US Childcare Costs Jump Over 30 Percent in 4 Years: Bank of America

A 2-year-old receives her first dose of the Pfizer COVID-19 vaccination from a nurse while being held by her mother, at UW Medical Center - Roosevelt in Seattle, Wash., on June 21, 2022. David Ryder/Getty Images

Families are now spending 30 percent more on childcare costs compared to 2019, with middle-and upper-income groups seeing the largest increase in such costs in the recent quarter, according to a recent report by the Bank of America (BofA).

The “average monthly childcare payments per household have increased steadily over the past three years. As of September, an average family spent over $700 per month, 32 percent higher than the 2019 average,” BofA said in the Oct. 27 report. The biggest increase in childcare payments for Q3, 2023, was seen among the middle- and upper-income groups.

Households with annual incomes of between $100,000 and $250,000 saw over 7 percent increase in childcare payment costs in the third quarter of this year compared to the same period last year. For all other income groups, costs rose by less than 5 percent.

BoFa speculated that the surge in childcare costs among the $100,000-$250,000 group could be due to such households having “two incomes, and therefore rely the most on outside childcare services, while also being more tolerant to price increases.”

In contrast, “families with the lowest annual incomes may be less able to absorb higher childcare costs, so may have needed to cut back on their usage of childcare facilities.”

Larger cities like Seattle and San Francisco had the highest average household childcare expenditure, which was twice the national average as of September. Charlotte, Miami, and Orlando were the most affordable cities nationwide.

In terms of year-on-year growth in childcare costs for September, Tampa ranked at the top, with expenses rising by 12 percent. This was followed by Atlanta, Orlando, Dallas, and Seattle.

“In our view, part of the increase in childcare prices in southern cities could be driven by the ongoing migration into these cities, which has put a bigger upward pressure on the cost of childcare,” BofA said in the report.

Moving forward, BoFA estimates childcare costs to “rise further” as the Child Care Stabilization program expired on Sept. 30. The program was part of the American Rescue Plan of 2021 and granted subsidies to childcare providers.

“This could have a meaningful impact on consumers because over 12 percent of US households pay for childcare on a regular basis, according to the Department of Health & Human Services, and any further increase in prices would disproportionally weigh on families with young children,” it said.

“According to a recent survey by Care.com, for parents that pay for childcare, 67 percent are already spending 20 percent or more of their annual household income on such services.”

Child Care ‘Deserts’

The BofA report comes as Democrats are pushing for more federal funding to address concerns related to child care, proposing a $600 billion institutionalized childcare system run by the government. However, Republicans have expressed opposition to such plans.

During a May 31 hearing to the Senate Health, Education, Labor, and Pensions (HELP) Committee, Sen. Bill Cassidy (R-La.) warned that investing federal government dollars into child care could end up causing more harm by raising costs.

He gave the example of higher education costs to support his view. “As more federal assistance has gone towards student loans, the cost of higher education has skyrocketed,” he said.

According to a Feb. 3 report by the advocacy Council for a Strong America, 51 percent of Americans live in a childcare “desert” where there are more than three kids under the age of five for every licensed childcare slot.

“Availability is especially limited for families who have infants and toddlers, have low incomes, work nontraditional hours, or live in rural areas. For example, 60 percent of rural residents live in a child care desert,” the report said.

“The average cost of center-based child care for infants is more than in-state, public college tuition in 34 states and the District of Columbia.”

The majority of American parents who have very young children are already in the workforce, it said. The report estimates there are 11.4 million children under the age of three in the United States who belong to 14.1 million working parents.

Depletion in Savings

According to the BofA report, the rising cost of childcare affected families in two ways—spending dipped, and savings got depleted.

“Since May 2023, card spending for households with childcare payments started to lag the rest of population, although the gap still looks fairly modest,” it said.

Among all income groups in the report, households shouldering childcare payments were found to have a faster year-over-year decline in bank deposits compared to the rest of the population as of September 2023.

“But it is not all bad news. When compared with 2019 levels, even these families have considerable excess savings, which could continue to provide a financial buffer.”

The bank also raised concerns that the rising childcare costs could affect the labor market.

The high costs “might be driving some parents out of the workforce in order to look after their children. Specifically, among families that pay for childcare, there are fewer dual-income households in 2023 than in 2019.”

Over the past two years, the prime-age (25-54 years old) female labor force participation rate (LFPR) has risen to “historically high levels,” the report stated.

“However, the rising cost of childcare has sparked concerns about a reversal in the female LFPR given that childcare responsibilities have traditionally fallen disproportionately on mothers.”