Childcare costs are crippling UK families

With childcare costs becoming more expensive than rent or mortgages in some cases, Kate Anderson takes a look at the help that is available for families.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Happy family mother housewife and child son in laundry with washing machine

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Did you know that in the UK childcare costs account for 30% of an average wage? Therefore, it’s no wonder that a recent survey of 20,000 working parents found that 97% believe childcare in the UK is too expensive.

There’s no getting away from the fact that having children costs money. But does it really need to cost so much? Let’s investigate the average cost of childcare and the help available to families that are struggling.

[top_pitch]

Average childcare costs

Here in the UK, the average cost of sending a child under the age of two to nursery part-time is £138 a week. If you’re sending them full-time, this goes up to £263 a week.

Part-time is considered 25 hours a week and full time 50 hours a week. Obviously, average prices depend on where you live in the UK. For those who live in London, full-time childcare costs climb up to £321 a week!

This is a large portion of anyone’s income – and these figures are just for one child. It’s why one-third of the survey respondents said they paid more for childcare than their rent or mortgage.

Help with costs

There are schemes in place to help families with the cost of childcare. However, most of these schemes don’t kick in straight away. It means that families have to find a way to fund childcare for the first few years of their child’s life.

Tax-free childcare

You can get up to £500 every three months (up to £2,000 a year) for each of your children. If your child is disabled, this figure increases to £1,000 every three months (up to £4,000 a year).

Basically, for every £8 you pay into your childcare account, the government will pay £2. This money can then be used to pay your provider. However, you can only use it to pay for approved childcare: childminders, nannies, nurseries, after school clubs and play schemes.

Free childcare for two-year-olds

There are some circumstances where you can get free childcare for your two-year-old if you live in England. Your eligibility depends on your income support status or whether your child has special education needs.

You can head to the gov.uk website to check out whether you are eligible.

[middle_pitch]

Free childcare for three- to four-year-olds

Families of children aged three to four in England can get 570 free hours of childcare per year.

It is usually taken as 15 hours a week for 38 weeks of the year. But there is the option to take fewer hours over more weeks.

Some children will also be eligible for 30 hours of free childcare a week. However, the way the system works means you may not always be better off taking that option. So it could be worth using the government’s childcare calculator to see what this option means for your finances.

The important thing to be aware of when it comes to free childcare hours is that this doesn’t cover all costs. You may find that your childcare provider charges wrap around fees. Or you might need to pay for things like meals, nappies and trips.

Tax credits

Help is also available in the form of tax credits. Depending on your circumstances, you may be able to claim Child Tax Credit or Working Tax Credit.

Take home

There’s no getting away from the fact that childcare costs in the UK are extremely high.

While free childcare is available once children are three years old, before that point, families are largely left to cover it themselves. And with childcare costs having grown four times faster than wages in England in recent years, lots of families are beginning to feel the strain.

Budgeting before your baby arrives and having a childcare plan in place can remove some of the financial pressure. But it’s also important to make use of any schemes that are available to save you money.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »