Saving Money on Child Care

 When it comes to caring for our children, we want the best. We sometimes have to make compromises between our career and our kids.  We’ve already gone over the pros and cons of high income earners using child care.

Childcare is expensive when you have to hire someone else to do it. It can also be expensive if you have to sacrifice part of your income earning potential to care for your own children. We all have to make hard decisions when it comes to using the education we spent years obtaining to earn income and bringing up well-rounded, happy and healthy kids.

Making Choices

The decision doesn’t have to be to use childcare or don’t. There are a million different ways to accomplish your career goals and your parenting goals.  A variety of options exist and with the help of our higher incomes, your children can get an enriching and nurturing experience. The key is to make the most of the circumstances you have, just like anywhere else in life. If we the parents encourage our kids to enjoy their time with others and teach them to be grateful for the lesson they can learn from teachers, counselors, coaches and caregivers, they will have enriched experiences and a broader fund of knowledge.

Our jobs are to put the best people we can find to carry out this task, whether it is ourselves or someone else. The fabric of the American child care system is very much like a quilt. Around 20% of families said they use more than one child care arrangement in any given week, both paid and unpaid. We don’t have a standardized child care system. This can be helpful in that our children are exposed to a host of different circumstances, knowledge bases and personalities.  The disadvantage is children seem to thrive in a secure environment, and if parents don’t set up the different caregiving alternatives in the right frame of mind, the children can feel insecure.

What are the options?

  1. Child Care Co-ops

This option consists of different families and friends rotating the responsibility of each parent’s children over a given time. For example, Mary and Martha are both CRNAs.  Mary works a Monday, Wednesday, Friday schedule. Martha works Tuesday, Thursday, and Saturday at the local hospital.  They each have two children. They form an arrangement to care for each other’s children on their days off.  The arrangement could be an even trade or work out a dollar per hour of child care agreement.

The advantage of this is it’s very inexpensive (possibly free). The disadvantages are that one or both of you are not licensed or trained in child care and education (if this is important to you). You also need a backup system in case one of the parents in the rotation is unavailable or sick.

2. Change the way you work

This idea is to sacrifice some of your work schedules in the early years when the children are infants or toddlers so that you can spend more time with them then. There is some research that supports parental care in the first year of the child’s life is superior to center-based child care. Later on, as they start school and other activities, you can expand your work hours and responsibilities to your career.

Another option is to stagger the time you and your spouse work so that one of you is available for the kids.

Possibly, you could cut back hours at the office and work at home. Many employers will make accommodations for excellent employees and work with you to make the schedule best for you.

If you haven’t had kids, but are making that a priority, one of you could change career paths to a more accommodating role of parental child care being a priority.

3. Take a job with on-site care

saving money on child care

One way to keep track of your kids

This is a pretty rare find, but 3% of employers do offer this option.  Most of these on-site care facilities require some employee contributions, but the companies who do, state that their retention rate and employee satisfaction, (especially working mothers) is much higher. Some companies that offer this are Patagonia and Goldman Sachs.

4. Family child care facilities

This is a private care facility, usually in someone’s home.  The advantages are that if you have multiple children, often they can be kept together. The disadvantage is the caregiver usually has less formal training. If the caregiver is ever sick, there is no replacement. The curriculum is usually more flexible and could be tailored more to the way your child learns, depending on the age.  Sometimes family care centers will have deals for multiple siblings. Usually, the overhead is less, since it is in a private home, so the prices can be cheaper.

5. Day care center

Day care centers involve a place that multiple workers supervise a larger number of children. The caregivers usually have more training and are more likely accredited by the state you live in. Only 11% of child care centers nationwide are accredited.  To find those qualifying centers, you can look to your state website of social services or family services. Here are some examples from:

6. Nanny

Now, we are getting to the more expensive options. Having a nanny at home will cost far more – an average of $28,353 a year. This requires an interview process and checking references. Your child will have one on one attention. You have to assess if your nanny can meet the requirements of your child through all the stages of growth. Otherwise, you might have to change caregivers as the child grows.

7. Au Pair

Au Pair is French for equal to.  The idea of choosing an Au Pair as the caregiver is more of a big sister than a hired hand.  The Au Pair is from a foreign country and depending on your needs, can have a variable mastery of English if she is from a non-English speaking country. There are maximum set work hours of 10 hours a day and 45 hours per week. There is usually an application fee, a monthly or weekly stipend and a yearly fee to the company facilitating the match of the Au Pair with the family.  An Au Pair is more work for the parents than a nanny, but can also provide an amazing cultural experience and allow the family to give back to the young lady staying in your home and helping with child care.


How do we get the best value?

I recommend you approach the challenges of child care with this frame of mind. We have a bigger advantage than most when it comes to our child care choices.

If I plug-in my kids’ ages in the USDA child care cost calculator, they estimate that I will spend $78,728 to feed, shelter, transport and cloth my five kids.  Since the average American income was around $55,000 in 2016, I guess the average wage earner can’t afford to have five children according to the USDA.

