-in-law would come one day every single week for the first two years of my youngest life where she would help. And and reduce that cost of child care so we didn't have to pay a couple hundred dollars every single day for a nanny to come an additional day. And then additionally, down the line, my dad started helping every single week once a week because he was retired. So this is something where you can look at your social circle or you can look at your family and say, hey, would anybody be willing to spend more

Starting point is 00:19:50 time with their grandchildren? It's a great win-win situation where your parents or your in-laws would be able to spend additional time with their grandchildren. And also, you get some great care as well as you go through this. Now, a lot of times this is also helpful if you have emergency situations. Maybe your kids get sick. You can't send them to daycare. Well, this is also helpful to have these folks in the back pocket so that you can have them available because it's super stressful if you've ever had that happen where you can actually go through and make sure that you have somebody available there. Number two is to work from home once a week or look for jobs that allow for a flexible work schedule. So I've seen a lot of people do this now where they have jobs

Starting point is 00:20:27 where they can work from home and maybe they work remotely and get on meetings while their kids are sleeping or napping and one day a week they're able to do that or if you can do that for longer periods of time and get the rest of your work done while they're sleeping at nighttime, that's another way for you to reduce that cost. And a lot of people have started to do that now. A lot of companies have allowed that for folks who have children so that they can go through that process. Number three is look into dependent care flexible spending accounts. So this is a pre-tax benefit account that parents can use to pay for dependent care services like daycare, preschool, and summer camps. So if you're eligible for this, you can actually use this as a tax advantage account. So I would go look this up.

Starting point is 00:21:03 We'll leave a link down the show notes to where you can actually look for more information and see if you're eligible for this account because the tax advantage account is where you can pay the pre-tax money, put it into this account, and then pay for some of these expenses so that you can reduce those taxes up front. Number four, this is one of the negotiation taxes. We tell you all the time here on the personal finance podcast that you need to be negotiating every single bill. So if you have multiple children in daycare, negotiate a lower rate for having those multiple children in daycare. This is a powerful way that a lot of daycare is actually already allowed this. Maybe they'll give you 5, 10% per child that you add on. But if you can negotiate even higher, that's a great way to

Starting point is 00:21:39 reduce some of the costs for daycare every single week. Because if you're paying $35,000 per year and you negotiate down another 10%, you're saving $3,000 every 10% that you negotiate down. So it's really important to be able to do that and do it in percentages, not dollar amounts. Make sure you do it in percentages because you'll save so much more money that way. Think about that. 10% of 35,000. is $3,500 per year. If you can get it even higher, maybe you get it to 20%. You're saving $7,000 per year on that number. So it's really important to negotiate this.

Starting point is 00:22:09 That is one of the most powerful ways that you can do it up front. Anybody can do that. All you can do is ask. And the worst thing they can do is say no. Who cares if they say no? Make sure you at least ask so that you can go through that. Number five is ask your employer about changing your work schedule. So we talked to a number of people who are looking to reduce their child care costs.

Starting point is 00:22:26 And one person said, when my kids were small, I did three to four, 10-hour-day weeks. And so what they did was they worked three or four days per week for 10 hours and reduced their schedule so that they had one day free every single week and they could save money on child care. Just having one day free every single week could save you two, three, four, five hundred dollars depending on how much money that you are spending every single day on child care. Because child care is typically a weekly rate. So if you can reduce some of those numbers down, it's really important to be able to do that. Another way to do this is if you have different schedule. So maybe mom is a teacher.

Starting point is 00:22:59 and works from 6 a.m. to 3 p.m. And dad is a police officer and can work night shifts. Well, if you can do that and make that work, then that would allow you to actually have child care provider all the time and reduce that cost. So this is another way to reduce that cost is to adjust some of those schedules. Ask your employer if you can adjust your schedule so that you can get to that point where you can reduce some of those costs.

