10 Surprising Facts and Figures About Child Care Costs

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Bringing a child into the world should be a cause for celebration. And for many people, it is.

But as millions of new parents find out every year, it's not enough to buy the diapers, put together the crib, set up the nursery and start saving for college. That's because across the board -- in single-parent to dual-income households -- the sky-high costs of child care are often overlooked.

Recently, I interviewed Donna Levin, co-founder and vice president of operations at Care.com (CRCM), a company that helps connect caregivers with those looking for a helping hand. A Care.com survey on child care preparedness and its review of prior literature reveal a lot that expectant parents need to know -- but probably don't. Here are 10 surprising realities.

1. Child Care Costs Are Often Ignored

Only 58 percent of expectant families create a child care budget before their baby is born. And even those who do have a budget don't do a great job of using realistic numbers. In the end, 75 percent of families interviewed said that they were "surprised or overwhelmed" by the cost of child care.

2. Ignoring These Huge Costs Is a Big Mistake

According to Childcare Aware of America, the cost of child care for two children in a center-based care facility was the largest family expense per year in every region except for the West (where household costs were slightly more). Averaged across the four regions, such care runs just over $18,000 a year.

3. It's Like Paying for College -- Twice

Childcare Aware of America compared the average costs of an infant in a child care center to the average costs of in-state tuition and fees at public colleges throughout the United States. In the states shaded blue below, the costs of child care trump tuition and fees.

Source: Author's illustration of Childcare Aware of America data.
4. Costs Vary Dramatically by Type

Care.com broke down the average nationwide costs of four types of child care. Yearly expenses for one infant:
  • Family child care program: $6,604.
  • Day care center: $9,672.
  • Au pair: $18,720.
  • Nanny: $24,544.

5. Costs Vary Widely by Location

To control for differences in the costs of living, the graphic below shows how much of the average married couple's median income is spent on infant child care a year.

Source: Childcare Aware of America
6. Care is Far, Far Cheaper Outside the City

Like most things, child care is more expensive in cities than in rural areas. Unlike other goods and services, however, the difference between the two is remarkable. For instance, in Oregon and Hawaii, the average cost of care for an infant is more than twice as expensive in urban areas as it is in rural ones.

If each state that reported figures were weighed equally, the cost of caring for an infant is 35 percent more in urban areas nationally than rural ones.

7. Your Employer Wants to Help You With Child Care

"Almost two-thirds of employers found that providing child care services reduced turnover," the Childcare Partnership Project said. And a study by the Childcare Action Campaign found that U.S. companies lost $3 billion annually, "as a consequence of child care-related absences."

8. The Help Is Appreciated, but Not Necessarily Well-Used

A whopping 83 percent of parents who use employer-sponsored child care benefits say it helps reduce stress and improve work-life balance, according to Care.com. The problem is that only 31 percent of employees take advantage of Flexible Spending Accounts to help defray costs.

Other forms of assistance are also offered -- like on-site day care, reimbursements or memberships to services like Care.com -- but 76 percent of employees don't have access to it.

9. More Than Half of American Families Get Tax Breaks

More than half of U.S. families take advantage of some sort of tax break. FSAs allow employees to put away up to $5,000 in pre-tax dollars for child care. If your employer doesn't offer an FSA, then you can use the Child Care Tax Credit, which helps offset the costs of up to $3,000 for one child and $6,000 for two or more.

10. 'Free' Caregivers Play a Large Role

According to Childcare Aware of America, 32 percent of children under 5 receive at least some supervision from grandparents during a typical week. Ten percent regularly get care from another relative, and 5 percent get care from friends or neighbors. There are other creative ways to reduce the costs of child care.

Motley Fool contributor Brian Stoffel and the Motley Fool have no position in any of the stocks mentioned. Try any of our newsletter services free for 30 days.

10 Signs Your Kid Could Be Headed for Financial Failure
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10 Surprising Facts and Figures About Child Care Costs
"We're living in the 'now' generation, with kids wanting everything now and a lot of parents giving in," says Dan White, a certified financial planner with Dan White and Associates in Glenn Mills, Pennsylvania. But there's a difference between simply wanting the shiny new thing because it's out there and desperately needing the shiny new thing because not having it has larger consequences in your teen's mind.

"Sometimes teens feel that if they don't have the latest and greatest gadget, they won't be popular or fit in," says Kimberly Foss, a certified financial planner and president of Empyrion Wealth Management in Roseville, California. "This is reflective of a deeper issue of self-worth and self-esteem."

The prevention: Foss recommends asking in a calm, non-emotional environment about the reasons they made the purchases and listening to the response and watching the body language. Counseling may be in order if you feel your teen is compensating for a bigger emotional issue, Foss says.

