Childcare costs in the United States have been steadily rising over the past decade, causing financial strain for many families. According to the Economic Policy Institute, the average cost of childcare ranges from $5,436 to $24,243 a year, depending on where you live.1
This expense has made it increasingly difficult for many parents to strike a balance between work and family life. But with some planning and smart budgeting advice, you can better prepare for the childcare costs that American parents face. Read on for insights into various options and strategies to manage this financial burden.
The Importance of Affordable Childcare
Affordable childcare is not only essential for working parents, but also critical for the overall economic well-being of the nation. Quality childcare enables parents to maintain their employment, contribute to the workforce and advance their careers. It also plays a crucial role in a child's early development, fostering social, emotional and cognitive growth.
Your Childcare Options
Finding affordable quality childcare can be a difficult task, especially with so many childcare options available. For example, in-home care from a nanny costs an average of $736 per week.2If you opt for care outside the home at a childcare center or with a family childcare provider, prices vary significantly depending on the services offered, the location and the qualifications of the provider. Do your homework to find the right childcare option for your family.
Government Assistance Programs in the U.S.
The government offers several assistance programs to help eligible families manage the cost of childcare. These programs can help alleviate the financial burden on parents.
Childcare subsidies
Childcare subsidies are financial aid programs that help low- and moderate-income families cover the costs of childcare. Eligibility is typically based on factors such as income, family size and the number of children needing care. The application process can vary by location, so check your state's specific requirements.
Subsidies are also available to members of the military and the U.S. Department of Defense, including fee assistance for in-home childcare costs.3 Check with your branch of service to see if you meet eligibility criteria.
Maximizing benefits
To maximize your childcare subsidy benefits, it's crucial to provide accurate information on your application, ensure you meet all eligibility criteria and promptly renew your subsidy when required. Keep in mind that subsidies often have income thresholds, so any changes in your financial situation can impact your eligibility. Be sure to also negotiate with your childcare provider to see where savings can be made, and ask for sibling discounts, if applicable.
Tax Credits
If you've paid someone else to care for your child while you work, you may qualify for tax credits and deductions.
Child and Dependent Care Credit
The Child and Dependent Care Credit is a federal tax credit designed to help families offset some of the expenses incurred for childcare. This credit can cover up to 35% of qualifying childcare costs, depending on your income and the number of children who need care.4 It's essential to keep accurate records of your childcare expenses to claim this credit successfully.
Earned Income Tax Credit
The Earned Income Tax Credit offers a financial boost to working families with low to moderate incomes. While it doesn't directly cover childcare costs, it can significantly increase your overall tax refund, providing extra funds that can be allocated toward childcare expenses.
Head Start and Early Head Start Programs
Head Start and Early Head Start are federal programs that provide comprehensive early childhood education, health, nutrition and family support services for low-income families. These programs aim to ensure that children are ready for school, and they often include free or low-cost childcare options. Eligibility is typically based on income and enrollment, and can provide a valuable resource for qualifying families.
Creating a Childcare Budget
Managing childcare costs effectively starts with creating a well-structured budget. Here are some tips to help you get started:
Evaluating income and expenses
To create an effective childcare budget, begin by assessing your monthly income and all expenses. This includes not only childcare costs, but also other essentials like housing, utilities, groceries, insurance and transportation.
Understanding your financial situation as a whole can help you allocate resources appropriately. Costs fluctuate during the year; the added costs of birthday gifts, holiday travel and summer camp can be easier to manage if you plan ahead by putting away a small amount of money every month. Automating your savings can help!
Setting realistic financial goals
Once you have a clear picture of your finances, set specific and achievable financial goals. These goals should include saving for childcare expenses, building an emergency fund and planning for your child's future needs, like further education and extracurricular activities, including sports, camps or tutoring.
Utilizing Synchrony Bank Accounts
Synchrony Bank offers a range of savings products that can assist you in planning for childcare expenses and achieving your family's financial goals. Learn more about the different types of savings accounts available, including:
- • High yield savings account: Benefit from a competitive interest rate, allowing your savings to grow over time. Consider automating your savings by setting up automatic transfers to your high yield savings account to ensure you consistently set aside funds for childcare costs.
- • Certificate of deposit (CD): For expenses further down the road, a CD offers higher interest rates for funds you won't need to access in the short term.
- • Money market account: For everyday childcare costs, a money market account offers easy access to your money at an attractive interest rate.
The Bottom Line
As your child grows, your childcare needs may evolve. Be prepared to adjust your budget accordingly to accommodate changing expenses. Regularly reviewing your financial situation and making necessary adjustments can help you stay on top of childcare costs.
By understanding the various childcare options available, making use of government assistance programs and implementing effective budgeting strategies, families can navigate this financial challenge successfully. Remember, it's not just about managing the cost of childcare—it's about securing a brighter future for your whole family.
Fiona Tapp is an award-winning writer. Her work has appeared in The Globe and Mail, The Washington Post, The Atlantic, The Sunday Times and others.
READ MORE: Types of Savings Accounts for Kids and How to Get Started
Sources/references
1. Child care costs in the United States. Economic Policy Institute. October 2020.
2. Leung, D. 2024 nanny pay rates: How much should I pay my nanny? Care.com. December 15, 2023.
3. Child Care in Your Home Fee Assistance. Child Care Aware of America. August 8, 2023.
4. The Ins and Outs of the Child and Dependent Care Credit. TurboTax. October 19, 2023.
