Monday, August 19, 2019

America's Dumb Approach to Childcare

America's Dumb Approach to Childcare
Mrs. Done by Forty was offered a new position recently, which means in addition to enjoying the ridiculously unfair tax benefits and the joy that comes from being a two income household, we'll also get to experience what it's like to pay for full time childcare for Baby AF.

We got recommendations on childcare from friends and family. We made calls, asked questions, looked up rankings when possible, and visited about six of the facilities we thought might be the best fit. Finally, we settled on a place we really liked, and where a couple of our friends had sent their children. While the hourly costs were higher, they had a pricing system that allowed us to only pay for the hours we needed and wanted: scaling up or down as needed for vacations, or working fewer hours in the office.

So we'd settled on our choice of daycare.

And then I heard an amazing short podcast on the American approach to childcare from the University of Wisconsin Institute for Research on Poverty, and why our system is so flawed. So let's talk about that today: our system of caring for children, and how it might be improved.

First things first: why should parents, or we as a society, particularly care about the issue of childcare? What does it matter if childcare is expensive or whether a parent has to stay home to take care of the kid? It's just part of being a parent, right? And why not just apply that old saw of frugality and find the most affordable care you can? 

One reason was outlined in the podcast: the care a child receives in the first few years has long term impacts:
"There’s a convergence of evidence from neuroscience, human development, medicine, economics, psychology, all pointing to the importance of this period of development....What we know is that you see gaps in the achievement levels—academic achievement or IQ scores—of kids from high income families versus low income families and if you study the development of that gap, if you look at the time people go to college, it exists. If you go backwards through k12 to kindergarten, you can see roughly a similar size gap at age 5 as you see at age 18. So it doesn’t really widen during k12, it emerges in the first few years of life and there’s a lot of evidence that ties the widening of that gap, the creation or opening of that gap to differences in experiences and environment that the kids develop. So, when kids have access to high quality care experiences, even kids from low income families who would normally without access to these enriched environments develop one way, they develop in a different way if they do have access to those. If they’re randomly assigned to get access to a high quality developmental experience, they look more like high income kids than like low income kids."
But even if we can agree on the importance of early childhood care, parents of young children have an immediate conflict: they need someone to provide around-the-clock care for their infant or young child, while also needing to work and earn money to provide for the family. 

This conflict creates costs for families: either the immediate financial costs of daycare (averaging $10,948 annually in Arizona, but you can check your state's costs here), or in the significant opportunity costs of one parent staying home to provide care. From Aaron Sojourner, economist at the University of Minnesota:
"The basic question is, if families are trying to meet their dual responsibility to provide good care to their young children and to keep a roof over their head. And the way you keep a roof over your family’s head is to work. And so your time can either be used in parenting or it can be used in earning. And that creates a conflict. The kid needs parenting all the time and you also need somebody earning to bring resources to the family. So the question is do families have enough resources when their kids are young to meet both of those responsibilities. And how do families try to balance both of those responsibilities?"
Worse, the costs from this conflict seem unevenly distributed. The largest cost of a parent deciding to stay home and provide care is lost wages, both in the immediate term and in lower future wages. About one in five parents are stay-at-home parents, but the vast majority are women, illustrating how the burden and costs of this conflict disproportionately hit women.

America's Dumb Approach to Childcare
Source: Census Bureau
While a majority of children live in a household with two parents, a child with a single parent is over five times more likely to be living with a single mother than a single father. In these cases, the high costs of childcare are exacerbated by the wage gap: we're asking a single earner to bear the costs, while also systemically underpaying her and making it harder to pay those costs.

Beyond the immediate & opportunity costs associated with child care is the fact that we ask families to take on these costs at a particularly inopportune time. Parents are earlier in their careers, and typically earning less, when their child is between the ages of zero to five and the cost of childcare is the highest. Or, as Sojourner puts it, "We ask the most of families when they have the least." 