If it's just a case of your teen wanting the next newest thing, White recommends establishing an allowance and saying no to your kids when they ask for more.
According to a recent Gallup Poll, 68 percent of American adults do not have a detailed monthly household budget. Kids who don't see their parents paying attention to the family's inflows and outflows are going to have to cram in later life to learn those important lessons -- in real time, with their own real money.

The prevention: Kids should learn the concept of budgeting for life's expenses before they go to college, advises Ric Runestad, owner of Runestad Financial in Fort Wayne, Indiana. Establish your own budget and share it with your kids. Have your children make their own budget for things like vacations and summer camp.
"The odds of winning the lottery is somewhere around 1 in 259 million," says Gregg Murset, a certified financial planner and CEO of MyJobChart.com in Scottsdale, Arizona. "If your child thinks this is a good way to plan for the future, just start planning now to have them living with you during your retirement."

The prevention: Make sure you're quickly correcting your kids whenever they mention a lottery ticket or windfall. (Search "odds of winning the lottery" for even more colorful examples.) Explain the importance of saving and working hard to fulfill their future dreams.
It's one thing if your child asks to borrow a few dollars to buy something and pays it back immediately when you get home. "However, if a child starts to treat their parents as a payday loan service, then the parents should act as a payday loan service by charging expensive rates of interest," Runestad says.

The prevention: Reinforce the "If you want it now, you have to pay for it now" behavior by instituting a realistic interest rate on borrowed money. Take a cue from the credit card industry and set it around 15 percent. Run the math with your child and show how much more an item costs in the long run when it is paid for with borrowed dollars.
Does your child assume (unrealistically) that he or she will replicate your lifestyle when it's time to be on their own? Here, again, there may be a communication breakdown. "It's important for parents to assess their own behavior and guide the child in the right financial direction," says Eric Johnson, principal of Signature, a wealth management advisor in Charlottesville, Virginia. "If they're spending lavishly and telling their children to save, there will be a large disconnect in the child being able to form solid monetary values on their own."

The prevention: Talk early and often about your money values and reinforce the idea that your wealth may not be a signal of your child's future lifestyle.
"Children can be every bit as gullible as adults when it comes to trying to help someone out who really is just taking advantage of them," says Runestad. "Everyone wants to be liked, and we all have times we need someone to lend us some money. However, any time money is lent it should be under very stringent requirements."

The prevention: You can't always know about your child's private financial dealings. But you can instill in them standard expectations when it comes to money issues by consistently following certain money rules when they come up at home. So, when you lend money to your child, remind them that you are not in the debt forgiveness business and you expect full repayment of the loan by a certain date. Consider drawing up a standard fill-in-the-blank lending document for all parties to sign.
"While piggy banks can be a cute way for a youngster to learn about nickels and dimes, what purpose do they serve after that?" asks Murset. "If your kids are old enough to earn money, they're old enough for their own bank account."

The prevention: Open a bank account with your child, walk them through the process of making deposits, teach them about online banking and earning interest. There's no better education about the adult world of finances than actual hands-on experience with the products they'll be using for the rest of their lives.
"Some kids think that credit cards represent free money that banks give away for people to buy things," says Murset. "Until your children have a clear understanding of how cash advances work and what interest rates, penalties and fees mean, they shouldn't have one."

The prevention: Teach your kids the difference between a debit card and a credit card as you use them. When they are old enough, get them a pre-paid credit card. Fund it with their allowance or savings, and give them room to make their own mistakes (such as running out of money because they weren't keeping track of the balance). Better that they learn the lessons of proper plastic usage under your watch.
If your kids spend more time watching TV or playing video games than helping around the house, they're not developing a sense of responsibility, says Murset.

"Get your children off the couch and out of their rooms to do their share around the house," he says. "Besides building a daily routine, they'll develop a good work ethic."

The prevention: Not all chores should be equated with payment. Helping around the house is simply part of what family members do. However, certain chores and work above and beyond the basics can be linked to extra payments. As your kids develop a work ethic, they'll start to learn that doing a good job and taking on more work can be satifying both financially and emotionally.
"Young adults are made to believe that once they graduate college they'll be able to pay off their student loans quickly," says White. "That couldn't be further from the truth. An average student takes a minimum of 10 years to pay off an undergraduate degree."

The prevention: Together, as a family, go over all of the costs of higher education -- everything from tuition to room and board, meals, gas money, and airplane tickets home for the holidays. Together, discuss ways to cut costs. And make sure your kids are exploring every opportunity and avenue for covering college expenses before they commit to a large loan, says White.
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