There's no question that kids are expensive. The average cost to raise a child until age 18 is over $245,000, and that doesn't even include college. And while you'll spend a lot during those early years, there's one cost associated with having kids that might really cause your budget to unravel: child care. According to a survey from Care.com, more than half of Americans spend upward of 10% of their household income on child care, and 20% claim to spend 25% of their income or more.
So just how much does the average American spend on child care? Here's a rundown:
- The average cost of day care per child, per week is $196. This means that a family with just one child at a full-time day care center pays $10,192 a year.
- The average cost of an after-school babysitter is $214 per week. The average family that uses an after-school sitter therefore spends roughly $7,700 per year, assuming a 36-week school year.
- The average cost of a nanny is $556 per week. A typical family that pays a nanny for 52 weeks a year will spend a whopping $28,900 on child care over the course of a year.
Not only are Americans spending a ton on child care, but their costs are going nowhere but up. About 40% of parents have had their child care costs increase by $1,000 or more per year, while 15% claim their costs have risen by $5,000 or more per year. In fact, the cost of child care is so astounding that over 20% of those surveyed say it drove them to hold off on having kids. Meanwhile, 25% of parents have gone into debt in order to pay for child care. But while these numbers might paint a pretty scary picture, there are things you can do to ease the financial burden.
Take all the tax breaks you can get
One way to offset the cost of child care is to take advantage of the tax benefits that may be available to you. The child tax credit, for example, gives you $1,000 per year, per child up until your kids reach 17. The catch, however, is that this credit starts to phase out when you earn more than $75,000 as a single tax filer and $110,000 as a couple filing jointly.
There's also the Child and Dependent Care Credit, which lets you claim up to 35% of the cost of qualifying child care expenses, up to a maximum of $3,000 for one child under 13, or $6,000 for two or more children under 13. Keep in mind, however, that only low earners will get to claim that full 35%. Those earning $43,000 a year or more can only claim 20% of their expenses.
Sign up for a dependent care flexible spending account
Another way to make the cost of child care more manageable is to use pre-tax dollars to pay for some of your expenses. If you're a single parent or a couple filing your taxes jointly, you can put up to $5,000 a year in a dependent care flexible spending account (FSA) to cover the cost of eligible expenses like day care. (If you're married but file separately, you're limited to $2,500 a year.) Like a healthcare FSA, a dependent care FSA works on a use-it-or-lose-it basis, so if you put $5,000 aside for child care but only spend $4,000 over the course of a year, you'll forfeit $1,000. But given the average cost of child care, it's not a problem you're likely to run into as long as you plan accordingly. And if your effective tax rate is 25%, you can save $1,250 a year by maxing out your dependent care FSA.
Start planning before you have kids
Because child care is so expensive, it's a good idea to start saving for it before you even have children. In fact, Care.com found that 92% of the parents it surveyed began budgeting for their kids while they were still pregnant. If you set aside money in advance, you'll have an easier time coping with your newfound expenses once the time comes to start paying those day care, babysitter, or nanny fees. You can either set up a separate account earmarked for child care costs, or add whatever extra money you save to your emergency fund. It's also a good idea to start researching child care options in advance so that you have a game plan by the time your little one arrives. Using a day care center versus a nanny can make a huge difference in helping you budget.
No one ever said having kids would be easy, and paying for them is certainly no picnic. But think about it this way: Before you know it, they'll be all grown up and out of the house, and when that happens, you'll long for the days when diapers and day care monopolized so much of your money.