Parents are better able to handle the heavy cost of full time day care when they are well established in their careers and their children are older: during their prime earning years. Ironically, this is when state and local governments provide funds to care for children: between the ages of five to eighteen, through our public school system. Sojourner continues:
"Now this might make sense if it was cheaper to provide appropriate care when kids are younger—but it’s not because when kids are young, you need like one adult on maybe three or four kids, you can’t split up the adult’s time finer than that, whether it’s a parent who’s providing that care directly and giving up a wage that they might be earning in the labor market or whether it’s not a parent providing care and doing it for pay, or as a favor, you still need one adult with just a few kids. Later on, you can split the cost of the adult 25 ways or 30 ways and have bigger class sizes one kids are in K-12, just as a developmental matter, it’s more appropriate, it’s fine. But not when kids are young, so it’s more expensive to provide care. You need more adult time per kid when kids are younger and there’s less resources. So there’s this crisis—it presents many faces. It presents as unaffordable child care, unavailable child care. This crisis that families find themselves in is entirely predictable because —what else could we possibly expect to happen if families are being asked the most at a time when they have the least?"
So, to sum up:
  1. We've set up a system where we are happy to invest in children and their care via taxation from kindergarten through high school, even subsidizing higher education via federal loans, and contemplating free college and student loan forgiveness as a policy positions.
  2. But for the most part, we do not materially subsidize the care or education of children during the most critical time for cognitive development, which just also happens the most expensive time for parents to pay for care. (The Child & Dependent Care Credit is limited to 20 to 35% of $3,000 of care for one child, and is not a refundable credit: ironically this provides little or no benefit to the lowest earners who need the subsidy the most. Dependent Care FSAs give the largest benefits to high earners who need it the least.)
  3. When parents are early in their careers and are earning less, we ask them to burden higher costs.
  4. These high child care costs are exacerbated by the wage gap: asking women to shoulder the burden while also systemically underpaying them.
I'm sure there's a way to come up with a worse system to care for young children. I just can't think of one.

The irony of all this is that it's just a bad use of our public tax dollars: investing in our children later, but not in the earliest years when they could have the greatest impact. A study from the Conference Board of Canada found that a dollar invested in early childhood education yielded $6 in economic benefits down the line. 

While the Brookings Institute casts some doubts on the notion that investments in childcare actually pay for themselves, they do argue that since quality childcare is both necessary and unaffordable, and could be funded by reducing the charitable tax deduction which favors the wealthy, that there's still a justification for large scale federal subsidies.

I'm sure it seems suspect for us to argue for subsidized daycare right as we're about to take on the costs ourselves. I hope long time readers know that daycare is not going to be a burden on us. We'll come out way ahead with Mrs. Done by Forty returning to full time work, even after accounting for the costs.

And the fact that we're going to get a $1,100 tax subsidy from the federal government via the dependent care FSA, while a low income working single mother will receive no tax subsidy at all, is patently absurd. We're not the type of family that should be getting tax breaks to help pay for daycare, but such is the system we have.

We've created a backwards, underfunded system of care. We're making public investments at the wrong times, and giving the largest tax breaks precisely to the parents (like us) who don't need them.

With so many parents struggling to meet this basic necessity for their families, surely some sensible reform is in order. 

As always, thanks for reading.

*Poster is from the Children's Bureau Centennial at Flickr Creative Commons.
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  1. Here in Australia subsidies for child care are paid to families related somewhat to income. The result seems to be to push up the price of childcare. Also it is hard to get child care where you want it. You have to get on several waiting lists and hope someone comes through for you. I don't understand how paying big subsidies to consumers is compatible with shortage. You'd expect lots of childcare to enter the market to earn the subsidies...

    1. Lack of available care is an interesting wrinkle that I didn't touch on, mOOm, but one that the Brookings Institute article linked in the piece did.

      Economic principles would indicate that if you make something cheap or free then more people will use it: that's kind of the point with providing universal or near universal child care. But there probably will be impacts to scarcity (what the Brookings Institute calls 'overuse') and, also, to price.

  2. Man, what an interesting and relevant article Done By Forty. We just started sending our daughter to an in-home daycare. I'm super fortunate to have found the day care I did. It is way below the State of Ohio average. But I saw the potential trade off before we found this person. Most daycares were expensive. If we wanted a frugal option, it could be a person baby sitting that was doing this as a second job. Not that that's a bad thing, but would it really have given our daughter the development and care she needs? In the end, something should be done. I couldn't agree more. This time is so critical and their lives and I've seen the benefits first hand for my daughter, and my wife, that having the chance to be there for you child provides.


    1. Hi there, Bert. Thanks for leaving that comment.

      It's great that you were able to find that daycare solution and that it's both quality and below the state average. That's the sweet spot we're all looking for, but obviously a lot of people will have to end up sacrificing either quality or cost.

      Like you said, we should do something. I'm a big fan of the Warren proposal linked at the bottom of the article, for one.

  3. We're right there with you. Though it is a burden for us, on our incomes in our living area, we are very lucky that we can make it work anyway, and we are definitely coming out ahead having both incomes and paying the price. We're also very lucky that we have been careful *enough* in other areas of our lives to even HAVE the choices to make that we do now. Had our child come five or ten years earlier, and ze could have, we would be in very different circumstances and most of them not good.

    We know there are a lot of people who are making far worse compromises in the same income brackets to make it work on their ends.

    1. That's great to hear that your family is able to come out ahead while working, Revanche. And it makes me feel good to know there are others in that situation, too.

      But, same: had Baby AF come maybe 5-10 years earlier, we would have been in a huge financial bind. No being done by forty, then.

