What Is It?
For many parents, going back to work after a child is born is a stressful event. You worry about whether you're doing the right thing, you wish you could afford to stay at home with your child, and you hope that when you do choose a child-care provider, you'll choose the right person. When you do start looking for child care, your concern becomes how you are going to afford good quality care.
How Much Does Child Care Cost?
The cost of child care will depend upon where you live, how old your children are, how many children you have in day care, and what type of child care you choose.
You'll Pay Different Amounts for Children of Different Ages
In general, the younger the child, the more you'll pay for child care. If you've been looking for someone to take care of your baby, you've probably already experienced sticker shock. The law in many states mandates that child-care centers have one adult for every four infants. This means that the centers must hire more people or accept fewer infants for care, and this drives up the price of care. In addition, caring for infants is labor-intensive, so if you hire a nanny, you may need to pay him or her more to care for an infant.
You'll Pay More for Two Children, But Not Twice as Much
You'll pay more for child care for two children, but not usually twice as much. Many child-care centers (and family day-care providers) will give you a sibling discount for the second child if you enroll both of them. If you hire a nanny, he or she may charge you the same amount for one child as for two. In fact, some families opt to hire a nanny after their second or third child is born because it's suddenly cost-effective to do so; other families (such as neighbors) share a nanny and split the cost.
You'll Pay More for Certain Types of Care
In general, child care provided by a nanny is more expensive than child care provided by a day-care center. Child care provided by a day-care center is usually more expensive than family day care. However, you may find that this really isn't so in your area, because costs vary widely from region to region. In addition, some day-care costs may be subsidized by the government or by your employer, and some providers simply charge less than others.
There's not necessarily a correlation between price and quality, either. For instance, a day-care center may charge more because it has a lot more overhead than a family day-care provider, but the family day-care provider may provide care that is just as good as (and sometimes better than) the care at the child-care center.
Do the Benefits of Working Outweigh the Cost of Child Care?
The Total Cost of Child Care
Many parents who work and pay for child care wonder if it's worth it to work at all, because child-care costs eat up a big portion of their paycheck (particularly if they have more than one child). This is particularly true in families where the second wage earner's salary is relatively low. However, many parents have no choice. Single parents, for instance, usually must work, and both parents in a two-parent family often have to work to make ends meet. If you do have a choice, though, you may want to consider what child care actually costs you. For instance, you must pay:
- The monthly check to your provider
- The cost in transportation to and from the provider
- Incidental costs of using a child-care center (such as food and sick child-care costs)
- If you've hired a nanny, the legal costs involved and the extra tax obligations; see the section on in-home care for these costs
- The costs of going to work: transportation, clothes, incidentals
- If you've hired a nanny or au pair, the costs of their upkeep in your home
Example(s): Teresa went back to work after the birth of her twins. Her monthly paycheck was $2,250, and she paid her child-care provider $900 per month for day care for both children. In addition, she had to buy a used car to get back and forth from work every day and paid $200 a month for her car payment, gas, and insurance. She also spent $75 a month on clothing and another $75 a month on lunches and coffee. So, after considering the total cost of working, Teresa was keeping only $1,000, or 44 percent of her take-home pay.
The Benefits of Working
For you as the parent, the satisfaction and commitment you feel to your job may make working worth the cost, even if you barely make a profit. If you've spent years preparing to be a research physicist, you may not want to give up your lab and your tenure to care for your child on a full-time basis. You may value your career advancement at the law firm and expect that dropping out for a three- or four-year period will hamper your chances to make partner. Most important, your job may be so exciting and stimulating that you feel dissatisfied when you're not working.
Financial Aid from the Government and Your Employer
Are you eligible for government-subsidized child care? The 1997 Welfare Reform Act shifted most of the distribution of federal child-care dollars to state agencies, so you'll have to check with your own state to see if you can qualify. If you meet eligibility requirements, another way the government helps you defray the cost of child care is through the child- and dependent-care tax credit, which reduces your total tax liability by allowing you to take a credit for part of your child-care expenses. Your employer may help you out with child care, too, either by sponsoring a child-care program or by allowing you to contribute pretax dollars to a dependent-care account to fund some of your child-care expenses.
Tip: If you exclude contributions to a dependent-care account from your income, then you cannot include the excluded benefits in your expenses for purposes of calculating the credit. In addition, the excluded benefits may also reduce or eliminate the amount of credit for which you qualify.
