U.S. families grappling with ‘exponential increase’ in child care costs: Care.com CEO

Care.com CEO Tim Allen joins Yahoo Finance Live to discuss rising nanny and daycare costs as well as how hybrid work arrangements are affecting child care.

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- Well, inflation is a big reason why we've seen the markets sell off lately. And on top of the higher gas and food prices that people are paying, child care costs are also going up. And parents are feeling the pinch. Now, a new Care.com survey found that more than half of American families spend 20% or more of their income on child care. For more on this, we want to bring in Tim Allen. He's the CEO of Care.com. And Tim, it's great to see you. First, I guess just explain to us, give us a sense of how much people are spending on child care per month and how that compares to what we were spending pre-pandemic.

TIM ALLEN: Yeah. No problem. So what our survey found is over half of the American families with children are spending more than 20% of their household income. The government actually recommends for that stat to be 7% of household income. So as you can imagine, we are far exceeding as a nation on multiple vectors what we should be spending on child care. As you just flash on the nanny rates, we've seen an exponential increase from when we did the survey in 2019 to the survey today in nanny rates, but also daycares and child care centers.

On average, you've seen anywhere from a 5% to 15% increase in the overall cost on both of those sectors, both nannies and home, and also in child care centers. In fact, if you have two children, it is actually the equivalent cost to be using a nanny as it is to be going to a child care center. So that is a staggering fact that actually has taken shift over the pandemic. And what that's all as a result of is high demand.

I don't know if you saw the news article. There in Nashville, they were opening up a child care center, and they had families waiting overnight. They had 100 parents waiting overnight just to get a slot into that child care center. So you have high demand with a limited capacity. In fact, most child care centers have a wait list of two years or more in some areas. So you are definitely seeing inflation play a role here. But you're also seeing a rise in demand with families going back to work and trying to figure out this new configurable schedule due to the pandemic.

- And it really was difficult enough. I remember being five months pregnant and still being on a waiting list to get my daughter into a childcare. So I can't even imagine now how much more pressure that is. You mentioned the rapidly changing workplace, obviously, with hybrid work. Is that making the picture for home care more complex?

TIM ALLEN: It is. What we've actually seen is families are starting to what we call configurable care set up configurable care. And that means multiple caregivers. That means caregivers that can come at certain sectors of time, meaning it's no longer a 9:00 to 5:00 economic issue for families. It is a, if I have an afternoon meeting or I know that my Tuesday morning is going to be full, how do I get care in those hours of which I need it to occur, especially if I'm working from home?

With a hybrid environment, with a work from home environment for most white collar workers or a majority white collar workers, you're seeing this flexible scheduling really come into effect, where they're going, look, I don't need someone from 9:00 to 5:00. I don't need someone for just after school. I need someone for these in-between moments when I know that my schedule is going to get crushed. Now, then you have the other spectrum of the market, which is you have the essential workers, the workers who are going in every single day and don't have the luxury of sitting from home and working from home.

So they still have to go to the warehouse or they have to go and work from the job or be in the office. You're seeing those members of society also go, wait, school ends at 3:00. My job doesn't end at 3:00. So how do I get someone to fill the after-school hours or the after-school schedule? So we've actually seen a real boost in demand on in-home care as an outcome of that.

- And, Tim, taking a look at these rates that you have in this survey, $694 for a nanny per week. $226 for a daycare per week. When we take into account that people are paying so much more for their child care, what kind of domino effect does this have on the economy?

TIM ALLEN: Yeah. It's a great question. This definitely is a share of wallet. It is eating up a share of wallet that doesn't leave for other goods. In fact, 31% of the respondents in the survey said that they were going to start looking for a second job just in order to afford both child care and the things that they would like to go actually purchase or share inside of the economy. You have people who are reconsidering luxury goods or kind of non-essential goods such as travel, vacations.

You have a lot of families that are starting to consider and especially that we found out inside of the survey how they're going to start to reduce their share of wallet in terms of being able to afford child care. So it has this knock-on effect economically that really hurts us in terms of society from having more dollars to be able to be deployed into the economic factors as the economy is continuing to try to rebound from a post-pandemic effort.

- And to that point, obviously, during the pandemic, a lot of people, you were afraid to have somebody else in your home in case, you know, in case infection spread. What about the nannies and the carers themselves? How are they faring in this sort of environment? And what sort of rates are they able to command?

TIM ALLEN: Yeah. So it's been great for caregivers. And we've always advocated for caregivers to be above board, meaning like being paid above the table, really being able to be paid on a payroll. And we're seeing a lot more of that actually take hold. We're seeing a lot more families use our home pay system of payroll tax benefits where you can pay some legally because not only does the family get a tax benefit, but then the caregiver also gets a lot of the security in which they were lacking during the pandemic of things such as unemployment or things such as just some of the Social Security benefits of what occurs inside of paying someone legally.

What is interesting is now with the demand so high, you're starting to see caregivers who are able to command a real reasonable livable wage, which is fantastic. We have babysitters who are commanding $30 per hour. And not only that, they're also being able to-- the families are trying to entice them because they're such limited amount of caregivers available at this moment in time with free meals, transportation.

It really is a caregiver market at this moment in time in terms of being able to go out, gain employment, get either part-time babysitting jobs or get full-time nanny jobs. There's a real boon there. So you're seeing that supply and demand equation really fit in terms of the caregivers are able to go, hey, I'll do it for this. And it's really a caregiver market at this moment in time.

- It certainly is. I'm seeing that firsthand as a mother of a three-year-old and a six-month-old. Tim Allen, thanks so much for joining us. CEO of Care.com.