Why Is Childcare So Expensive? 7 Factors at Play

illustration of a piggy banks representing why is childcare so expensive

If you’ve ever researched childcare options, you might be familiar with a feeling of shock and dismay at the cost. That initial eye-opening experience might leave you thinking that this price might just be reserved for the high-end options. After all, those who have the budget are willing to spend it on much less important things than their kids’ education and care. But it isn’t just the fancy STEM or nature-themed childcare centers that cater to the well-off that come with a hefty price tag.

While there is plenty of variety out there, even the least expensive childcare options are often a good deal more than what parents expect, and in many cases, more than they can afford. According to a 2016 report from public policy think tank New America, the average cost of full-time care in childcare centers for all children ages birth–4 in the United States was $9,589 per year. In fact, according to the same report, that figure was larger than the average cost of in-state college tuition. For an individual earning the minimum wage and working full time at the time of this report, childcare costs at this rate would amount to 64 percent of their earnings.1

When seeing figures like that, it can be tempting to think that childcare providers must be making out like bandits year over year, but that typically isn’t the case. Rachel Charlupski, founder of The Babysitting Company says childcare providers are constantly battling to keep their prices down and remain in business. 

“Thereare overhead costs people do not realize,” Charlupski says. In a time where childcare is in such high demand—to the point where parents are willing to pay merely to reserve a spot for their child “on the way”—it certainly feels like all the cards are in childcare providers’ hands. But there are many factors at work in this industry, some of which are driving the cost higher—considerably.

So, what’s driving the cost of childcare? We take a closer look at some of the factors that add up.

7 Reasons why childcare is so expensive

The short answer: While there are a lot of reasons we’ll go into below, caring for young, vulnerable children carries a lot of liability—and comes with many regulations that cover everything from staff training, space and insurance. This doesn’t even include unregulated operational costs like food, toys and marketing.

Keep reading to get a peek into the math that makes childcare so expensive.

1. Caregiver-to-child ratio regulations

In many service industry roles, adding clients or new business is the most straightforward way to increase revenue. But in childcare, even when you have lots of room in your facility (or your home outfitted to code), you can’t simply throw open your doors—unless you hire more employees.

Many states require a ratio of one caregiver to every three or four babies. This makes labor one of the most significant cost factors in childcare, according to NPR® reports.2 Traci Sanders, author and former childcare provider, says the quantity of staff that is needed to maintain ratios can really hamper your ability to make money operating a childcare program.

Sanders says this factor tends to favor center-based childcare programs as they have more resources to expand and take on new employees.

“A large number of states are cracking down on policies,” Sanders says. “Family-based programs are being encouraged to operate like center-based competitors.” But she adds that regulators may not always take into account the advantages large centers have over family-based programs when drafting policy.

While strict staffing ratio regulations may come about with the well-intentioned aim of ensuring proper care for children, they are also frequently adjusted and can be difficult for home providers to parse. For example, staffing ratios for children vary according to the age of the child. But what if you have one infant in your daycare and many children over a year old? Does grouping them together demand the infant ratio? Questions like these shouldn’t just be left to a “best guess” when a breach in regulation could potentially lead to a lawsuit.

2. Location

Any center operating out of a rented building spends a portion of income on that property. While location might not be a top priority for some commercial offices, it is incredibly important for a daycare provider’s clientele.

While some families might be willing to drive a fair bit out of their way for a daycare they love, few will trust their children to a center located somewhere they deem unsafe.

“When parents are looking for a preschool for their child, they need to keep in mind that a nice, clean facility in a low traffic area, with a beautiful setting, or a school in a city with very high rent is going to make the tuition higher,” says Danielle Lindner, founder of the London Day School.

Business owners prioritize opening a daycare location in an area near plenty of parents, convenient to work commutes and not too close to heavy traffic, pollution or high crime zones. But that’s not all—they also need a compatible building, room for an outdoor play area and to consider the curb-appeal issues that could keep new clients from stepping foot in the door. Those places are hard to find and tend to come with a considerable price tag. Plus, because many states require a certain amount of square footage per child, so the size of the building impacts how many children can be enrolled and how many staff members can be employed at a time.

Alise McGregor, owner and founder of Little Newtons Early Education Centers, points out that facility costs are constant—and one of the largest factors in setting the price of childcare. Home-based childcare centers may save some money in this respect, but providers will need to spend money up front to make their home appealing, safe and regulation compliant.

