Despite low pay and long hours, child care is a business many still want to enter. Why?

By mzaxazm

In the spreadsheet before me, I saw a lot of angst and fear. The Minneapolis Fed had recently conducted a survey of Minnesota child care providers, and I was poring over hundreds of provider comments. The financial hardship and uncertainty that I found, even among long-established businesses, was staggering.

“I would absolutely not be able to afford to run an in-home child care business if my husband didn’t make the salary he does,” said one provider. “That being said, we live at least three paychecks behind just to afford basic needs.”

Many other providers were forced to tighten their belts further as expenses rose. Some stopped saving for retirement or took on additional jobs.

Yet, I also knew from state licensing records that the number of people seeking child care licenses was rising, albeit slowly, after collapsing at the start of the pandemic. It made me wonder, why on Earth would anyone enter this profession?

So I decided to ask.

What I learned was that profit was not the main motive for many going into the child care business. For some, the business is a way to spend more time with their own young children and be paid rather than be a stay-at-home parent and not be paid. For others, care giving is a calling. They love to care for and educate children.

Why is child care unaffordable for parents and providers?

As a parent of two younger children, one in school and one in day care, child care providers have been part of my life for many years. Like many families with children, my wife and I enjoy the financial benefits of child care, which allows both of us to work. But we also pay our providers a good share of our income.

According to the St. Louis Fed, the average annual cost of care for a young child (age 5 or younger) is around 15 percent of the average household income. That’s about 50 percent more than what it was a decade ago.

The San Francisco Fed reported that child care costs are so high that one in three households with children in child care reported being unable to save money and not being able to pay debts on time.

But those high costs do not translate to high profits for child care businesses. The most recent Minneapolis Fed survey of Minnesota providers found about half reported that losses from their child care business had affected their household income. A fifth of providers said they were unable to pay themselves at times.

Margins are slim because child care is very labor intensive, the Atlanta Fed reported. States mandate low child-teacher ratios to ensure children’s well-being. For in-home child care, often run by a sole proprietor, the number of children they may care for is capped. This limits how much they can earn. For child care centers with many employees, low ratios translate to higher labor costs. As a result, the minimum income a provider requires to break even can be very close to the maximum tuition parents can afford to pay.

When providing care is a calling

To find out why so many willingly enter the child care business given the challenges, I sought out new providers in Minnesota and business consultants helping them.

Tammy Hagenbeck-Westerberg, an in-home provider, said “I’ve always been in the caregiving field.” She dreamed of becoming a child care provider as a child, she said. As an adult, she worked in child care, assisted living, and as a school paraprofessional. She has also adopted six children from foster care and now cares for her father with Alzheimer’s.

Tammy, in fact, ran an in-home child care business for a decade until forced to quit to care for two young children with special needs. More recently, one of the now-grown children, Leslie, grew interested in a career in child care. Fearing Leslie’s disability would make finding work difficult, Tammy decided to restart the business to give Leslie her dream job.

Tammy said she knows it means longer hours and lower pay. But she said, “not everything is about money. One of the main reasons that I was willing to do this again was my daughter, Leslie. Leslie cares deeply about kids and loves kids.”

Daycare teacher and group of toddlers playing around lots of toys at her in home daycare facility.

A business model for new moms

Liz Baumberger quit her child care center job two years ago while pregnant with her second child. The work environment was stressful and her husband’s job allowed her to stay home with her children. Last year, she opened her own in-home child care business.

“I had already been a stay-at-home mom for a year or so … I might as well take on more kids that I can care for. I know that I can do good in their lives and their parents’ lives,” she said. “It adds more joy to my day than it does exhaustion because my kids love being with the other kids.”

Consultants who help people start in-home child care businesses say many clients are mothers of young children or expecting mothers. Many want to be there for their children’s first steps or first words. An in-home business would allow them to do that. It might not pay very much, but it’s more than what most stay-at-home moms can earn without full-time jobs.

Gwen Lynch, a consultant with Minnesota’s Child Care Wayfinder program, told me she’s heard from many mothers with jobs that pay much more than child care, such as social workers or teachers, who want to know if they can afford to stay home by starting a child care business. “They know they’re going to take a cut. They just don’t know how hard that might be.”

Overlapping with stay-at-home moms are people like Tammy for whom caregiving is a calling. Many are already in caregiving professions that translate well to in-home child care, such as working at child care centers or nursing homes.

Camila Mercado Michelli, a child care consultant at CLUES, a St. Paul–based nonprofit group helping Latinos advance economically, said many of her clients were teachers or even school principals in their home country. In this country, they lack the professional credentials to return to their old careers, she said. But they still want to educate children.

Far fewer people seek child care center licenses, according to Wayfinder consultants. Some are in-home providers looking to grow their business. Others are civic leaders with nonprofit connections, who see a need for more child care in their community.

More providers quitting than joining child care industry

Despite the interest in child care as a business, the number of providers may take a while to recover from the pandemic. Up-to-date national numbers are elusive. But a 2022 Childcare Aware report shows that states reporting fewer providers than pre-pandemic still outnumbered states reporting more providers; not all states reported. This was especially true for in-home child care.

In Minnesota, where I have access to more detailed data, the number of new providers has grown since the pandemic. But the absolute number of providers has decreased because more are exiting the industry than entering it, especially in-home providers.

Worse, many of the new providers may not stay in the industry for as long as their predecessors. According to Lynch, older in-home providers often made child care a career. New providers who are in business so they can be home with their young children don’t expect to stay in business after their children start public school.

That’s not good news for parents in need of affordable child care. In-home providers usually offer lower tuition than child care centers. As their numbers dwindle, parents will have fewer lower-cost options.

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