Recent data from the Bank of America Institute reveals a notable discrepancy in consumer spending among American families who pay for childcare. Since May, these families have been curbing their expenses more than others and tapping into their savings to a greater extent.
While the variance in spending is relatively modest, it indicates the mounting financial pressure faced by families with young children. In September, the average monthly expenditure on childcare nationwide exceeded $700, representing a significant 32% increase since 2019. The city outliers with the highest childcare costs were San Francisco and Seattle, where expenses were nearly double the national average.
Several cities have experienced accelerated growth rates in childcare expenses, outpacing the national average. Tampa, Florida, witnessed the most rapid surge in September, with a pace 12% faster than the country as a whole. Atlanta, Orlando, Dallas, and Seattle followed suit.
Despite these rising costs, consumer spending remained robust in September. Nevertheless, some economists express concerns about its sustainability, suggesting that reliance on savings to fuel expenditure may not be a viable long-term solution.
The Impact of Childcare Expenses on American Families
In a recent report by the Bank of America, it was found that families across income groups ranging from $50,000 to $250,000 a year experienced a greater drain on their savings in September if they paid for childcare compared to households that did not. This draws attention to the financial challenges faced by parents and families who rely on childcare services.
According to Bank of America internal data, there is still some financial breathing room for many parents and families as their cash savings in 2023 are 30% higher than they were in 2019. However, those who do not pay for childcare have even more money in their bank accounts. It is important to note that this situation might change if the current trend continues, potentially impacting these families and overall consumer spending in a significant way.
While American families experienced an increase in their overall wealth during the pandemic, couples with children saw slower growth in their net worth compared to those without kids, as reported by the Federal Reserve. In 2022, couples without kids had an average net worth of $398,960, a 37% increase from 2019. On the other hand, couples with at least one child had an average net worth of $291,770, a 34% increase from 2019.
Researchers from Bank of America have also identified evidence suggesting that rising childcare costs might be causing some parents to leave the workforce. The study found that households paying for childcare received an average of 1.34 payrolls deposited into their Bank of America accounts per month, slightly lower than the 1.39 payrolls per month reported in 2019.
Moreover, the expiration of $24 billion in pandemic-era government funding for childcare on September 30 has set the stage for potentially higher childcare prices due to surging operating costs for providers. Several states, including Pennsylvania, Wisconsin, and North Carolina, have already witnessed the closure of childcare centers and programs, resulting in increased prices. Furthermore, in an attempt to address this issue, the Biden administration has recently requested an additional $16 billion from Congress. However, with a Republican-led House, it remains uncertain whether this request will be approved.
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