Childcare costs and Covid: A report into the financial fallout for families as free daycare ends

Parent holding child, worried about daycare costs

Key facts from Mozo’s report:

  • The average Australian family has saved $5,774 during the 13 weeks of free childcare.
  • Almost half have saved this extra cash, while 38% have used the money to cover day-to-day expenses.
  • 89% of families say they’ll struggle financially to keep their kids in childcare now.
  • The early childhood education industry could take a $150 million hit per week, with 43% of parents considering taking their kids out of childcare because of the cost.

The free childcare program offered by the Australian Federal Government to support families through tough Covid-induced economic conditions came to an end in July. Mozo has conducted nationally representative research revealing how families have saved and spent during the free childcare period, and how they and the early childhood education industry will cope without this support moving forward.

Costs: What do Australian families normally spend on childcare?

Childcare costs in Australia

The average weekly cost of a child attending daycare is $246 for 24.8 hours, according to the most recent data from the Department of Education, Skills and Employment. Based on the average Australian family size, Mozo has calculated that across the 13 weeks of free childcare during the pandemic, a family could have saved around $5,774. 

“In Australia, daycare is a major expense for working families, so the government’s free childcare program was welcomed with open arms. Mozo’s research highlights how badly families are hurting, with 89% of parents saying it will be a financial struggle to keep their children in daycare,” Mozo Director Kirsty Lamont said.

Prior to the pandemic, eligible families could access limited financial support through the Child Care Subsidy. This government scheme offers a concession rate on childcare payments and has now been reintroduced. 

The level of support applicants receive is dependent on combined family income, the type of childcare arrangement, and the activity level of parents working, studying or seeking employment (this last requirement is being relaxed until October 4, 2020).

Savings: Where have families put their spare childcare cash?

It’s clear free childcare has been a necessary stop-gap for many families. Almost half of surveyed parents said they put the money into savings, while 38% used it to cover day-to-day expenses. Another 12% paid down debt with the extra cash, while only 1% of parents used it to purchase non-essential items like a new television or laptop.

Family savings from free childcare during Covid-19

“This government initiative has put thousands back into the pockets of parents across the country and for some, it has been a financial lifeline,” Lamont said.

“With Covid-19 bringing a wave of job cuts and reduced hours to many Aussie workers, it’s little wonder the reintroduction of childcare payments will have a sting in its tail for many families.” 

The future of childcare: Parents consider reducing hours and pulling kids out

Mozo’s data shows 73% of families across the country are thinking about taking their kids out of childcare or reducing care hours because of the cost.

This is set to have a significant impact on the early childhood education industry. More than half of parents with children under six have them enrolled in daycare, totalling approximately 1.3 million in childcare centres across the country. 

Based on the amount of families considering cutting childcare arrangements, Mozo estimates $150 million could be wiped out of the childcare industry each week. The national average of parents considering stopping daycare altogether is 43%.

Women worse-off without change 

Alongside Mozo’s research, a new report from the Grattan Institute has been released this week, recommending the subsidy for low-income families be raised from 85% to 95% to help increase female workforce participation. The support would be reduced for households earning over $68,000 annually (gradually tapering off as income rises). 

The research showed a combination of tax, welfare criteria and childcare costs was disincentivising primary caregivers – more commonly women – to choose full-time work, as the move could amount to no wage increase for extra work hours.

“We can hardly be surprised that many mothers conclude working an extra day for no or virtually no take-home pay makes no sense,” said Grattan Institute CEO and report lead author Danielle Wood.

“And Australia’s high out-of-pocket childcare costs bite even harder now for families that have lost jobs or hours because of the Covid crisis.”

The recommended increase to the current Child Care Subsidy would amount to 60% of families paying less than $20 each day per-child for childcare, with no family faring worse as a result. 

The report also concluded this would benefit the economy. While the increased support would cost the Federal Government an extra $5 billion per year, this would be offset by an $11 billion-a-year increase in GDP from the workforce participation boost.

Family budgeting tips

Lamont said setting up a clear, simple budget should be your first step if resuming childcare payments will cause financial strain. 

“Mozo research found that 29% of Australians had either no budget or only a rough idea of their finances in their head. If you’re flying blind with your spending, there’s every chance you could be struggling to meet your outgoings. Whether it’s crunching the numbers on a spreadsheet or using a budgeting app, there are many ways to balance the books,” she said.

Once you know where you stand in your budget, you can identify where to cut costs or make more out of your savings. Things to consider include:

If you need assistance organising your finances, investigate these free financial counselling services in Australia.