Budgeting on a growing family
Having children is a rite of passage that brings a mix of joy, fulfilment and anxiety when the financial realities of raising kids become apparent. Parents must make difficult decisions about housing, education and lifestyle to keep the family budget in the black and to give their kids the best start in life.
The cost of raising children rose 50 per cent from 2007 to 2012, outpacing growth in family income of 25 per cent over the same period.i The 2013 AMP.NATSEM Cost of raising kids report attributed much of the rise to education expenses, with food and recreation also eating into family savings.
The lifetime cost of raising two children for middle-income families was $812,000, nearly double that for lower income families ($474,000). Higher income families spent $1,097,000 on average, due largely to the cost of private education.ii
The costs continue to rise as kids get older across all income groups. For high income families, the weekly cost of children aged 18-24 is five times the cost of children aged 0-4 and consumes more than one fifth of family income.
Parents sending their kids to private schools spent an average of $216 a week on fees, compared with $12 for public schools and $81 for Catholic schools.iii
With the cost of raising kids so high, most parents will need to make difficult financial and lifestyle trade-offs depending on their priorities. For example, will one parent take time out of the workforce or reduce their hours while the children are young? Or will both parents need to work full-time?
Tracking the family budget becomes even more important once kids enter the picture. Take time to understand your household expenses, not just those relating to children.
Can you maintain your current lifestyle or will you need to cut back on holidays, eating out or other little luxuries. The sooner you take action and put a savings plan in place, the less drastic any cuts will need to be.
Childcare and education
Childcare is a major expense if both parents work. Those fortunate to have help from family and friends can save a lot of money. For most people though, some form of out-of-home care is a necessity.
Nannies are also popular with families who work irregular hours. Parents who use nannies should check with the Family Assistance Office for their eligibility for any care allowances.
Most families, regardless of income, are entitled to some form of government benefit. Under the current system, all families can claim federal government assistance via the childcare rebate for 50 per cent of their childcare costs, up to a maximum of $7,500 per child a year.
One of the biggest decisions is whether to send the kids to private school or to go public and use the money saved for extra-curricular activities or family travel. When counting the cost of education, it’s not just fees that need to be taken into account. Associated costs such as school uniforms, excursions, school supplies, computers and travel all add up.
There are a number of specialist investment funds designed to help families save for future education expenses, but managed funds and investment bonds are also suitable savings vehicles.
Alternatively, you could use a mortgage offset account to park savings and reduce your mortgage at the same time.
The earlier you start a structured savings plan and seek professional advice, the greater the educational and lifestyle choices that will be open to you. And the less time you will spend worrying about those rising household bills.
i AMP.NATSEM Income and Wealth Report: The cost of raising kids in Australia, May 2013, https://www.amp.com.au/wps/amp/au/FileProxy?vigurl=/vgn-ext-templating/fileMetadataInterface?ids=1c047918d9ece310VgnVCM1000004320220aRCRD