Top 5 financial considerations when selecting childcare

http://www.savingforcollege.com/articles/top-5-financial-considerations-when-selecting-childcare-809

Childcare costs, just like college tuition, are reaching record highs. According to the nonprofit organization Child Care Aware’s 2014 Parents and the High Cost of Childcare report, today’s families spend more on childcare than housing, college tuition, food and transportation. Just how much are we talking about? The experts at Babycenter.com say it’s just over $11,000 a year for the average family. So how has this high cost of childcare affected family budgets and savings goals, and what can families do to soften the blow?

We asked Brooke Napiwocki, Family Wealth Advisor with Bronfman E.L. Rothschild in Wisconsin, for her expert advice:

“Most families face the reality of childcare as a non-discretionary expense item within their family’s budget. The cost of childcare varies greatly depending upon the type of care, specific provider chosen, and geographic location. Before having children, many couples dream of fully funding their child’s college education. The current reality is often that every year of full-time childcare paid per child is often equal to a year of in-state college tuition! For example, in my household, we could purchase a new car every year based on our childcare expenses. This shocking reality often leads to essential reassessments of current work arrangements, household expenses, and short- and long-term savings goals.

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For dual-income families, the first questions are often (1) do both spouses want to continue working outside of the home, and (2) does each spouse’s income offset the cost of childcare? In the case of the latter question, sometimes a deficit of expense-to-income may still warrant a spouse staying in the workforce for financial reasons like employee benefits and gaining Social Security credits and for non-financial reasons like the difficulty in regaining employment and the need to keep technical skills current.

For dual-income couples who have the benefit of excess discretionary income, I often recommend that families make childcare choices that help instill the family’s values and provide necessary flexibility. One way for families with excess discretionary income to increase flexibility is to consider outsourcing common household tasks like meal preparation, general household cleaning, and running errands. By allocating a portion of the family’s budget to cover these day-to-day duties, families might find that they have increased quality time to spend together, strengthening the family unit.

If childcare becomes a necessity for a particular family, discretionary expenses will most likely need to be minimized, and savings goals will likely need to be adjusted. Discretionary or unnecessary expenses can be found by tracking spending and are commonly found in cable bills, restaurant expenditures, and big box store impulse buys.

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Each family’s situation is different, and there is no ‘one-size-fits-all’; there are a variety of financial and non-financial considerations that go into childcare decisions. Families should consider the following before deciding what’s right for their situations:

1. Evaluate the use of flexible spending accounts for dependent care expense at your workplace and utilizing the Child and Dependent Care tax credit with your tax preparer to help offset child care costs.
2. Be careful about completely exiting the workplace if your sole reason is financial. Workplace flexibility is gaining momentum, and several online resources and templates are available to propose flexible and part-time work scheduling with your employer.
3. Weigh financial and non-financial reasons when picking the right childcare provider and reevaluate your childcare situation as your children grow. Some families change childcare providers or exit/re-enter the workplace as children age and as income levels change.
4. Remember that your childcare provider can be a family asset and not just an expense. The intellectual, social, and life skills taught by childcare providers can be a great advantage for children entering the next stage of their education.
5. Review family financial goals and budgets together and prioritize savings goals once you understand the big picture and your current financial realities."

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Brooke Napiwocki joined Bronfman E.L. Rothschild in March 2014. She has worked with individuals, small businesses, and institutional clients in the financial services industry for the past 15 years.