New parents face many new worries, including about finances. Buying the crib, the clothes, and the diapers are the least of it. Today, most parents’ biggest initial concern is who is going to be there around the clock to care for the baby. For couples who have built their lives based on two-incomes and single parents who have no real option other than to work full-time, this question create more sleepless nights than even the most colicky infant.
Why Is Daycare So Expensive?
People are often shocked to learn just how expensive daycare is, and the media presents daycare costs as an outrage. Take this from a Yahoo news story, “What To Do When Daycare Costs More Than College”:
‘It’s the highest single household expense in most regions of the country,’ says policy advisor Michelle McCready of Child Care Aware America, a childcare advocacy group. In a recent report, it found that childcare can cost as much as $14,508 a year for an infant, or $12,280 a year for a 4-year-old in a center. More disturbing: It found that in 31 states across the country, it costs more to send your infant to daycare than it does to send your child to a public university.
Those are big numbers that naturally cause anxiety for many parents: Just when you are supposed to start saving for junior’s college education, you also have to fork over a thousand dollars a month to a daycare center.
Yet, approached from a different perspective, these numbers don’t seem so shocking or unreasonable. Taking care of a young child, particularly a baby, is a lot of work. Babies need frequent feedings and changings, to be held and talked to when they are awake and engaged, and comforted when they cry.
How many babies could you care for at once? I’m sure there’s a steely mother of septuplets out there who heroically managed to care for her brood on her own, but most people would say three or four babies would be the most they could handle. Daycare centers may have strategies for greater efficiency: Perhaps three caretakers can handle more babies together than they could separately, or a center could group a young baby with a few toddlers who require less hands-on care.
But the principle remains: Babies and little kids need lots of someone’s attention. All that time is valuable. That means it is also expensive. In fact, it shouldn’t be surprising at all that childcare costs more than college since college students don’t—or at least shouldn’t—need such focused attention and pampering.
Certainly, government policy makes daycare, like any business, more expensive than it needs to be: In addition to normal business operating costs and obtaining adequate liability insurance, childcare centers must comply with often stringent state regulations. States create rules for the maximum children-per-caregiver ratio, how much space must be available per child, and what daycare center facilities must include, all of which can have a big impact on costs.
As Jordan Weissman wrote in The Atlantic, “in Massachusetts, where childcare centers must hire one teacher for every three infants, the price of care averaged more than $16,000 per year. In Mississippi, where centers must hire one teacher for every five infants, the price of care averaged less than $5,000.” Streamlining these regulations would help bring down costs and encourage more providers to enter the childcare arena. Yet childcare will never be cheap and, really, it shouldn’t be.
Who Should Pay Childcare Costs?
Alarmism about daycare’s high cost isn’t really about the actual price tag so much as who has to pay it. After all, if you use Child Care Aware America’s highest estimate, then a daycare provider taking in three babies receives $43,500 per year. That has to cover the cost of paying someone to care for those babies plus overhead expenses. That doesn’t sound like much of a fleecing.
The real issue is that, in the United States, parents are, for the most part, expected to foot the bill for childcare on their own. Americans often hear that high-quality childcare is inexpensive throughout Europe. But the big difference isn’t in the actual cost of care in the European Union, it’s that most EU governments heavily subsidize daycare, leaving parents to pick up only a small share of the bill.
Many Democrats and some Republicans want America to move closer to that model, either by increasing government subsidies for childcare centers or by giving parents tax breaks to reduce their childcare costs. In both cases, the goal is to allow the childcare providers to continue to charge the same amount, but to reduce parents’ out-of-pocket burden.
Yet Americans should be wary of this cost shifting. A strong case can be made that parents deserve tax relief to ease the financial strain associated with raising the next generation. But focusing that support solely on those who use formal daycare programs would be unfair to the millions of parents who have different preferences for their families.
Let Parents Decide Childcare
Not all parents want to use formal daycare centers. In fact, when parents are surveyed about their ideal options, daycare centers usual rank at the bottom. For example, when the research firm Public Agenda asked parents of children under age five about the best childcare arrangement, 70 percent thought it was best for one parent to be at home. Just 6 percent thought a quality daycare center was optimal. More than seven-in-ten parents agreed with the statement, “parents should only rely on a daycare center when they have no other option.”
Parents’ actual behaviors confirm these preferences. According to the Census Bureau, in 2011, less than one-quarter of children under age five were in an organized daycare facility. About 60 percent of children under five spent some time in an alternative childcare arrangement, but most of that care was provided by a relative.
Targeting subsidies to paid, licensed daycare providers would change the calculations families make and discourage the use of family and informal care. Today, a grandparent may volunteer to look after a new baby so a parent can go back to work, but would be less likely do so if there were a “free” daycare alternative. Friends may exchange babysitting to cover different times or days. A stay-at-home mom may take in a couple of friends’ kids, earning money while also creating a loving, lasting relationship with those children. All these arrangements are less likely to happen if formal daycare becomes more highly subsidized.
Parents—particularly those with lower incomes—could use help in making ends meet while raising children. Society also has an interest in children receiving reliable, high-quality care and parents remaining financially stable. Daycare can play an important role in that process by enabling parents to continue working while their children are cared for. Certainly we want daycare to be affordable for those who must buy it to make ends meet.
Policymakers should therefore consider how regulations and tax policy raise the cost of operating a childcare business. To the extent possible, regulations should be streamlined so that a greater variety of businesses can open and parents can have more—and more affordable—options. Government can also help parents without skewing their decision-making by providing across-the-board tax relief to parents. That support can be further targeted to help working families with modest incomes and young children, who are likely to feel the most financial pressure.
With more money in their pockets, parents could better follow their preferences, whether that’s paying a formal daycare provider or keeping a parent at home. After all, we don’t just want to make childcare centers less expensive, we want to make having children and raising a family more affordable for everyone.
Carrie Lukas is the Managing Director at the Independent Women's Forum