Why Many Early Childhood Educators Can’t Afford to Retire

Why Many Early Childhood Educators Can’t Afford to Retire

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Danielle Caldwell has been operating her home-based child care program, The Children’s Room, for 27 years. But lately, she’s been considering other career options.

The North Carolina child care provider has long known that her work would not lead to riches, but years ago, that was less of a concern.

“When I got into this, it was about making it fun. It was all about the kids,” says Caldwell, who started her business shortly after becoming a mother. “I wasn’t thinking about the future.”

Now, though, she’s thinking about little else. Caldwell is 56 years old, and she’s tired. She knows she can’t handle the physical demands of working with young children forever — several of her peers in the Durham area have developed back problems from the constant bending down and picking up, she notes — and like anyone else, she hopes to retire at some point.

Whether she can afford to is another question.

At present, Caldwell doesn’t have any money saved for retirement. “I still watch my pennies,” she says. “I’m not behind on my bills, but I don’t feel like I have extra money to just kind of spare.”

If there had been any chance of that changing as her program matured, recent events — including the pandemic and highest-in-decades inflation — wiped out any promise of profits. Caldwell’s rent is up. Her utility bills are up. Her grocery expenses are up. To make it all work, she’s offering nontraditional hours to bring in more families, she’s taken on two part-time jobs, and she’s charging higher tuition rates. But even with those changes, she’s just breaking even.

“It’s noble, the work that I do. I thank God that I’m healthy. But I know a lot of child care providers who had to leave the industry because of health reasons, and they don’t have anything to fall back on,” Caldwell shares. “We give back to the world at our own expense. It really saddens me.”

It’s a bitter contradiction that spans the field: The job is a difficult one to do into old age, yet few who stick with it are able to set aside enough money to enjoy a traditional retirement.

“It is a taxing job and a skilled job — taxing physically, emotionally, mentally,” says Lauren Hogan, managing director of policy and professional advancement at the National Association for the Education of Young Children (NAEYC). “There is just a stunning lack of retirement savings and retirement benefits, for both those self-employed and employed” by other programs.

Data shows that many early childhood educators can’t afford to retire — worst of all, those who work in home-based settings, like Caldwell. According to the 2020 California ECE Workforce Study, a survey of 7,500 educators conducted by the Center for the Study of Child Care Employment (CSCCE) at the University of California, Berkeley, only about half of lead teachers and program directors in the state’s center-based child care settings have money saved for retirement, and just one-fifth of home-based providers do.

Comparatively, 87 percent of kindergarten teachers in California have retirement savings. In fact, in K-12 public schools, pension plans are often an attractive benefit of working in the profession.

“The best thing we could do is treat this workforce like we do the K-12 workforce and provide benefits to them,” says Anna Powell, senior research and policy associate at Berkeley’s CSCCE. That includes retirement, yes, but also paid time off and health insurance — all of which are extras, not assumed, in early childhood education.

A lack of retirement benefits may not be all too surprising for a field that is characterized by some of the lowest wages in the country — child care workers are in the second percentile of U.S. occupations ranked by annual pay — but it matters a great deal, especially when the population of the early childhood workforce is aging, Hogan of NAEYC notes.

“Demographically, there’s certainly data on the field tilting older,” Hogan adds. “This has been on the radar for folks for a while, knowing a wave of retirements is coming.”

In California, the state for which the CSCCE keeps the most detailed data, one-third of center-based teachers and more than half (53 percent) of home-based child care providers are over the age of 50. That is troubling to some in the sector, considering home-based providers are far less likely to have retirement savings.

Why is this the case, anyway? As sole proprietors, couldn’t they just build the cost of retirement savings into their business models? That’s how most people would expect to run their businesses, but child care is a unique market.

For child care providers to come away with even the slimmest of profit margins, they are often already charging families the maximum they can afford to pay, explains Powell. And that’s before providers have built in a buffer to cover an emergency fund, health insurance and retirement savings.