Truly, averages are just that, averages. We, high earners, strive to be above average not only in our incomes but also in how our kids grow up. We want the best for them, but we also want to be responsible with our money. Our kids can have a great experience, but in a cost-effective way that still lets us achieve retirement goals and allow for the other priorities in our lives.

1. Flexible Spending Accounts

If you work someplace with a flexible dependent care spending account, you or your employer can contribute up to $5,000 per year. You can use those funds toward child care. Not very many employers give you money directly on top of wages into these accounts.

Alternatively, you can contribute to these FSA accounts and then withdraw the money to pay your caregiver.  These are “use-it-or-lose-it” accounts, so make sure that the amount you contribute to the FSA will be completely used by the end of the year. Most employers should require you to make a set contribution and stick with that for the year.

Also, if you don’t happen to have your child during an open enrollment period, you can still start contributing to an FSA because you had a major change in life status. Contact your employer to change contribution levels. You should sit down with an HR rep to go over your options. If you are in the higher tax brackets, you save Medicare and income taxes as well. You might not save any social security tax if your income is much higher that the $127,200 limit.

2. Child Care Tax Credit

If you don’t have access to an FSA, there is the child care tax credit. If you only have one child the maximum allowable expenses are $3000. With two or more, the maximum is $6000. As high-income earners (above $43,000) we are only allowed a credit of 20% of the $3000 or $6000. That means $600-$1200.

There is a  way to maximize these two credits is if you have more than two children and you pay more than $11,000 a year in costs that allow you to work and you children are under 13 years old. If you are in the 33% tax bracket with an income over $200K, that would save you $2295 in taxes. That isn’t that helpful if you have three children all costing you about the national average (almost $30K total for three kids), but it is better than nothing.

3. Combining Tasks

If you hire an in-house caregiver (nanny) and would also hire a housekeeper, combining the two could save money not only in total wages but also taxes. This allows you to combine those and still use the FSA money or child care tax credit to pay the caregiver wages and save on housekeeping. Again, not a huge saving but every bit adds up.

4.  Change Things Up

If you can adjust your work schedule to allow family, your spouse, or yourself to take the child care responsibilities, that is the most economical, but may cut into other goals. Splitting up work hours are sometimes an option between partners. Hiring or providing a place to live for an older family member in exchange for child care services is another idea.

5. Co-ops

Child care co-ops could be free if you can find a trusted friend or set of friends with alternating schedules to you that are willing to share responsibility. Setting this up is difficult and takes a lot of coordination, but can also be a wonderful and inexpensive alternative to paying for center-based care.

Although we homeschool our kids, my wife has a teaching coop with five other women who routinely use each other to care for the other’s children when the need arises.

6. Ask for a raise

If it has been some time since you had an increase in wages, this might be the best time to ask for a raise. You could apply that income to child care for the first few years. Then when it is not necessary later on, with the child care funds, that would be a great way to directly fund a retirement or even taxable account that you have neglected.

7. Scholarships

This would be very unusual for very young children. Sometimes there are after school care and team sports scholarships available if your child has a particular talent.  I have a doctor friend with four children, and one of his children just received a scholarship to a club basketball team that provided after school supervision and care due to his talent.

8. YMCA or Boys/Girls Clubs

Some cities have excellent YMCA programs. These tend to be less expensive than other private day care facilities for after school care. In addition to supervision, there is usually an academic or athletic component to these programs.


How do you keep child care costs low?

The bottom line is children aren’t free. We have all made the decision to share our lives and our money with our kids, though. We want to make the most of it.  Thinking outside the box and taking advantage of any available tax credits can help reduce some of the expenses. How have you maximized your time, money and energy to offer a great experience for your kids and still carry out your career and income goals?

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Tom is a doctor, husband and father of five with a passion for parenting and finance. When he isn't skateboarding, riding BMX, or jumping on the trampoline with his kids, he is reading and writing about personal finance. He helps high income parents educate and mentor their kids to become financially, emotionally, and intellectually self sufficient.

2 Responses to “Saving Money on Child Care

  • Newbie
    6 months ago

    This has become a BIG expense at our house since both parents work and no family is around to help. We have a 2.5 and 1.5 yo both in a local montessori and a nanny at home with a 3 mo. The nanny has been with us since the beginning, and as each new child arrives, the older one moves to 5 days/wk school. I can see unbelievable advancement from the time at the school, so we want them to continue that experience. However, we are aware that this arrangement has no end in site and costs more than our mortgage! Thanks for the post.

    • Maybe you can look for ways to combine costs in the future. At what age did you put the other two in montessori? Is that cheaper than the nanny?
      I’ve heard of some nannies taking on education duties too, but if your happy with the monetessori school its scary to change something that is working so well.
      The way I’ve looked at child care is if we can maintain savings goals then try to maximize what we get for what we can afford.
      Since we have 5 kiddos, the finances were a part of the consideration for my wife to homeschool. It would cost an Italian sports car every year to send them all to private school and we couldn’t afford that. Thanks for reading.

      Tom @ HIP

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