Rising childcare costs have reached a crisis level in the U.S. in the 2020s. The imminent expiration of a federal aid program is bound to make the crisis even worse. Whether you have young children or not, it’s important to consider the ripple effects this could have throughout the nation’s economy.
How expensive has childcare become? Put it this way: In early 2022, before inflation really got out of hand, childcare cost an average of $10,000 per year in the U.S. And shockingly, sending a baby to a childcare center for one year now costs around $3,000 more than a year’s tuition at the University of Wisconsin-Madison.
Could the situation get any worse than that? The answer is yes, and it probably won’t take long to go from bad to worse.
Childcare Costs Could Soar as Federal Funding Expires
Sept. 30 is only a few days away. That’s when the emergency childcare funding Congress allocated during the Covid-19 pandemic — including $24 billion in childcare stabilization grants — is expected to expire.
Thus, a “childcare cliff” looms as, according to the Century Foundation, around 70,000 childcare programs are expected to close after the federal funding expires. Furthermore, 3.2 million children could lose their care. There would also be repercussions for American workers, as 232,000 childcare jobs could be lost.
To put it in dollar terms, states would be expected to lose $10.6 billion in revenue after the funding expires. Moreover, parents could collectively lose as much as $9 billion in annual earnings.
You might have heard experts call America’s childcare system “broken” or a “failure” before. But if the federal childcare funding lapses as expected, some commentators may fear that an already troubled system could collapse.
What This Means for the Economy
We’ve already cited the stats indicating looming problems for U.S. workers and parents. What about the economy overall, though?
Parents are rarely mentioned on Wall Street, but they might be considered the backbone of the economy. The economy has supposedly been propped up in 2023 by the “strong consumer.” Yet, if parents are financially strapped, it’s hard to envision consumer strength in the coming quarters. Some parents might need to quit their jobs or work fewer hours to care for their children, which would also drag down both employment and consumer spending.
Therefore, it’s probably wise to brace for choppy waters in the U.S. economy. Downturns in the economy and financial markets don’t usually happen the day or the week after a crisis starts. Yet, the long-term outlook is troubling, and it’s wise to prepare now rather than think about it later.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
