When we find out that we’re about to become parents for the first time, the last thing that is probably on our minds, is exactly how much our new bundle of joy is going to set us back. Having a child in the new millennium is a far cry from earlier days, with the cost of raising a child from birth until they turn 21, rocketing to £222,000, according to insurer LV=’s renowned annual study: Cost of a Child. From Cradle to College (carried out for LV= by the Centre for Economics and Business Research). Just 10 years ago (in 2003), the lifetime cost of raising a child was significantly less, standing at £140,000. The rise in the lifetime cost of children has risen by an alarming 58 per cent since then.
Childcare and education pose the greatest burdens on parents, who are paying 61 per cent more for childcare than they were in 2003. University fees have likewise continued to soar, with some universities charging as much as £9,000 per year and the cost of education rising, by average, by some 124 per cent since 2003. This table indicates what we are spending our money on and the difference with our expenditure last year and 10 years ago:
|Category||2003||2012||2013||% Difference from Last Year||% Difference from 2003|
|Education*||£ 32, 593||£ 71,780||£ 72,832||1.5%||123.5%|
|Childcare and babysitting||£ 39,613||£ 62,099||£ 63,738||2.6%||60.9%|
|Food||£ 14,918||£ 18,667||£ 19,270||3.2%||29.2%|
|Clothes||£ 11,360||£ 10,781||£ 10,770||-0.1%||-5.2%|
|Holidays||£ 11,458||£ 15,532||£ 16,195||4.3%||41.3%|
|Hobbies, Toys||£ 8,861||£ 9,248||£ 9,316||0.7%||5.1%|
|Leisure, Recreation||£ 6,366||£ 7,303||£ 7,353||0.7%||15.5%|
|Pocket Money||£ 3,386||£ 4,337||£ 4,458||2.8%||31.6%|
|Furniture||£ 2,074||£ 3,373||£ 3,462||2.6%||66.9%|
|Personal||£ 925||£ 1,143||£ 1,155||1.0%||24.9%|
|Other||£ 8,845||£ 13,761||£ 13,909||1.1%||57.3%|
|Total||£ 140,398||£ 218,024||£ 222,458||2.0%||58.4%|
* Does not include private school fees (private school costs £106, 426 per child for day school or £195,745 for boarding school).
A second table makes patent that the most expensive years are those comprising ages one to five (since children are constantly growing out of clothing and needing a wardrobe revamp) and the higher education years:
|Years 1 to 4||£58,020|
|Years 5 to 10||£47,147 (£14,505 per year)|
|Years 11 to 17||£53,920 (£7,679 per year)|
|Years 18 to 21||£52,845 (£7,536 per year)|
|Total||£222,458 (£17,459 per year)|
Rising inflation and lower family incomes are taking their toll on the average household, with families admitting to tighten their belts even when it comes to essentials such as food. Families are spending less but also saving less: almost 50 per cent of parents have no life cover, income protection or critical illness insurance. The results of failing to provide for the future can be disastrous for parents and children alike.
The cost of education, meanwhile, continues to soar, with a university education likely to send parents back a whopping £41,000. Despite the dire statistics, some 49 per cent of parents still hope their child will obtain a university education.
How Can You Cut Back on Costs?
Clearly, families can use this information to their advantage, formulating a successful long-term strategy. These are a few tips you may find useful:
The Baby Years:
- Don’t fall into temptation of buying all-new items for babies. While items which are safety-related (like a good car safety seat and cot) are key, spending hundreds of pounds on clothing or décor is probably not worth it, bearing in mind how quickly children grow.
- Don’t spend too much on a pushchair: some can cost over a thousand pounds, yet within a couple of years, a reasonably priced buggy will probably be all you need to transport your curious toddler around.
- You will find a host of useful second-hand equipment on ebay: everything from bottle sterilisers to toys, kids’ computers and even breast pumps.
Daycare Trust and the Family and Parenting Institute’s Childcare Costs Survey 2013 (compiled from figures offered by Family Information Services), has revealed that the average nursery cost for a child under the age two is £106.38 per week for part-time care (25 hours). Full-time care costs £11,000 a year. Kids aged over two, meanwhile set their parents back an average of £103.96 per week for a part-time place. Childminder costs have also increased considerably, as have childcare fees for older children.
However, kids aged three and four are entitled to free childcare for 15 hours a week, which should ease your burden during these years. If the care offered lies outside your work schedule, you can always use your entitlement at a private nursery, topping up the difference with your own money if needed.
Working tax credits are also available for those earning lower incomes (these entitle parents to £175 per week for 1 child and £300 per week for 2 or more children).
Employer-supported childcare, meanwhile, can save you over £900 per year (a two-parent family can save £1800 annually) through the use of childcare vouchers which are exempt from tax and National Insurance Contributions. If you joined your employer’s scheme before 5th April 2011, you can receive up to £55 each week free of tax and NICs. If you joined your employer’s scheme on or after 6 April 2011 you can still receive up to £55 a week free of tax and NICs, provided your employment earnings do not exceed the higher rate threshold.
Finally, significant savings can be made by foregoing expensive day care centres and professional nannies for more affordable quality centres and even the help of an au pair.
Funding University Education
To save a healthy nest egg of around £60,000 for your child’s university education, you will need to save around £170 a month for the next 18 years. Other strategies include stock market investment, which have produced historically better results than bank and savings account investments. Additionally, be aware of savings accounts created specifically for children, which offer kids tax-free interest. Finally, consider the array of tax-free products available, including Children’s Bonus Bonds, Premium Bonds, and ISAs (did you know that parents can save over £11,000 in ISAs a year?). Otherwise, you may wish to finance your child’s education through your pension – you can withdraw 25% as a tax-free lump sum when you turn 55. Another idea is to set up a pension for your child, to which you can pay in up to £2,880 annually, with the government providing £720 in tax relief.