In terms of your household spend, it’s one of the most contentious charges we see today: The cost of childcare for Australian working families.
It’s a topic that often elicits a number of responses, some emotional, but most entrenched in the realities of working life. It’s a $12bn industry in Australia, and with cost of living pressures facing us all, it’s an industry that is going to see more growth in the future. It’s topical too: Next week, the Child Care Benefit and Child Care Rebate will be replaced with a new financial assistance payment, the Child Care Subsidy, which has many people wondering what that means for them.*
However, putting aside the government changes and the emotional aspects, and looking at it from a financial perspective, does it all stack up? Is there a ‘best’ way to manage childcare, financially?
High costs equal family budget pressure
For most families with young children, the conversation on returning a parent to the workforce is one that will inevitably rise at some point in time. We live in an era where cost of living pressures, such as housing prices, energy, food and the like, mean that relying on a single income is a luxury that few can afford. This is particularly true in major capital cities like Sydney and Melbourne, where housing prices have exploded in recent years.
There’s also an economic value attached to this: The federal government is keen to see parents back in the workforce and provide a number of incentives to return to work.
Affordable childcare then becomes a focal point. You won’t see many places in a capital city going for under $100-150 per day, per child. There’s been plenty of media attention around the upcoming price hikes that all parents will be dreading. As a cost, it stacks up fast.
There have been numerous attempts by the government, through various mechanisms, to make the cost of childcare more affordable, however, the impact of this is often negligible (or at least debatable). I won’t devote a large amount of time in this piece to the reasons behind the pricing levels we see in Australia, you could write a post on that alone! What I will focus on is this: It’s still, for most working couples, one of the major monthly expenses. So what can you do to better manage its impact on your finances?
The first strategy I would suggest is the same as many other financial decisions: Plan ahead. A financial mistake many make when planning a family, is to budget for a bigger home, car, and maybe some other incidental costs, but never even consider the costs associated with returning to work.
Putting away money earlier as part of your savings plan will help negate the impact of childcare costs later. It helps you avoid relying on your wages at the time of making the decision to return to work, softening the blow to your overall finances. Planning for tomorrow is always the first step.
In terms of returning to work, it’s also important to do the numbers of the additional wage vs. the cost to earn it. In your personal circumstances, it could work out that returning to work will actually leave you worse off financially. Of course, everyone has their own reasons for returning to work, not just financial, however, my advice would be to do your numbers as part of the decision-making process.
Look at alternatives
Of course, there are a number of alternatives to traditional childcare options.
We’ve seen the rise in recent times of family members stepping in to help, the so-called ‘Grandparent carer’. For those lucky enough to have that option, it can certainly help financially to explore it. In many cases, it may be a shared arrangement, with family members chipping in for certain days, mixed with traditional childcare on others.
Another alternative is to look at an au pair. Having a live-in nanny can actually be more affordable than childcare, with the added benefit that the agreement may include additional tasks around the home that can save time and cost. The trade off is that someone is living with you, adding another person to the household. If this is an option you’d like to consider, I’d suggest looking at a reputable au pair agency to ensure you have some level of comfort in the experience of the individual you’re hiring.
Whatever you decide to do, planning ahead and exploring your options will contribute to a better financial outcome.
* For those interested in a detailed analysis on the new Child Care Subsidy and what this complex change means for you, we’ve developed a comprehensive article covering this, available at our knowledge centre. Click here to download the report.