How Childcare Can Drain Up to 10% of Your Salary—And What You Can Do

Childcare expenses are a significant financial strain for many families, sometimes accounting for nearly 10% of a household’s income, sometimes more.

For working parents, finding affordable, quality childcare is often a challenge, and the costs for reliable options can add up quickly. While this burden affects many, it hits some families harder than others, especially those with lower incomes or single parents.

The good news? There are ways to better manage expenses and balance work with caregiving that can take the stress off of you and your finances.

The Financial Burden of Childcare Costs

Childcare costs in America vary widely. These expenses affect families differently due to personal and systemic factors like family support, local costs, workplace benefits, and income. For many families, though, such costs are a significant financial strain no matter what and can impact their overall stability.

“It is a combination of factors that comes down to individual circumstances,” said Barbara Ginty, certified financial planner and host of the “Future Rich” podcast, noting that some people may be able rely on family while others may have to seek help from friends.

“Others are fortunate to have discovered affordable options, like a friend who is a stay-at-home parent who is willing to take one more child for some extra income. Others have been lucky to have found a nanny share to split the cost,” said Ginty. “Then from there, some workplaces offer on-site or discounted childcare.”

And families with several children typically face greater financial obstacles, as the cost of daycare for multiple children could double or triple costs, putting additional pressure on a family’s budget.

Weekly average expenses for putting one child in day care is $315. For two children, it’s $598.

This challenge can limit parents’ options and sometimes even affect their ability to maintain full-time employment.

Practical Tips to Reduce Childcare Costs

With some careful planning and resourcefulness, you can lower costs while ensuring that your child receives quality care. Here are some ways that you can save on childcare expenses.

Plan Ahead

The demand for childcare can be high, so it’s important to consider your timing and resources carefully.

For example, being mindful about when you have a child allows you to plan ahead, which can help ease the stress of securing care and managing costs.

Even if you’re not in the best financial position when having a child, you can still take steps to prepare. Research childcare options in your area to get a clearer picture of what costs to expect. Look into available assistance programs and be sure to confirm eligibility requirements.

“I recommend that once you find out that you are pregnant, begin your research about what your childcare plan and respective costs are going to be,” said Ginty. “Then, before the baby comes, you start living on that new budget or as best you can. This will allow you to adjust to the new budget with some wiggle room and help you beef up your emergency fund in the meantime.”

Evaluate Career and Childcare Needs

Sometimes, managing childcare expenses means reassessing your career choice. Flexible work schedules, remote work options, or part-time jobs may reduce childcare hours needed, lowering your costs.

While these changes might mean earning a lower salary, the savings on childcare might make this trade-off worthwhile, depending on the person.

“Oftentimes, women step out of the career field in order to be a caregiver and then end up struggling to get back into that career years or even decades later,” Ginty explained. “This, in my opinion, creates a financial dependency on your partner that could leave you vulnerable should that partnership not work out for a variety of reasons: divorce, death, etc.” 

Maintaining even a minimal connection to the workforce can make a significant difference. By staying engaged professionally even in a reduced capacity, you can help preserve your skills and maintain your professional network.

“I think it is best to either pay the childcare costs and maintain your career knowing that childcare cost is temporary,” Ginty said. “Or if you choose to give up full-time work, find something part-time, which can be fulfilling [and help you] earn some extra income.”

Explore Shared Childcare Options

Shared childcare options, like nanny shares and childcare co-ops, can offer a more affordable and collaborative approach to care. This can be a good choice if you have multiple children and would be willing to split the cost of childcare with another family.

A nanny share can cost $28,652 per year versus $43,004 per year for a private nanny. That’s a significant savings. However, it is more expensive than a child care center, which costs an average of $17,836 per year.

Leverage Dependent Care Flexible Spending Accounts (FSAs)

Many employers offer Dependent Care FSAs, which allow you to set aside pre-tax dollars to pay for eligible childcare expenses. By reducing your taxable income, FSAs can help you save money on childcare costs for daycare, preschool, before-and after-school care, and summer camps for children under age 13.

The annual contribution limit is $5,000 per household ($2,500 if married, filing separately), which can offset your expenses.

Claim Childcare Tax Credits

The Child and Dependent Care Tax Credit can also help families save money. This credit is available to working parents who pay for care for children under 13 and can reduce your tax bill based on a percentage of qualifying expenses. The credit varies by income.

For the 2024 tax year (the latest year for which information is available), you could claim from 20% to 35% of care expenses. The maximum dollar amount of childcare expenses that can be used to calculate your credit is $3,000 for one dependent or $6,000 for two or more.

The Bottom Line

Childcare costs are undeniably a heavy financial burden for some American families. While this is a temporary expense, you should create a financial plan for tackling these expenses before your child is born if possible.

Ultimately, proactive planning and resourcefulness can ease the strain of childcare expenses, allowing parents to focus on what matters most: nurturing their children and maintaining their careers.