3. Regulatory complexity and legal counsel

As you might imagine, the industry of childcare is chock-full of regulations to ensure safety and overall quality. But figuring out exactly what you need to do as a provider in your area can be confusing. “High liability and the need to navigate complex regulations make for an uninviting business climate,” Lindner says.

An additional complicating factor is the lack of uniform federal standards for childcare providers, so providers are left to interpret local and state regulations. For those not well versed in legal policy, the sites hosting this information can be confusing to navigate and full of unclear language. While it’s not a universal expense, some providers may prefer to turn to the expertise of an attorney to ensure compliance.

Childcare businesses take care of the most precious thing in the world to their clients. If trouble occurs, even without any error on the part of the provider, emotions can run high. Because of this, bigger operations may even choose to budget for legal counsel to help them avoid a lawsuit in the wording of their documents, in their policies and in case of murky situations.

4. Insurance

Another hefty cost a childcare program faces is liability insurance. “Operating a childcare facility is a huge liability,” Sanders says. “All commercial centers must obtain pricey liability insurance policies.”

It’s important to note that this particular type of insurance typically won’t cover damage the children may inflict on the premises (or your home)—or even cover injuries sustained by your employees. Providers may need (or prefer) to purchase a few other types of insurance to cover all their bases.

5. Employee recruitment and training

Any good childcare facility will spend a certain amount of resources carefully selecting, attracting and training their applicants. After all, you could be the best provider in the world and still lose clients over one inept hire.

Charlupski personally meets with and trains every provider in her business. Since her company also offers last-minute care services that lead to staffing demand volatility, they need to have plenty of employees on the payroll.

“In order to pay workers a competitive salary and keep our rates as low as possible, we have to do a lot of volume,” Charlupski says.

A tight labor market means prospective employees have more viable options for earning a living—within early childhood education or not—and that means employers will likely need to step up compensation and retention benefits to keep up with the job market.

Additionally, minimum wage increases can drive up the cost of hiring teachers and aides—and while upward pressure on wages is a welcome sight for workers, it’s still a factor that can add up when trying to adhere to staffing requirements.

6. Increasing cost of fixed expenses

“People should think about the increasing costs they are encountering in their own lives to understand that our costs are rising as well,” McGregor says. “Many of the costs that are driving the cost of childcare up cannot be controlled by the business owners.”

McGregor points to the rising cost of food as an example. Sanders notes that maintenance, equipment and toys can also become fairly regular expenses.

7. Marketing costs

As the icing on the cake, all the above expenses won’t mean anything if providers can’t draw in enough customers. This often requires them to advertise in a way modern families will notice—not just word of mouth or an ad in a local newspaper. To do this requires having an accessible internet presence (a website at minimum) and a phone number someone is around to answer, according to Charlupski.

“While there is money to be made in childcare, the income can fluctuate with attendance and family situations,” Sanders says. “Circumstances can cause a loss of income—families moving or withdrawing, location obstacles and of course children aging out of certain programs.”

Because so much hinges on the continued enrollment of a child, providers need to remain active in getting word of their business out there to be able to fill seats when children leave.

An eye to the future

The cost of childcare can certainly seem overwhelming at first. “Many parents don't think much about it, though. They are instead focused on the fact that kind teachers are providing great care to their children,” McGregor says. While initiatives like universal preschool could significantly change the landscape of childcare someday, this change is far from a certainty.

One thing is certain, though: parents are on the hunt for quality childcare options. Childcare providers who offer safe environments, stimulating educational activities and caring attention to each child can expect to thrive, according to Sanders.

As you can tell, there’s a lot that goes into running a quality early childhood education program. To learn more, check out “Exploring the Components of a Quality Early Childhood Curriculum.”

1Brigid Schulte and Alieza Durana, “The Care Report” New America. September 28, 2016. [accessed September 2021] https://www.newamerica.org/in-depth/care-report/
2Jessica Deahl, “Child Care Scarcity Has Very Real Consequences for Working Families” NPR News. January 3rd, 2017. [accessed September 2021] https://www.npr.org/sections/health-shots/2017/01/03/506448993/child-care-scarcity-has-very-real-consequences-for-working-families

National Public Radio (NPR) is a registered trademark of National Public Radio, Inc.

About the author

Kirsten Slyter

Kirsten is a Content Writer at Collegis Education where she enjoys researching and writing on behalf of Rasmussen University. She understands the difference that education can make and hopes to inspire readers at every stage of their education journey.

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