Choosing childcare: Can you afford daycare for another child?

Business Editor·NZ Herald·

30 Jun, 2020 05:00 PM14 mins to read

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Pre-school centres provide education and are not just baby-sitting services. Photo / Michael Craig

Private centre, home-based care, playcentre, kindergarten … the world of early childhood education is a complex and often expensive minefield. No wonder parents and caregivers are overwhelmed when it comes to the best options for under 5s. With most mums and dads in paid work by choice or necessity, the

When Jo was looking at going back to work after having her second child she was shocked at how much she would need to pay.

For fulltime care for two children under 3 she was looking at $450 a week - and that was with a discount on the full $600 the daycare centre could have charged.

The cost of daycare for her two little ones was virtually the same as the mortgage payments on her Auckland house and, after paying for all the other costs of running a home, the family would be left struggling just to get by.

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Yet once she went back to work she and her partner would be earning too much together to get any childcare subsidies.

It's a situation familiar to all too many families and often results in some delaying their second child so they get the 20 hours free subsidy from age 3 to make it more affordable or, in other cases, one parent has to quit their job because the cost of care means it is not worthwhile them working.

For some it's a really close call. One mum of one told a Facebook group that after paying for the costs of her little girl to be in care fulltime she was only $100 better off a week.

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"If I didn't work we would be struggling to meet our financial commitments, yet because of daycare we are only $100 a week better off.

The woman said she wanted to have a second child but the thought of two kids in daycare "scared the crap out of us" because of the cost and they couldn't afford for her to stay home.

"We have to choose between working to get by, or having the family we've always dreamt of."

OECD data based on 2019 figures found that Kiwi couples on an average wage, using fulltime, centre-based care for two children aged 2 and 3, spent 26 per cent of their household income on childcare.

This is a lot more than the OECD average of 11 per cent, but Kiwis are not alone in paying a high price for early childhood services.

In the UK couples spent 28 per cent of their household income and, in Ireland, parents shelled out 21 per cent. Australian parents paid out 17 per cent of their household income.

Those at the other end of the scale - Germany, Norway and Sweden - have high levels of government expenditure on childcare and families pay less.

In Germany couples spent just 1 per cent of household income on childcare, Norway spent 6 per cent, while in Sweden couples paid 4 per cent.

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A single parent earning 67 per cent of the average wage with two children aged 2 and 3 in fulltime care was better off in New Zealand with around 12 per cent of their household income going to childcare costs, just above the OECD average of 10 per cent.

The UK was the most costly in this case with 37 per cent of household costs going on childcare followed by the US on 33 per cent and Cyprus with 32 per cent.

How much of a cut are childcare centres taking? Photo / File

Peter Reynolds, chief executive of the Early Childhood Council, the body that represents childcare providers, says it is difficult to compare New Zealand's childcare costs to countries like Sweden where taxes are very high.

Pre-school care in New Zealand is also both care and education and teachers are largely qualified which pushes up the cost of it.

"That means there are certain obligations - the carers are teachers who are qualified. But having teachers looking after the children pushes up the cost of it."

He says for an average childcare centre 77 per cent goes into wages. "Nobody begrudges that and that is the nature of the system."

But he says that means New Zealand can't be compared with other countries' systems as easily because they have systems which are not teacher-led.

"In New Zealand it is education-led, teacher-led. It is not a baby-sitting service."

Unlike primary or secondary school education which is a public system, the main system of pre-school care in New Zealand is private.

There are around 4500 licenced ECE services in New Zealand. Of that 2600 are childcare centres.

Of the 1300 ECE Council members around 70 per cent are privately owned businesses and 30 per cent community owners.

"This is an expensive service to operate because of the care and education component."

Centres have a curriculum to follow and checks by the Education Review Office they have to meet. "That sort of stuff comes at a cost."

And they are important so parents know their child is safe and will be well-prepared for school, Reynolds says.

Parents complain about the cost being comparable to private school fees and that is essentially because it is private schooling.

But with one main difference - the government also provides funding. There is a general subsidy paid by the government to providers depending on the service, what percentage of teachers are certified and the age of the child.

Children aged 3 to 6 get funded at a higher hourly rate with services able to claim this 20 hours ECE rate and then up to 10 hours of the 30 hours funding rate.

Those who claim the ECE rate are not allowed to charge parents for the first 20 hours.

According to myece.org.nz for kindergartens the current funding rate for under 2s ranges from $8.89 an hour to $14.38 per hour for up to 30 hours per week from July 1 and for over 2s it ranges from $4.51 per hour to $8.01.

For kindergartens the 20 hours ECE rate is between $9.81 and $13.56 from July 1 depending on the percentage of certified teachers.

These rates are set to rise again in July 2021.

For all other teacher-led centres - kindys, pre-schools, Montessori centres, language nests and licensed all-day education and care centres - the 30 hours funding ranges from $7.83 per hour to $12.53 per hour for under 2s and $3.96 to $6.93 for over 2s.

The first 20 hours ECE funding for children from ages 3 to 6 ranges from $8.62 to $11.82 per hour.

Home-based services get either $7.28 per hour or $8.59 per hour for under 2s depending on whether they offer a quality or standard service and either $3.94 or $4.60 per hour for over 2s for the 30 hours funding.

For the 20 hours ECE funding for children from ages 3 to 6 it is either $8.76 per hour for standard or $9.59 per hour for quality.

Kohanga Reo funding rates are either $10.31 per hour or $11.45 per hour for under 2s or $6.34 per hour or $6.90 per hour for over 2s for the 30 hours funding.

The first 20 hours ECE funding for children ages 3 to 6 is either $10.40 an hour or $10.89 an hour.

