The Rising Cost of Child Care

As the pandemic slowly recedes and more workers return to office, parents are finding the costs of child care services straining their wallets.

Our colleagues in Goldman Sachs Research analyzed Google search volumes for “nearby child care,” which dipped sharply as the pandemic took hold and rose almost as sharply when the vaccines came out. This leading indicator has been above pre-COVID averages for each month this year so far, signaling rising parental interest and demand for enrolling their children in child care.

Along with the rise in interest has come a rise in costs. Increasing demand, the effects of general inflation on provider costs, and industry labor issues (that began during the pandemic) all have a part in driving this upward trend. 

How much are families spending on child care?

If you’re a parent paying for child care, it may seem like one of the most expensive items in your budget. Because it probably is.

In three out of four regions of the country, annual center-based infant care expenses exceed the cost of housing. In every region, they top the annual cost of in-state tuition at a public four-year university by a substantial range ($9,702 - $13,878).

The 10th annual Care.com 2023 Cost of Care report revealed other eye-popping statistics.

• Child care is not “affordable” for most parents. According to the US Department of Health and Human Services, child care is considered affordable when it costs families no more than 7% of their household income. However, the average amount parents spend today on child care is 27% of household income. Sixty-seven percent of parents surveyed are spending 20% or more of their income on care (up from 51% in 2022).
• In dollar terms, 79% of families say their child care costs will top $9,600 per child this year ; 59% are paying over $18,000 per child.
• Rates have soared over the past decade. The weekly cost for a babysitter is up 92% on average. Day care has risen 53%. And nanny costs are up 56% since 2013.

Why are child care costs rising?

The Consumer Price Index published by the Bureau of Labor Statistics shows a clear increase in child care costs over the past 12 months.

As in most industries, the causes are related to unbalanced supply and demand.

As our Research colleagues noted, demand for child care is increasing. According to Care.com, many parents cite changes in work hours, new responsibilities at work and changes in work location as reasons for needing more or different child care.

Our colleagues also analyzed Kastle card swipe data, which tracks return-to-office rates based on employee key card usage in office buildings across the US. They found that that return-to-office rates are still increasing in major metropolitan areas – one likely factor driving rising child care usage.

At the same time, supply is under pressure. About 9% of child care centers and 10% of licensed family child care programs closed between December 2019 and March 2021, according to a 2022 survey by ChildCare Aware.

Years of low wages, followed by layoffs due to COVID-19, have caused severe staffing shortages for child care programs. Even centers that stayed open may not be able to handle the same number of children they served in the past.

This helps explain why more than half of the respondents in the Care.com study report said they’ve been on a waitlist for child care. Half have been on multiple waitlists, and 49% percent had to wait more than three months. Unfortunately, these delays are just adding to families’ costs – 68% are spending more than $200 per week extra while on a waitlist.

It isn’t helping that overall inflation has also raised the cost of the things day care providers need to do their job, from paper goods and food to toys and transportation.

How can parents cope?

As prices continue to rise, many parents are having to adapt their lifestyles to make child care affordable. Some move closer to family for the help they can provide. Others work multiple jobs to cover the costs or adjust their work schedules to minimize the hours they need child care.

Child care costs can strain the family budget, but there are ways to try to make them more manageable. Here are a few tips to consider:

• Find out if your employer offers any child care benefits such as an on-site center or subsidies.
• Use pre-tax dollars to pay for child care through a Dependent Care Account (a type of flexible spending account).
• Ask about a sibling discount if you have multiple children.
• Make the most of any tax credits or breaks you qualify for.