“Even by the time they’re in their 50s, they may not be able to start a savings account,” Powell says. “They’re still hitting that ceiling of what parents can afford to pay.”

That’s certainly been the reality for Caldwell, who says that she, like many other providers, sets lower rates to remain affordable to families. “But,” she adds, “it eventually catches up,” partly because it allows little room for error in her own life — injury, illness or otherwise.

“As home-based business owners, we have to make sure that we’re [going to keep] operating, so oftentimes things like insurance — health, car, business — those are the types of things we will probably not pay, in lieu of keeping the lights on and the rent going, feeding the children and ourselves,” says Caldwell. “It puts us at an even greater vulnerability. You just pray you don’t need insurance.”

As the workforce ages, many child care providers may delay retirement as long as they’re physically able, says Powell. Others, including Caldwell, may leave early childhood education for better paying, less physically demanding jobs in the last years of their working lives. Still others will likely stop working altogether and lean more heavily on public assistance programs such as Medicaid and food stamps. In California, about 42 percent of home-based child care providers participated in one or more public assistance programs in 2020, compared to 32 percent of center-based teachers and 16 percent of center-based directors.

“At a certain age, you’re not going to catch up,” says Powell of early childhood educators. “You won’t own a home. You won’t have retirement savings.”

Mary Graham didn’t want that for the teachers in her large, center-based early childhood program in Philadelphia.

Children’s Village, where Graham serves as executive director, has long been an exception to the status quo of the child care industry. The nonprofit program is 46 years old, and from day one, Graham says, staff members were provided health benefits, vacation and sick leave, and more competitive pay than similar programs in the area.

Still, competitive pay in early childhood doesn’t necessarily mean the staff had enough left over each month to begin planning for retirement. In spite of the center offering a 403(b) retirement plan with an employer match of up to 4 percent, only 30 percent of staff, at most, had opened an account before last year, Graham says. Even fewer were actually contributing funds to it.

“Not many people in this field look beyond tomorrow,” Graham says, explaining the low uptake.

So when Children’s Village learned it would receive nearly $1 million from the federal government’s American Rescue Plan Act (ARPA) funds in late 2021, Graham had an idea. The program had already given “significant” wage increases to staff since the pandemic began. What if this new ARPA money could help staff another way?

Using the ARPA funds, the Children’s Village opened up 403(b) accounts for everyone who didn’t have one and then contributed a lump-sum amount into each person’s account in early 2022 — a minimum of $3,000, but increasing based on tenure at the center, up to $12,000.

“Now everybody has a 403(b) plan, and 90 percent have continued to add their own money,” says Graham, who used the one-time payment to staff as an opportunity to emphasize the value of pre-tax contributions and compounding interest.

In total, Children’s Village contributed to the retirement plans of 71 staff members — all full-time employees, some of whom have been with the center for decades. New hires, she adds, now receive $1,000 in contribution to their retirement plans.

This was possible, Graham acknowledges, because the center had a strong financial standing before the COVID-19 pandemic, and its two Paycheck Protection Plan loans — amounting to a combined $1.6 million — were forgiven. “We didn’t lose money,” she explains.

Still, the center could’ve given one-time bonuses in the same amounts or bigger pay increases — both more common than making lump-sum contributions to staff retirement plans.

“Part of it was trying to say to people, ‘We’re here for the long-run. We want you to be here. We appreciate that you didn’t leave,’” Graham explains. “We didn’t lay off anybody. We wanted to show we would stay in operation.”

But it was about more than that, too. Graham wants early childhood educators — in her center, and in other programs as well — to think of themselves as professionals in a career, not unlike their K-12 counterparts.

“If they were in public schools, they’d be getting a pension,” she says. “It was to show that it’s not just giving you paid time off, giving you a paid break or other benefits. It’s saying, ‘This is what a full benefit package is for an employee. We’re going to invest in you … and if more and more of you invest your own money in a 403(b), we see that as an investment in our field and in our center.’”

Graham adds: “It’s an investment in them and an investment in us.”

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