      With costs for daycare so high, and no material public investment at the time it's so desperately needed, I fear a lot of workers are simply deciding to stay home, mostly women, who are then forced to bear the consequences in their wages for a long, long time.

  4. Man this is such a great and thorough post. So many pieces in here I wouldn't have put together or even thought about, as a DINK who never plans on having kids. We really need to do a better job of lifting up everyone in our society; why not start as early as possible, especially if the benefit is going to be so huge? I'm all for student loan forgiveness and other subsidies for later in life, but this sure is a compelling case to subsidize individual's well-being as early as possible.

    1. Hi there, MikeyB, and thanks for the very kind comment. :)

      I really appreciate that viewpoint even as you're not planning on having kids yourself. I think that's what we need more of in our society: caring for people and issues even if they don't immediately impact ourselves or our family.

  5. I'm nodding through this entire post. Let's push for change. The current system is ridiculous. We were fortunate to be able to pay for our part-time nanny with real-estate income, and even that was a substantial ding. What about those with less fortunate circumstances?

    1. Thanks, Cubert!

      That's great that you have a separate income stream to pay for the costs of child care, but it's even better that you acknowledge that it's not an avenue many people have for themselves. Love when people acknowledge their own unique advantages and push for change for others.

  6. Gosh yes! The childcare situation in the US is really messed up.

    I'm luckily now in a position where I can afford to send my toddler to a good quality daycare, but just two years ago I was really struggling as a recently divorced new mom with an infant. This was easily the worst period in my life - emotionally, financially...

    I know logically that any proposals to offer universal daycare and pre-K will not directly benefit me, because by the time they would be enacted, I will no longer have young children. But generally I look at things from the view of "What will do the most good and benefit the most people?" Children are the future. I would consider it to be a huge "win" if people younger than me, when they become parents, don't have to experience the struggle and panic that was my introduction to life as a new parent. I didn't have enough money to properly care for myself and my child, but I made too much money to qualify for an assistance. It was devastating and I feel a lot of anxiety whenever I think back on that period of time.

    1. I'm sorry to hear about the difficulties in that time, Kay. Having to pay the very highest daycare costs (for an infant) while recently divorced must have been a tremendous financial & psychological burden. But it's so rad that you have the mindset of helping others, even if it doesn't directly benefit you.

  7. Yes we also feel very lucky that Mrs T can decide to work part time to look after the little one, without materially affecting our lifestyle or dent our FIRE plans too much. What's funny is that we know plenty of higher earning couples who "need" to send their kids to daycare just to pay the bills. I know that's not what your article is really about and I obviously sympathise with the lower earning sector and the single parents out there. But even the higher earners tend to mess things up anyway.

    If you feel bad about the 1100 tax credit why not donate that to a single Moms charity or something like that? :)

    1. "What's funny is that we know plenty of higher earning couples who "need" to send their kids to daycare just to pay the bills. I know that's not what your article is really about and I obviously sympathise with the lower earning sector and the single parents out there. But even the higher earners tend to mess things up anyway."

      I don't follow your comment. Can you explain what you mean?

    2. Apologies, it was early in the morning and written on my phone so probably not very coherent.

      I just meant that there seem to be plenty of people we know that are in the "well off" category just like you and I, who are putting their kids in daycare not so much out of choice but because they feel they both have to work to cover their expenses.

      Obviously if both parents want to continue to work there is no issue with this, I just get the feeling that in most cases this is not actually the case, and it's basically because they spend too much. I haven't asked anyone directly but it's just a feeling you get from chatting casually about things.

      e.g. people often comment that Mrs T is "so lucky" to only have to work 2 days a week and so spends more time with TFS junior and avoid paying over the top childcare costs. Well if they didn't live in a huge house with corresponding huge mortgage, they would also be able to spend more time with their kid, and pay less for childcare costs. Most of our friends actually earn more than we do as well, hence me saying "even the higher earners tend to mess things up anyway"

    3. Ah, I see what you're saying. Yeah, I can see both sides of that issue. I think sometimes people could cut back on spending if they'd prefer to be home with their families: especially high earners.

      But I do think the cost of childcare is so high that it forces some weird tradeoff decisions. Like, people who might enjoy working at least part time (usually women), or even full time, are discouraged because the very high cost of childcare provides a hard nudge to stay home: they don't think the net increase in income is worth it.

      Anyway, I think lower cost childcare, via subsidies from the government, is a win win win: for people who want to work, for people who still want to stay home, and for children.

  8. Over here in the UK you get 15 hours free per week from the age of 3, and that bumps up to 30 hours/week if you are on low income.

    I don't know what low income people are supposed to do between the ages of 0-3 - just survive the best they can I suppose - but it sounds like we have a much better/fairer system than you do over there!

    1. "it sounds like we have a much better/fairer system than you do over there!"

      LOL. It sure sounds like it, though it wouldn't be hard to have a better system.

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