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What to do when daycare costs more than college

Jeanie Ahn
Senior Producer/Reporter

Dalia Gokirmak, 31, and her husband Oscar, 41, always wanted a big family. But when they found out they were having twins when she was pregnant for the second time, reality sunk in immediately. “I’ll be honest, I pulled out the calculator right away,” Oscar says.

Though they would’ve preferred to stay in Hoboken, N.J., the couple knew they would not be able to afford $1,600 a month per child, the going childcare rate in the area, plus the cost of moving to a bigger home. So they packed up and moved to the neighboring town of Union City where daycare rates are around $600-$700 a month.

“It’s the highest single household expense in most regions of the country,” says policy advisor Michelle McCready of Child Care Aware America, a childcare advocacy group. In a recent report, it found that childcare can cost as much as $14,508 a year for an infant, or $12,280 a year for a 4-year-old in a center. More disturbing: It found that in 31 states across the country, it costs more to send your infant to daycare than it does to send your child to a public university.

But unlike college, where you have years to save up, the sticker shock of daycare leaves families scrambling to make ends meet. “We’re seeing a huge shift of families postponing buying a house, having kids, and saving for retirement,” says McCready.

As more families rely on dual incomes to make ends meet, the increase of women in the workforce is driving the high demand of quality childcare. The Gokirmaks, whose children are now age 3 and 1, decided it makes the most sense for both of them to continue working – even if three-quarters of Dalia’s take-home pay, which amounts to 30% of their household income, goes straight to daycare.

While the benchmark for affordable care is 10% of a family’s income, according to the U.S. Department of Health and Human Services, there are only 12 states where this is true for married couples with children. And for single mothers, the financial burden of daycare averages 40% of state median incomes in all 50 states.

Help for low-income families

Only 1 in 6 low-income families that are eligible for government subsidies are taking advantage of the financial help available to them, according to Child Care Aware. That’s a result of low awareness of financial aid and long waitlists for daycare.

The good news is that in November, President Obama signed the Child Care and Development Block Grant Act into law. The $5.3 billion grant aims to raise industry health and safety standards as well as provide more funding to low-income households through state administered child care assistance programs.

Creating a realistic baby budget

Couples who want children, but have some time on the horizon, can get a head start on planning and saving upfront. But when running the numbers, it’s important to make a realistic baby budget that includes the cost of supplies as well as the average cost of childcare in your area, says Mindy McIntosh, a financial and insurance professional who customizes plans for growing families [McIntosh is an independent insurance agent in Freeland, MI].

If you’re expecting a little one and haven’t planned at all, McIntosh says it’s crucial to take a hard look at your finances and start making cuts right away. “Start acting like the changes are effective immediately, being aware that infant care costs the most because they are the most demanding,” she says.

Ways to save on daycare

Sibling discounts are available for families with multiple children in one place. The discount is usually around 10%, but since rates drop from infant to toddler care, it can save you hundreds a month.  

If your employer offers a flexible spending account (FSA) for childcare, take advantage of it. The account allows for one family member to save up to $5,000 of their pre-taxed salary for daycare and preschool expenses.

Another way to cut costs is to ask family – if they’re around and available  to step in a few times a week. Many daycares offer two and three-day per week options. Supplementing daycare with help from family members can mean savings of thousands of dollars a year.

At the very least, having family close by to lean on can be priceless. The Gokirmaks decided it was worth it to be closer to family because they often found themselves in situations where they had no one to turn to.

This week they moved again to Highland Park, N.J., where they’ll be paying $1,000 a month per child until they find a more affordable solution. Because it’s so easy to go over budget with three children, they limit their credit card usage and make most of their purchases on their debit card.

Says Oscar: “I never pictured that this was how we were going to end up spending our money. It’s more than the cost of our mortgage and property tax combined.”

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