What Child Care Costs Mean for You and Your Family

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Alamy Politics aside, Hillary Clinton was right: For most of human history, it usually took a village (or a tribe) of people to raise a child. Humans are social creatures: Though moms and — to a lesser extent — dads shouldered the major tasks of child-rearing, the support of the community played a huge role. Meals were cooked, kids were looked after, and social groups helped ensure the safe upbringing of the young.

Today, that same societal structure isn’t anywhere near as prevalent. In its place are long waiting lists and sky-high costs associated with putting a child in day care.

How expensive has this gotten? If you lived in Washington, D.C., in 2011, putting your infant in a child care center would have cost $388 per week — or more than $20,000 for a full year. Of course, I’m cherry-picking one of the most expensive locales, but it highlights a nationwide trend. In fact, in every region of the country except for the West, a family with two children in child care spent more for their kids to be looked after than they did on all housing costs combined.

If you’re expecting, or already have children, here are some key trends to keep in mind when deciding what to do when it comes to looking after your kids.

Location, Location, Location

This is the mantra of just about every real estate agent, but the same could be said of child care providers. For instance, full-time child care for an infant in Mississippi averaged $4,600 per year in 2011, but was $15,000 in Massachusetts.

But the difference in absolute dollars doesn’t mean much when you consider that the average salary in Massachusetts is higher than what it is in Mississippi. Instead, here’s a look at the five least and most expensive states to have an infant in center-based care, as a percentage of median family income.

Source: Child Care Aware of America, 2012 Report.

Even within states, however, there are big differences. And no variable seems to be more important than — you guessed it — location. But this time, instead of talking about different states, we’re referring to the difference between living in an urban or suburban community (defined as near a city center of at least 50,000) and a rural one.

The most extreme example would be in Oregon, where the cost to put your infant in a child care center in an urban area is more than twice as expensive as it is in a rural area. But Oregon isn’t alone:

How Much More Expensive Is Urban Care vs. Rural Care?

Source: Child Care Aware of America, 2012 Report.

Is It a Better Option to Quit Your Job and Stay at Home?

When confronted with such costs — and endless waiting lists — many parents are faced with the difficult decision of whether to continue working or to take a few years off to care for their children themselves.

Of course, finances alone aren’t the only consideration; for many people, their work is an intrinsically rewarding experience that goes beyond just earning a paycheck. But because one’s approach to their work varies from individual to individual, let’s just focus on the dollars and cents of such a decision.

One very important matter to be aware of is a federal tax credit available to families who have to pay for child care. The credit is good for up to 35 percent of your child care bill with a limit of $3,000 for one child and $6,000 for two or more children.

Let’s take the most average state from our data set — Iowa — and see when it makes more financial sense to stay at home.

Two Working ParentsOne Working ParentAvg. Two-Parent Income$75,581$37,790Approx. Income after Taxes$64,770$35,621Cost of Infant Care (for one)($8,859)$0Tax Credit$3,000$0Left With$58,911$35,621Sources: Child Care Aware of America, 2012 Report, IRS, Bankrate.com.

As you can see, in this example, it still makes far more financial sense to have both parents working.

But oftentimes, there’s more than one child at home. In fact, let’s assume there are three. And instead of assuming that both parents earn the same amount, let’s assume the wife makes 77 percent of what the husband makes — which reflects societal norms. How might that change the equation?

Two Working ParentsOne Working ParentAvg. Two-Parent Income$75,581$42,701Approx. Income after Taxes$64,770$35,621Cost of Infant Care (for three)($26,577)$0Tax Break$6,000$0Left With$44,193$39,167Source: Child Care Aware of America, 2012 Report , IRS, Bankrate.com

Even though it still makes financial sense to keep working, the numbers are much closer. Factor in the costs of buying formula and transportation, and you might easily find that staying home is just as good an option.

One thing to note here is that these are incredibly simple calculations, only taking into consideration personal exemptions and standard deductions for filing jointly. In the end, running your own numbers is the only way to know what financially works for you.

Brian Stoffel is a contributing writer to The Motley Fool.

Categorized as Careers

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