Friday, May 13, 2005

Financial Planning v. Child Care

Advising younger workers to start saving early – for their children’s college tuition and for their own retirement – is certainly a nice idea. But there’s an elephant in the room that I’ve never seen covered in any financial advice forum: the huge costs of child care, which can eat up 25% or more of a young couple’s annual income even among college-educated, professional workers. The problem is much, much worse for high-school educated, low-income service workers.

In many high cost of living areas (including New Jersey, where we live), high quality, full-time day care for infants, toddlers and preschoolers can cost $9,000 per year or more. When I attended Penn State University 10 years ago, that was the combined cost of in-state tuition, room and board. Unlike college costs, there are no Pell Grants or Stafford loans to help young parents pay for child care; the tuition must be paid immediately out of wages. And that’s a good thing, because if there were loans, we’d still be paying off our own college loans and our children’s day care loans in our 40s, putting off home-buying, college saving and retirement saving for another decade or two.

The upshot is, Generation X and Y workers cannot squeeze more savings from their budgets for long-term needs until America implements a significant national child care program that really recognizes the importance of all parents’ contributions to the work world, and the importance of high quality day care for our kids.


  • I live in the VERY high cost silicon valley area... but I do have one 'high tech' suggestion to keep saving for college even without money to save outright.

    There's a company called Little Grad (www.littlegrad.com) that saves money for me each time I online shop. It lets you direct the money to whereever you save for college (I use a 529, but lots of parents don't...)

    My parents signed up, so its really helped!

    By Blogger claire, At 5:14 PM  

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