Soaring Child-Care Costs Squeeze Families

 ·  Eric Morath, Wall Street Journal   ·   Link to Article

When the average cost of childcare is as much as college tuition or a mortgage payment, it not only puts a strain on a family’s budget, but it also adversely affects a family's long-term financial future. In the last 30 years, the cost of childcare has risen by more than 70 percent while wages have remained stagnant. For some families, that means one parent leaving the workforce to cover childcare costs, which limits a family's immediate income and parents’ retirement savings. Meanwhile, households with two working parents have to cope with the high price of childcare, which results in the delay of the purchase of a car or a house and saving for retirement and college.

A recent American Women poll shows an appetite for economic security policies, with 56 percent of men and 66 percent of women saying they are more likely to vote for a candidate who supports helping working parents pay for childcare.

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Wall Street Journal: Soaring Child-Care Costs Squeeze Families

Outlays rise nearly twice as fast as inflation since 2009; issue spills into presidential campaign

[Eric Morath, 7/01/16]

The fast-growing cost of raising children is putting extra pressure on family budgets, causing resentment to spill over in day-care parking lots and soccer fields and even into the 2016 election debate.

Child care expenses alone have climbed nearly twice as fast as overall prices since the recession ended in 2009, according to Labor Department data. Along with fast-rising housing costs and lackluster wage gains, families with young children are finding themselves stretched enough to draw special attention from presidential candidates.

Democratic candidate Hillary Clinton, keen to rack up votes among working moms, introduced a proposal to limit child-care costs to 10% of a family’s income. That would represent a dramatic cost reduction for many families that can easily spend a fifth of their income or more on nannies, baby sitters or child-care centers.

“It’s hard to make ends meet,” Mrs. Clinton said at a recent campaign stop in Kentucky. She has proposed expanded access to Head Start programs, universal public preschool for 4-year-olds and child-care scholarships for parents attending college.

Republican candidate Donald Trump will need to perform well in the suburbs, where families’ concerns can dominate politics, to win the White House. He hasn’t made specific child-care proposals, but he has called for helping the middle class through lower taxes and a simplified tax code.

One trouble for families: As jobs have become more plentiful, demand for child care has increased—pushing up its cost and partially offsetting income gains.

The cost of raising a child born in 2013 until age 18 is projected to be $245,340, according to Agriculture Department data. That is nearly five years of income for the median U.S. household. By comparison, the cost of raising a child born in 2003 was $226,108 after adjusting for inflation. The jump in overall inflation-adjusted costs mainly reflects increases in child-care, education and health-care expenses.

These outlays partly accounts for why many families don’t feel financially secure. An April Gallup poll found that 37% of Americans between 30 and 49, the age when many are raising children, said they didn’t have enough money to live comfortably. That was the highest share of any age group.

Child-care costs account for almost a quarter of Malki Karkowsky’s family budget. Add in rent for her family’s Kensington, Md., apartment, and more than half of her and her husband’s monthly take-home pay is gone, she said. The 35-year-old has a 3-year-old son and a daughter under the age of 1. “Thankfully, we can cover the cost of food and clothing, but not really the extras,” she said.

The family aspires to buy a home, but saving is difficult for the nonprofit executive and her husband, a schoolteacher. The family moved farther away from Mrs. Karkowsky’s job in downtown Washington to cut housing costs. The move saved $350 a month, “but that doesn’t even cover a week of day care,” she said.

In 41 states, the cost of sending a 4-year-old to full-time preschool exceeds 10% of a median family income—the level the federal government deems to be affordable—according to data from the left-leaning Economic Policy Institute. Full-time preschool is more expensive than average tuition at a public college in 23 states. Care for an infant costs more than average rent in 17 states, the study found.

Since the recession ended in mid-2009, the cost of child care and nursery school has increased at a 2.9% annual average, outstripping overall inflation of 1.6% during that seven-year period. Overall inflation has been modest in recent years mainly due to lower gasoline prices. But the cost of child care accelerated in 2014 and 2015, coinciding with the jobless rate falling to about 5%.

To be sure, Americans stretched by child care and rent are just the latest to feel the sting from uneven inflation in the economy. When gas prices rise, workers with long car commutes are disproportionately affected. Higher medical costs tend to hit older Americans more.

That presents a test for Federal Reserve officials who set economic policy based upon the average inflation rate experienced in the economy. A recent analysis by the Federal Reserve Bank of Minneapolis found that households with low incomes, more household members or older household heads experience higher inflation on average—but concluded that any given individual’s inflation rate can be several percentage points different from the average rate.

“It speaks to the challenge the Fed faces in communicating about inflation,” Minneapolis Fed Director of Research Sam Schulhofer-Wohl said. “Even if average inflation is around 2%, you have to be aware that many households face price changes that are much higher or lower than inflation.”

Increased costs are a struggle for many families, especially because incomes, when adjusted for inflation, are barely above prerecession levels. Tight budgeting “makes it challenging for them to save and create economic security for themselves, particularly at the bottom,” said Erin Currier, director of the financial security and mobility project at Pew Charitable Trusts.

The squeeze in some cases has parents pushing off home purchases or college savings, creating long-term challenges.

LaToya Caldwell, 33, a shift supervisor at a Kansas City Wendy’s restaurant, works full time at $10 an hour but says she struggles to meet even the most basic needs for her five children. Care for her two youngest children—when she can afford it—accounts for about a quarter of her take-home pay. Ms. Caldwell said that makes it difficult to afford rent, utility bills and clothes and shoes for her children.

“Sometimes, I can’t send them to day care because I don’t have enough money,” she said, forcing her to ask neighbors or family members to watch them. Ms. Caldwell said she searched for better-paying employment, but said, “These jobs are all that’s available.”

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