Why Does Child Care Cost So Much?

Daycare averages $10,000 a year per child. Early educators barely make minimum wage. Where's all the money going?

Child Care Aware

It’s one of parenting’s biggest mysteries: Why does daycare cost so much when child care providers make so little? The average family paid around $10,000 last year ⏤ or 16 percent of their annual household budget ⏤ to keep one child in daycare. The average early educator, meanwhile, took home between $11 and $14 per hour. Even those with college and advanced degrees barely cracked $15 an hour. So where’s all the money going?

It’s easy to assume that the child care center is gouging parents, stiffing staff, and pocketing big profits. With those kinds of numbers, that seems like a logical conclusion. Turns out, though, it’s not the case at all. In fact, just the opposite ⏤ many home providers and child care centers are struggling to keep the lights on, despite skyrocketing tuition prices.

Child Care Aware of America, a national advocacy group that studies the cost of daycare, and the Center for the Study of Child Care Employment recently released a fascinating video that breaks down how parents’ fees are allocated to keep a center in business. It also reveals a giant flaw in the economics of child care: Tuition alone can’t cover expenses, overhead, and pay staff a livable wage ⏤ the numbers simply don’t add up. It may sound hard to believe, but here’s how it shakes out.

The video presents a hypothetical child care center with 40 full-time children enrolled 10 hours a day. If each family pays the national average for a year of care, $10,000, the center starts with an annual operating budget of $400,000. Which seems like a lot of money until you see how quickly it disappears on these expenses:

Rent, utilities, and maintenance: $48,000 (12 percent)
There’s a reason so many daycares are located in church basements and people’s homes. The lower the rent, the more cash on hand for salaries, educational toys, and fish tanks. The issue, of course, is that parents prefer child care to be convenient to their jobs, neighborhoods, or route to work ⏤ which often means the center has to pay higher rent to locate itself in a heavily trafficked and more prominent area.

Classroom materials, food, administrative costs: $92,000 (23 percent)
In addition to proximity, the key to attracting parents to a daycare is, obviously, a nice classroom and amenities. Providing snacks or lunch for the kids every day doesn’t hurt either. If you want a clean space with new toys and extensive educational activities, it’s going to cost more money. In this hypothetical, the provider is spending almost a quarter of its budget on materials, food, and administrative costs, which also include bigger-ticket items like liability insurance, licensing and accreditation fees, and staff training and development. When you consider the myriad costs associated with operating a care center, it’s any wonder they don’t charge even more per kid.

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Personnel: $260,000 (65 percent)
Due to the nature of the work and government regulations, running a daycare center requires a big staff. Taking care of babies and toddlers is exhausting work and the law requires a low adult-to-child ratio for each classroom. While each state sets its own regulations, the federal government recommends centers follow the guidelines outlined by the National Association for the Education of Young Children, which states one teacher for every three infants and one teacher for every four toddlers up to age 3-years-old.

Obviously, these regulations are a good thing ⏤ nobody wants to drop their kid at a center where one adult watches 15 two-year-olds ⏤ but they also cost a lot of money in salaries. In the video’s hypothetical, the center has $260,000 left after covering other expenses. It looks like a large number until you realize it has to, by law, be divvied up among 10 full-time employees across three classrooms: a director who makes $22 an hour, three lead teachers at $13 per hour, and six assistant teachers who make $10.50 per hour.

None of the staff makes a median salary, and there’s no money left in the budget for medical benefits or paid vacation. Interestingly, the average kindergarten teacher in the United States makes $31.29 an hour ⏤ a whopping $17.35 per hour (or $36,000 per year) more than a pre-school educator who teaches children only one year younger.

So what’s the solution?

That’s a good question. It’s tough to vilify the child care centers as greedy profiteers when you see how the numbers actually break down. It also helps explain why parents struggle to afford daycare while their kids’ teachers are forced to take second jobs at night. Child Care Aware and Center for the Study of Child Care Employment advocate for publicly funded childcare, where daycares and preschools receive tax dollars like K-12 public schools. Washington, DC, already does this, providing two years of publicly funded pre-school, and it works well. Whether that’s politically feasible at a time when states are slashing, rather than expanding, education budgets is unclear. But what is certain is that the current system cannot sustain itself. Child-care costs can’t continue to rise. Nor can we expect early educators to watch our kids for pennies on the dollar.