The High Cost Of Childcare – How To Plan For It

Andrew @ She Think's I'm Cheap

12 years ago

As parents with young children will tell you, daycare is expensive. It’s especially costly if you have two small children who aren’t school age yet.

As more and more families are dual income these days, young families need to know what options are available to them for childcare so they can manage their finances accordingly.

The Issue Of Childcare

If both parents are employed full time, kids aged 1-4 need to be taken care of before they enter the public school system. For many families with two children in this age range, it may be difficult to make ends meet.

To explore this problem, let’s use an example:

Two children are born two years apart and both parents work full time.

Daycare

The first option is to send your two children to daycare full time. Here is a table illustrating daycare costs for two children born two years apart.

In this example the mother stays home during the first year of birth then goes back to work. At the end of year six, both children should be in the public system thanks to full day kindergarten.

	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
Child 1	Child born mother stays home	Daycare: Infant (6 months) Toddler (6 months)	No daycare, mother stays home	Daycare: Preschool: 1 year	Full day kindergarten	Kindergarten
Cost	None	$16,400	None	$10,700	None	None
Child 2	NA	NA	Child born mother stays home	Daycare: Infant (6 months) Toddler (6 months)	Daycare: Toddler (6 months) Preschool (6 months)	Daycare: Preschool: 1 year
	None	None	None	$16,400	$16,400	$10,700
Total	None	$16,400	None	$27,100	$16,400	$10,700

The total cost over six years for two children born two years apart in this scenario is $70,600!

*The above numbers are based on a year with 243 working days (253 – 10 vacation days)
**Costs were calculated using the city of Toronto “mid range” fees of $76 for infants, $60 for toddlers and $44 for preschoolers per day.

Home Based Daycare

A home based daycare may be more cost effective than one run out of a larger facility. Prices vary widely based on several factors such as program and location. One home based daycare I ran across costs $13,500 per year for a toddler.

Employer Provided Daycare

Some employers provide daycare as part of their benefits package. A previous employer of mine provided emergency day care services for a few days per year. Be sure to consult with your employer to find out what child care options might be available.

Live in Nanny

For many families, a live in nanny could be an option. At approximately $1,600 per month a live in nanny would be paid $19,200 per year plus taxes.

From the table above it would make sense to hire a live in nanny for year four. However in subsequent years as daycare costs decrease, the cost for the nanny would not offset the daycare costs.

Keep in mind however that a live in nanny may provide more services than a normal daycare program. They may perform housework such as cleaning, preparing meals, picking up or dropping kids off at school, etc. The additional funds spent may well be worth it.

Live Out Nanny

At around $2,000 per month ($24,000 per year), a live out nanny is a more expensive option since they will need their own accommodation.

Grandparents

Grandparents usually love to take care of the little ones and are a source of relief for couples who need some alone time. Grandparents may consider taking care of the kids for an extended period of time, say a couple of weeks, but counting on them to replace structured programs is probably not an option.

One Parent Stays Home

One option that many families opt for is to have one parent stay home. Classically this has been the mother but these days the father may want stay at home!

In the example above, year 4 is the most expensive year with daycare costs over $27,000. In the event one spouse makes less than $31,000 per year before tax ($27,000 after tax) it may make sense financially for that person to stay home with the kids.

Not only are there financial savings to be had but the kids are getting to spend more quality time with their mother or father. Keep in mind that if you have three children, the case for a stay at home parent gets stronger.

Regardless of what the numbers say, staying home to raise children is a very personal and emotion decision.

***Childcare expenses are tax deductible up to a certain amount. More details are available here.

What’s Best For Your Family?

While there isn’t a specific solution to the double daycare dilemma and the general high cost of childcare, there are many ways to tackle the problem.

It will come down to family circumstances, incomes and the amount of time you want to spend out of the workforce.

One way to lower the impact of high childcare costs is to plan for it. You could set aside a percentage of your income each month to begin building a cushion for this a couple years in advance.

If you are already dealing with high costs, sit down and map out what those costs will look like in the future and adjust spending on discretionary purchases accordingly.

Remember that the high costs of having two children in daycare will diminish eventually and your finances can then take a breather. Don’t relax too much though because you’ll then need to start saving for their University or College education!

Andrew Martin is a personal finance and investing blogger from Toronto, Ontario with a background in technology and a passion for travel. His blog, She Thinks I’m Cheap aims to help Canadians make more money by sharing facts, stories and advice.