Creative Ways to Reduce the Cost of Child Care

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Diapers: check. Stroller: check. Onesies: check. You're all set for your baby, right? But what about child care?

A recent survey by, a website for finding and managing child care, found that 75 percent of American families say they were "surprised or overwhelmed" by the cost of child care and 42 percent) don't budget for it. According to the company, the average family spends approximately $18,000 per year on child care -- often their single largest expense.

Sheila Lirio Marcelo, founder, chairman and CEO of, says for many families, child care accounts for a bigger portion of their income than their food and housing. "According to our research, the average family spends 18 percent of its income on child care," Marcelo says. But new parents may not know the scope of expenses they need to budget. What's more, the survey found that 52 percent of families aren't aware of tax breaks for child care expenditures.

Resources for Child Care Costs

The best budget for all things -- especially big expenses like child care -- is an accurate one. The first step, says Samara Gonzalez, a certified credit counselor with ClearPoint Credit Counseling Solutions, is to research cost ranges for different types of child care in your area. "Sometimes this involves word-of-mouth as well as calling around to get a sense of the costs," says Gonzalez.

Those costs may seem overwhelming, but there are resources that can make them more manageable. Employee benefits, tax breaks, and subsidies can reduce your out-of-pocket child care expenses, but you need to search for them.

  • Flexible Spending Account. If your employer offers an FSA ,you can set aside up to $5,000 of your salary before taxes to use for child care expenses. "This simple step saves the average family about $2,000 per year," says's Marcelo.

  • Employee benefits. Look into your options for on-site day care or a flexible work schedule to reduce your child care costs. Marcelo says you should ask your employer's human resources department about possible benefits, such as child care reimbursements and resources to help you find a nanny or back-up care.

  • Child care tax credit. "If your company doesn't offer an FSA, you can still get the child care tax credit, which lets you itemize up to $3,000 in expenses per child, per year on your tax return up to an annual cap of $6,000," says Marcelo. You can find out more information about the tax credit on the IRS website.

  • Subsidized care. Depending on your income level, you may qualify for subsidized care. Ask providers if they offer fees based on your income.

Types of Child Care

While nannies, au pairs, day care centers and in-home day care centers are among the most common methods of child care, parents can devise alternatives.

Some parents rely on friends and family who are retired or unemployed; others are able to work out a flexible schedule or telecommute to reduce or eliminate child care expenses, says Rebecca Gershowitz, a counseling manager at ClearPoint. Another option is to look into sharing child care services -- such as a nanny -- with other parents. "Others may barter for skilled services they can provide, such as hairdressing or carpentry," she says. "They may also employ church-operated day care centers and schools in order to take advantage of need-based financial assistance."

If you're thinking of a more traditional child care system, here are some pros and cons:

  • Nanny: Nannies are professional caregivers who come to your home and plan activities specific to your kids, but this tends to be the most expensive option, says Marcelo. "You should definitely do the math, though; when you have two kids, a nanny might be the cheapest option," she says.

  • Au pair. Marcelo says an au pair works best for older children, since these tend to be young people from another country with varied experience with kids. She says an au pair from an agency will generally cost you $360 per week as a stipend, plus room and board.

  • Day care center. This can be more affordable than having someone in your home, but the downside is that your child gets less attention and you'll have less flexibility.

  • Home day care providers. Marcelo says home day care, where one or more caregivers watch a small group of kids in their home, can be the most affordable option for families. She recommends that you check out the program to be sure it is state accredited.

"The in-home vs. day care facility was the biggest decision I had to make when I had a child," says Gershowitz. "For those who opt for in-home day care, there are other challenges, such as that many are not tax-deductible. Also, if the provider is sick, you're stuck scrambling to find someone else to care for your child for the day. Some facilities provide temporary care for the day, but that's often pricey. One I checked into was $70 a day. Or you have to call out from work and lose income if you don't have vacation time."

One of the most cost-effective ways to provide child care is to organize a babysitting co-op with other parents. She says some ClearPoint's clients have found it more lucrative to start a day care business rather than return to a traditional job.

Finding the right child care is not just a financial decision, but an emotional and lifestyle one as well. Researching your options and determining what's realistic for your budget will help ensure that the decision you make is the best one for your entire family.

Michele Lerner is a Motley Fool contributing writer.

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