Playcentres, which require parental supervision, have funding rates of either $8 an hour or $9.14 an hour for under 2s or $4.03 per hour or $4.59 per hour for over 2s for the 30 hour subsidy.

The first 20 hours ECE funding for children ages 3 to 6 is either $5.13 per hour or $5.71.

In return for this higher 20 hour per week funding rate from the government, the provider must not charge parents a fee for these hours.

But there are strict rules around using the 20 hour free service. For a start only six hours of the 20 can be used in any one day - a situation which can make it tough for working parents.

Sarah Alexander is a researcher and chief executive of ChildForum which provides advice and support to early childhood services. Photo / Supplied

Dr Sarah Alexander, a qualified early childhood teacher and former university academic in child development who set up the website myece to increase transparency in the system, recommends parents look at how much government funding an organisation is getting and how much they are paying on top of that to help weigh up their decision.

"I suggest to parents they look at funding rates, and depending on the funding rates and the fee on top they can consider if it is reasonable or not.

"In some cases centres are getting $12 an hour funding for a child and then charging the parents $8 on top of that. Where is this going? Parents have every right to ask questions."

Alexander said her research showed, on average, community-based services had lower fees compared to privately owned and operated centres which need to make a return on their investment.

But not every area has a community-based centre and travelling out of your area has other added costs.

Home-based care could also be cheaper, she suggested.

Kindergartens get higher funding from the government because there is an agreement that the teachers are paid in line with primary teachers so that extra funding goes to paying the teachers' salaries.

Alexander said the 20 hours was a "bit of a have" because parents could get locked into contracts which meant their child had to be at a centre for a certain number of hours or days.

"Services can charge what they want outside of the 20 hours."

That includes the hourly rate and optional charges for providing food or nappies.

Alexander said that meant parents could either pay extra for the food or send their child with a packed lunch which could make it awkward being the only kid with a packed lunch.

Parents might also have to pay when the service is closed over the Christmas holidays or for public holidays.

Optional charges mean parents can say no to paying them but this needs to be agreed at the beginning before the child starts at the centre.

But, says Alexander, there is a huge moral obligation on parents to agree to help smooth the way.

"No parent wants their child to be treated differently. They want their child to have a good relationship with the centre."

Alexander believes one way the service could be made more affordable to parents is to increase the access to the Winz subsidy.

The subsidy is available for up to nine hours a week for children of families if the parents/caregivers are not in paid employment, studying or training.

Those who are working, in training or seriously ill or disabled can get a subsidy for up to 50 hours a week if they earn under a certain amount.

Households with one child can get $5.22 per hour if they have a gross income of under $800 per week or around $41,600 annually.

Those with a gross household income of between $800 and up to $1200 a week can get $4.16 an hour, for $1200 to up to $1300 a week it's $2.91 an hour, and for $1300 to $1399.99 it's $1.62 per hour. If your household earns over $72,800 and you have one child you won't get anything.

Households with two children can earn up to $1600 a week or $83,200 and get some subsidy while those with three children can earn up to $1800 a week or $93,600 before the subsidy is cut.

Some parents believe the earning cap is too low which means they have to weigh up whether it is worth working more and losing the subsidy only to find they are not much better off financially.

Conversely Reynolds believes the funding for centres is what needs to rise to bring the costs down.

He says the costs for centres have kept rising but over the last 10 years the per-child funding rate from the government has reduced.

In the 2019 Budget the Government finally lifted it 1.6 per cent and then 1.8 per cent.

But he says over the last 10 to 12 years services have lost ground by 24 per cent.

"We are not going to begrudge any increase. But it's got a long way to go to catch up."

Kindergarten teacher pay is set to go up and that will put pressure on other centres to also increase pay, Reynolds says. "The best advice I can give is shop around."

Alexander says a lot of new centres have been built in recent years and there is now overcapacity in some areas.

"There is a lot of competition there now."

Alexander says many parents haven't realised there has been a change - instead of long waiting lists some centres are now undersupplied and don't have enough children to fill their books, giving parents more negotiating power.

"Many bigger services are operating under capacity. If parents knew that, they could use it to bargain."

She said it was in the interests of the centre to have a child in place. She said that meant some centres were offering free childcare to 2-year-olds to try to get them in place ahead of the 20-hour subsidy.

"They can do that because the funding will be coming in anyway."

Alexander says parents need to put as much value on choosing an early childcare centre as buying a car. When it comes to buying a car we will often look online and do a test drive of numerous cars.

"You just book in like you book into school and think it is uniform. But there is a lot of variation."

HAPPY TO PAY

Anthony and Melissa Ranaldi say pre-school care for son Oliver is expensive but worth it. Photo / Supplied

Melissa Ranaldi has a 20-month-old son called Oliver who has been in daycare since he was 9 months old.

He goes four days a week and she pays $75 a day. That's $300 per week.

Ranaldi said she was told to check out a few centres before enrolling her son but decided on the Kindercare as it was close to home and had a good reputation.

"I liked the look of it ... I met the centre director and loved her. I literally went this is perfect - have you got space?"

Ranaldi said she had no idea of the cost of daycare before having her son.

"I had no idea. I figured it was going to be in the hundreds.

"My feeling on it is - they are looking after my most precious possession - so it's worth it."

She said the centre was amazing when she needed to book her son in for another day.

She now works four days a week - three at an advertising agency and another day for her partner's business.

The cost of the childcare means she has to work an extra day to pay for the care.

"That's money I could be spending elsewhere. It is not cheap."

But she values the good quality care. It has meant she has had to cut back a bit on hair and nail appointments but she says that is just one of the small changes she has had to make to become a parent.

The centre provides vegetarian food. But parents still have to bring nappies and formula for their children.