Alternative Work Schedules May Reduce Child-Care Costs
You might be able to reduce the size of the check that you write to your child-care provider by changing your work schedule. If you can devise a way to work different hours, you may be able to share child care with another adult so your dollar outlay is lower. Here are scheduling options you can pass by the boss:
Parental and Maternity Leave
Both Dad and Mom may be eligible for family leave after their child is born. This means that you get some time off to recover from the birth and to care for your new baby. Some companies give as much as three months of this family leave at full pay, and then another three months at half pay, although this is relatively rare. If your company doesn't offer paid family leave, you may be able to take up to 12 weeks of unpaid leave after your child is born (or after you adopt a child) under the Family and Medical Leave Act of 1993 . Check with your employer.
Flex time lets you change your arrival and departure times at the office. As long as you're on the site during the core hours, your employer may let you come into work earlier or later than would normally be required, as long as the total number of hours you spend at work remains the same. Flex-time arrangements are becoming increasingly common in areas where traffic tie-ups are common and in industries where attracting and retaining good employees is a top priority.
Flex place is telecommuting, or doing your job from home using your computer, your phone, and your fax machine. Everyone flirts with telecommuting whenever a blizzard rolls in, but you can use the system to stay home with your children on a more regular basis. Of course, if your children want to sit on your lap while you're typing, you may not work very efficiently. But you may be able to minimize distractions by working during their nap time, after they're in bed, or before they get up. If all else fails, you may be able to hire the teenager across the street to entertain them after school, or you may be able to put them in part-time day care.
If you job share, you and at least one other person share the duties of one full-time job. You're basically working part-time, but job sharing may still give you insurance benefits. You'll also be able to keep up with the developments in your field and enjoy the stimulation of the workplace without going in to the office every day. Job sharing requires coordination between you and your partner, and the company has to approve of the idea. But it will also make it much easier for you if your child gets the flu.
Compressed Work Week
Some parents like to compress their work week by working 10 hours a day for four days and having the fifth day off. You're still putting in your 40-hour week and earning 40 hours of pay, but you have one day off. If you can work it out with your employer and your child-care provider, you'll save on child care and be able to handle your personal business as well. This kind of schedule is especially helpful if you commute a long distance to work and that time is built into your child-care costs.
While your child is in diapers, you may decide to opt for part-time employment. You'll make a part-time check and hand much of it to your provider, but you'll stay in the game and keep the stimulation of the workplace.
Voluntary Reduced Work Time
If child care is too expensive or you're eager to stay home with your child, ask your boss about voluntarily reducing your work time. If you work more than 50 percent of your job for at least a year, you may be able to keep your insurance benefits and seniority and still stay home with your child part-time. These arrangements may not work out on a permanent basis, especially if your company really must have an employee around full-time to get the job done, but they allow you to make an easier transition back to work after your child is born.
Other Ways to Reduce Child-Care Costs
Probably the easiest way to lower your child-care costs is to find a less-expensive provider. If your child is already spending several hours a day in a preschool setting, you may be able to combine this care with a home provider and not use a nanny. If the private day-care center is too expensive, check on family day care.
Is There a Relative or Close Friend Who Will Watch Your Child?
If it takes a village to raise a child, where are the villagers who are eager to take care of your child so that you can go to the office? Sometimes you'll find a grandmother, aunt, or friend who is thrilled to take care of your baby. This usually is the cheapest child care around, but it has other, more implicit costs. First of all, Grandma has already raised one family. Consider the possibility that she may be more eager to work in her garden than watch your child all day. And what if your child-rearing philosophies don't match? How will you negotiate your differences?
Share Care with a Neighbor or Friend
You and your close friend or neighbor may be able to hire one child-care provider and share him or her. This means that your neighbor's child is always in "child care" at your house or your child goes to your neighbor's house for child care. The caregiver stays the same, but the children either move between the two houses or use one. This arrangement can ensure that both your and your neighbor's child will get lots of attention, but the home base of your "center" may also get lots of wear and tear. You also need to be sure that you agree on your child-raising philosophy.
If Your Child Is In a Child-Care Center, See If You Can Trade Time for Dollars
You may be able to work early or late hours in the center to save some money on your child's tuition. Especially in community centers, these arrangements are possible. The center needs parental help to meet its ratios and keep its programs running, and you get to save a few dollars a week in child-care costs by giving them time instead of cash.
Try a Swing Shift with Another Adult
If you and your child's other parent work different hours, you may be able to adjust your schedules so your child never goes to day care. However, using a swing shift means you and your partner will rarely see each other, since you're always working and sleeping different shifts. Nevertheless, this sometimes works well when both parents have jobs with flexible schedules.
This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.
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