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Tuesday, July 23, 2024

Survey of American Child Care Costs: Perception vs. Reality

Perceived Versus Actual Childcare Costs In America
Jon McDonald

Written by: Jon McDonald

Jon McDonald
Jon McDonald

Jon McDonald brings more than 15 years of journalism expertise to CardRates.com. Informing financial consumers about emerging trends and companies making an impact in the industry, Jon is most knowledgeable in the areas of budgeting, credit card rewards, and responsible credit use; he strives to bring that experience to readers worldwide. Jon has a passion for writing and editing, and his articles have appeared in publications produced by The New York Times.

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Edited by: Lillian Guevara-Castro

Lillian Guevara-Castro
Lillian Guevara-Castro

Lillian Guevara-Castro brings more than 30 years of editing and journalism experience to the CardRates team. She has written and edited for major news organizations, including The Atlanta Journal-Constitution and the New York Times, and she previously served as an adjunct journalism instructor at the University of Florida. Today, Lillian edits all CardRates content for clarity, accuracy, and reader engagement.

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Reviewed by: Ashley Fricker

Ashley Fricker
Ashley Fricker

Ashley Fricker has more than a decade of experience as a finance contributor and editor, and has specialized in the credit card industry since 2015. Her credit card commentary is featured on national media outlets that include CNBC, MarketWatch, Investopedia, and Reader's Digest, among many others. She has worked closely with the world’s largest banks and financial institutions, up-and-coming fintech companies, and press and news outlets to curate comprehensive content and media. Ashley holds a bachelor's degree in multimedia journalism from Florida Atlantic University.

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We deploy a step-by-step methodology to each piece of research we publish to ensure our studies offer complete coverage and meet our rigorous editorial standards.

The financial realities of child care can often catch parents off guard in the whirlwind of excitement surrounding a new baby’s arrival. The average American family will spend over $20,000 during a baby’s first year on expenses like day care, diapers, and other supplies. From the relentless cycle of diaper changes to the hefty price tag of day care, the expenses can quickly add up, leaving many families with sticker shock.

In this study, we took a candid look at the true cost of a baby’s first year, analyzing five major expenses — day care, diapers, formula, food, and new clothing — using data from Child Care Aware of America and the U.S. Department of Agriculture, among other sources. Then, we surveyed more than 2,100 Americans nationwide, asking them to estimate the annual cost of these five child care expenses. Finally, we compared the actual costs with survey respondent estimates, revealing disparities between perceived and actual expenses and highlighting public awareness (or lack thereof) about the financial demands of parenthood. 

Continue reading to discover how accurately Americans in our survey can estimate the cost of a baby’s first year.

Perceived vs. Actual Day Care Costs, State by State

First, we zeroed in on day care costs, comparing the actual annual cost of day care for one infant in each state to the perceived cost according to state-by-state survey responses. The results were eye-opening: Over half of the states (56%) underestimated their state’s average annual day care cost.

But parents proved to be more accurate than non-parents, with surveyed parents providing closer estimates in nearly 60% of states. 

A chart highlighting the states where residents most underestimate annual day care costs for an infant

On a national level, the annual cost of day care is 10% higher than respondents expect. The national average annual day care cost for one infant stands at $13,266, while Americans estimated it to be $12,055, falling short by $1,211.

The five states where residents most underestimate annual day care costs are:

  • Massachusetts – $11,734
  • New York – $8,368
  • District of Columbia – $8,217
  • Hawaii – $7,488
  • Colorado – $5,089

Massachusetts residents have the largest gap between perceived and actual day care costs, and understandably so, considering the state has the highest day care costs in the nation. In Massachusetts, respondents estimate day care costs at $12,738 annually, yet the actual figure is $24,472, revealing an $11,734 disparity. Therefore, the annual cost of day care is 63% higher than Massachusetts residents expect. New York, D.C., and Hawaii follow with gaps ranging from $7,000 to $8,500.

The five states where residents most overestimate annual day care costs are:

  • Oklahoma – $3,373
  • West Virginia – $2,983
  • Georgia – $2,741
  • Louisiana – $1,882
  • Pennsylvania – $1,560

Oklahoma residents are on the opposite end of the spectrum. They estimate day care expenses at $12,549 annually, while the actual cost is only $9,176 (the eighth-lowest in the country). Therefore, Oklahoma residents overestimate day care costs by $3,373 per year. Residents in West Virginia and Georgia also overestimated the annual cost of day care, with projections exceeding the actual expenses by $2,700 to $3,000. West Virginia residents anticipate spending $10,663 annually, while the reality is a more modest $7,680. Similarly, Georgia residents estimate annual day care expenses at $11,968, contrasting sharply with the actual cost of $9,227. 

While some states missed the mark, others showed a precise grasp of day care costs in their state. Kentucky residents had the closest estimate, with their guess only off by $3. They projected day care expenses at $9,688 annually, closely aligning with the actual cost of $9,685 — spot-on estimates for those in the Bluegrass State.

Can Americans Predict a Baby’s First-Year Expenses?

Next, we compared the national average cost of day care, diapers, formula, baby food, and new clothing in a baby’s first year to survey respondent estimates. 

The results were telling: American survey respondents underestimated the true costs of day care, food, and formula, with the largest discrepancy found in formula expenses. Survey respondents think the annual cost of powdered baby formula is $2,287.

bar chart highlighting the differences between perceived and actual baby costs across the U.S.

In reality, it costs $4,800, revealing a gap of over $2,500. So the annual cost of baby formula is 70% higher than those surveyed expect.

Conversely, respondents tended to overestimate the costs of diapers and new clothing by $318 and $535, respectively.

The Price Tag of Baby’s First Year: Perception vs. Reality

To close out our study, we pitted the national average cost of a baby’s first year against perceptions gleaned from state-by-state survey responses. Astonishingly, all states underestimated this financial milestone, with the actual cost of a baby’s first year tallying 37% higher than what Americans in the survey said they expected. Americans surveyed think a baby’s first year costs $15,177, while it actually costs $22,111. 

Respondents from New Hampshire and Massachusetts were among the closest in their estimations, off by just $2,099 and $2,769, respectively. In contrast, Mississippi and Alabama respondents found themselves furthest from the mark, with respondents from both states underestimating the average cost of a baby’s first year by over $12,000.

Closing Thoughts

Our study highlights the stark reality of the financial obligations associated with a baby’s first year, a reality often underestimated by many. As we celebrate the joys of parenthood, let’s also recognize the importance of informed financial planning.

“It may be impossible to estimate exactly how much you will be spending on your child’s first year of life, but it is definitely worth trying to get as close as you can,” said Erica Sandberg, CardRates.com Finance Expert. “It’s best to overestimate the costs so you have money left over rather than underestimate them and then fall short.”  

According to Sandberg, a little preparation goes a long way. Before your baby is born, review prices on everything from diapers to day care. Plan now for where you will shop for these items, and build a budget that incorporates them. Join parent groups in your area and ask them for advice, too.  

“One of the best gifts you can give yourself is financial stability,” said Sandberg. “The less anxious you are about money, the more you can relax and enjoy your growing family. Concentrate on the basics. Chances are you won’t need most of what is marketed to new parents, and odds are you’ll be grateful for the savings when you opt out of buying them.”