Starting point is 00:23:19 Another way to do this is you can check out the Child Care and Development Fund. So this is for low-income families. And this is one where you can go through this fund, see if you qualify and if you do qualify, it helps low-income families cover child care so parents can work or get professional training. So it's called the CCDF. We'll link it up down in the show notes below as well, but it's the child care and development fund. So it's another way where you can get a subsidy to maybe reduce that child care as well. Number seven, if your workplace has daycare, take advantage of that day care. Even if it's one of those things where maybe you don't want to see your kids every

Starting point is 00:23:49 single day while you're at work, it's worth it to take advantage of that so that you can use those dollars to put towards their college fund or towards your retirement or other wealth-building activities. So if your workplace has that, make sure you take advantage of it. Number eight, now this is a creative one. And number eight is one I've seen a lot more people doing is you can try what's called a nanny share. So we have families in our neighborhood. There's a lot of young kids in my neighborhood where I live now. And a lot of folks will do nanny shares, meaning they have one nanny and each household has a child. And they split that nanny and the two children go with one nanny. And they rotate households where they're going to be each and every day. This is a way where you can reduce

Starting point is 00:24:22 costs, especially if you have friends who live close by, or if you have acquaintances who live close by, or there's people in your network who are looking for child care providers. This is a way that you can significantly reduce the cost of a nanny. And obviously if there's two or three kids, you're going to have to pay the nanny a little more than you would for just one child. But at the same time, it's a great way where you can subsidize, pool in money and reduce that cost every single week. It's a very creative way to do that. Another one is to find seasonal daycare options or scholarships. So there's other places like local summer camps, YMCA, and community centers where you can have free child care for seasonal situations, especially in the summertime, a lot of summer camps are going on. So if your kids are in elementary school, maybe you have to pay for after-school care, or if you're looking for ways to reduce child care, or if you're looking for work full-time and your kids are not going to school every single day, then looking for some of those seasonal options is a great way to reduce that child care. Now, if you're in the military, number 10, look for military child care assistance. So there are active duty service members, actually apply for child care assistance if there's no child care provided on base.

Starting point is 00:25:22 So look for that if you are active duty because that's another way that you can reduce that cost for our service members. And then lastly, see if you qualify for the child and dependent care credit. So we're going to link this up down below as well. But if you have a qualifying child under the age of 13 and if you pay for child care so you can work, you may be eligible for this tax credit. So best way to look for this is actually with your accountant or you can talk to a tax pro to look through this, but I will link it up down below so that you can get some more information on this from the IRS. This is another credit that you may be able to get to reduce that cost of child care as well. So these are the 11 ways that we have here. If you guys have any other

Starting point is 00:25:59 ideas, send them over to me. We'll make TikTok's YouTube videos on them so that we can help everybody out and so that each and every person can learn about some additional ways to reduce this massive cost for you. And if this is a massive cost for you, it is still a massive burden. Like I said, having that budget in place is the number one thing to do. Number two is to start to build up some additional funds so that if you lose your work or you lose your job, you still have the funds available so that you can go on interviews and have that child care provided as well. And as you think through this, make sure that you're just thinking through the long-term implications of your career and also think through what brings you joy,

Starting point is 00:26:34 what brings you happiness, because that is what money is there to do. And if your career brings you joy and happiness, then utilizing it so that you can continue on in your career is another powerful thing that you can do with your dollars. Listen, I hope you guys enjoy this. and you learned a ton of different information about how to reduce your cost and child care. Again, if you guys have any questions, make sure you hit us up on Instagram, TikTok, at Master Money Co. And don't forget to leave that five-star rating and review. I truly appreciate each and every single one of you doing that. It is one of the best things that I get to read every single week.

Starting point is 00:27:01 So I appreciate each and every single one of you. Thank you so much for listening to this episode. We will see you on the next episode.

The Personal Finance Podcast - The Insane Cost Of Childcare and Ways to Help Reduce That Cost!

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