Why Is Childcare So Expensive? 7 Factors at Play
If you’ve ever researched child care options, you might be familiar with a feeling of shock and dismay at the cost.
“Surely not every place is so pricey,” you might think, pulling up another Google search or asking parents in your area. But it isn’t just the fancy STEM or nature-themed daycare centers with a hefty price tag.
While there are plenty of variances out there, even the least expensive childcare options are often a good deal more than what parents expect, and sometimes, more than they can afford. According to a report from public policy think tank New America, the average cost of full-time care in child care centers for all children ages birth–4 in the United States is $9,589 per year. That figure is larger than the average cost of in-state college tuition.
When seeing figures like that, it can be tempting to think that childcare providers are making 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 still remain in business.
“There are overhead costs people do not realize,” Charlupski says.
In a time where childcare is in such high demand that 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.
7 surprising reasons child care is so expensive
1. Caregiver to child ratio regulations
In many service industry roles, adding clients or new business is the fastest and surest way to maximize profits. But in child care, 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. Traci Sanders, author and owner of Traci’s Learning Corner, says the quantity of staff that is needed to maintain ratios can really hamper your ability to make money in 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 these administrators don't realize that large centers have more advantages over smaller programs.
Not only can state regulations run strict in the childcare industry, they are also frequently adjusted and difficult 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 can’t just be guessed at when a breach in regulation could potentially lead to a lawsuit.
Any center operating out of a rented building spends a decent chunk 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.
“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.
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.
Business owners prioritize opening a daycare location in an area near plenty of parents, convenient to work commutes, not too close to heavy traffic, pollution or high crime zones. Add to that a compatible building, room for an outdoor play area, and 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.
Alise McGregor, owner and founder of Little Newton's Early Education Centers, points out that facility costs are constant and one of the largest factors in setting the price of daycare. Home-based childcare centers (or family care) 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. Lack of consistent regulation
As you might imagine, the industry of childcare is chock full of regulations to ensure safety. 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.
“There are two key reasons why early education varies so dramatically from one state—and even one facility—to another,” wrote Suzanne Podhurst in her State-by-State Child Care Guide. “First, there are no national standards governing childcare for preschool-aged children. Second, the U.S. does not provide universal access to public preschool programs.”
In this absence of consistent regulation, providers are left digging through websites that might be poorly maintained, confusing to navigate and full of unclear language. For example, Podhurst pointed to the fact that many states differentiate between “registered” and “licensed” providers—though these may seem synonymous to providers unfamiliar with local laws and regulations.
This hunt for information is not only costly in a time-consuming sense, but it also means that overhead costs for childcare providers can vary widely depending on each area’s specific requirements.
4. Insurance and legal counsel
“Operating a childcare facility is a huge liability,” Sanders says. “And all commercial centers must obtain pricey liability insurance policies.” Because of this, another hefty cost a childcare program faces is liability insurance.
It’s important to note that this particular type of insurance won’t cover damage the children may inflict on the premises (or your home) or injuries sustained by your employees. Providers may need to purchase a few types of insurance to cover all of their bases.
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. 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.
5. Employee training
Businesses that employ many workers will spend a good deal 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, they need to have plenty of employees on the payroll.
“In order to pay the sitters a competitive salary and keep our rates as low as possible we have to do a lot of volume,” Charlupski says.
6. Increasing cost of food, utilities and labor
“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.
Additionally, minimum wage increases can drive up the cost of hiring teachers and aides. “Daycare centers need to maintain certain levels of staff per child according to their licensing, and that is also not something an owner can control,” McGregor explains.
7. Marketing costs
As the icing on the cake, all of the above expenses won’t mean anything if providers can’t advertise in a way modern families take notice of. This means 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.”
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, business owners will continue striving to offer lower costs in the industry.
One thing is for certain—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 be expected to thrive, according to Sanders.
Though this business can feel overwhelming to break into, the steps to arrive at opening day are actually pretty straightforward. Check out Your Step-by-Step Guide to Opening a Daycare to learn what the process really entails.