Ask any parent and they’re likely to tell you that having a child is expensive. In the early years, the biggest expense is childcare and as the years go on you’ll also have to shell out for clothes, hobbies, activities – and potentially even contribute towards university fees, a car or a house deposit.
The cost of raising a child until the age of 18 is somewhere between £129,000 and £327,000, according to figures from digital wealth platform Moneyfarm. This includes food, clothes and childcare as well as costs related to renting or buying a bigger home.
Taken as a yearly average, the cost is between £7,100 and £18,100 while monthly the cost is £592 to £1,508. This is often similar to a household’s rent or mortgage, particularly in the early years when there is limited government funding.
With costs so high, it’s no wonder that birth rates have plummeted over the past decade. The latest census data shows the number of under-fives dropped 7.6 per cent between 2011 and 2021.
Campaigners say the cost of childcare until a child is four, and can attend school, is particularly off-putting to potential parents and that more needs to be done to help fund childcare in the formative years.
The Centre for Policy Studies think tank adds that a typical two-earner family in the UK spends around 30 per cent of its household income on nurseries and childminders – twice as much as in France and three times higher than in Germany or Japan.
“Many parents, up and down the country, are locked out of work or struggle to make ends meet as childcare prices continue to go up and the availability of places goes down. High-quality childcare is key social infrastructure – it helps parents work and narrows the gap between poorer children and their more affluent peers,” says Ellen Broomé, managing director of children’s charity Coram Family and Childcare.
The average cost of a full-time nursery place for a child under two is almost £270 a week, or £13,500 a year, according to Coram’s latest annual childcare survey.
Parents can claim some money back through the Government’s tax-free childcare scheme, but this is capped at £500 per quarter or £2,000 a year, per child. For many parents taking up a full-time nursery place, the cost is still likely to be close to £1,000 a month.
Once the child turns three, working parents are entitled to 30 hours a week of “free” childcare.
However, this is not as generous as it appears. The hours are applicable “term time” only and if a parent wants to stretch them throughout the year, the free funding drops to around 22 hours a week. Providers are also likely to still charge a daily fee to cover food, activities and other costs such as nappies and wet wipes.
Meanwhile, the free hours only start the term after the child turns three. This catches many parents out and can be a real financial blow. If your child has an April birthday, for example, they will not be entitled to free funding until September.
With childcare costs such a significant financial burden, some families choose to have one parent stay at home. But obviously this means relying on one income, which can also cause financial strain.
Taking all the costs into account, some hopeful parents are planning ahead and saving in advance.
“I’ve saved £10,000 towards childcare”
Jessica Broad, from Kent, has been with her partner for 16 years and they hope to start a family within the next couple of years. In total she has managed to save around £10,000 towards future children, which she keeps in a designated savings account.
The 32-year-old, an events manager for a medical research charity, says many of her friends have started having babies and she is aware of how expensive they can be. As well as the upfront cost of clothing and equipment such as prams and cots, there is also the expense of childcare at some point.
Jessica is also aware that some couples need to pay for fertility treatment, and she is saving towards any potential IVF treatment that may be needed.
She started her “baby savings pot” in March 2020, shortly after the Covid-19 pandemic hit and curbed her leisure spending and reduced her commuting costs.
Jessica, who works at JDRF UK, the type 1 diabetes charity based in London, now works from home the majority of the week and the money she used to spend on train fares is being set aside for a future family.
The couple are also looking to buy their own place, ideally a three-bedroom semi-detached house that can be a family home. The money for the deposit, as well as her separate baby savings, is being held in an easy-access high street savings account that pays interest of 0.75 per cent.
Jessica is aware this interest rate is far lower than inflation, but as she will likely need access to the money within the next couple of years, she doesn’t want to risk investing the money in the stock market for potentially greater or lower returns.
“I want to be financially set up for every scenario so I can achieve all the life milestones I aspire to. I’ve been a saver for most of my life and it’s something that’s been ingrained in me from a young age. I’d love a family, but friends keep telling me how expensive children are so I want to plan ahead as much as I can.”
Sarah Coles, a personal finance analyst at investment platform Hargreaves Lansdown, says Jessica’s diligence is impressive and that it’s sensible for prospective parents to prepare themselves for a hefty financial shock.
She adds that parents should aim to set aside three to six months’ worth of essential expenses before the baby is born. Ideally they would also have savings to cover other necessary expenses over the first year to compensate for any drop in income that may make it difficult to keep on top of bills.
“It can be incredibly useful to plan ahead, and consider what your essential expenses will be further down the track. This gives you time to build your emergency safety net slowly, so you’re not faced with a gap at the point when your expenses rise.
“Your emergency savings should also be adapted to your circumstances. So if you have a reason for wanting to err on the side of caution, such as health concerns or worries about your job, you may want closer to six months than three,” she says.
Research by wealth management group Evelyn Partners recently found that UK adults anticipate needing to earn around £37,000 before having their first child.
But even this wage can leave savings tight. The cost of living crisis is impacting people across the country and many would say it is impossible to save extra money at a time when costs are rising faster than wages.
Young people thinking about starting a family are also likely having to navigate surging property prices that means they may need a hefty deposit and to take on a substantial mortgage to get on the property ladder.
Jessica is not alone in planning ahead for a baby. The savings app Chip says “baby fund” is consistently in its top 10 of savings goals.
Digital bank Monzo, which allows customers to separate their savings into different “pots” to make it easier to save for different life events, adds that several hundred pots with names such as “baby fund”, “baby saving” and “baby money” are opened every month.
“I pay in £50 a month”
Natasha Leiden, 24, is another prospective parent saving ahead for a baby – setting aside £50 a month towards future child-related costs.
Natasha and her partner, 28, don’t have a set timeframe of when they would like to have children, but think they will likely start trying within the next few years.
She has an account with Monzo and she opened her “baby savings” pot six months ago, paying in £50 a month.
“We started the savings pot simply because we know how expensive kids are. While £50 a month isn’t going to pay for childcare, hopefully it will help us with bigger costs when we need them, without having to dip into our daily living money or other savings. Or maybe it will enable us to do a few extra fun things or pay for an extra hobby for them,” says Natasha, a B2B communications specialist from Reading.
Natasha and her partner, a teacher, are renting and are also saving to buy a house. The pair say they will not withdraw money from the baby savings pot until they get pregnant.
“I like to have separate savings accounts or I end up wasting money. I learned the hard way about living within my means at university, when I would end every year in my overdraft. Since then I’ve got much better at budgeting and setting money aside. If we are lucky enough to have a family one day, I would feel far more comfortable having some money saved up in advance as I hear all the time about how expensive children are.”
Planning ahead for a child makes sound financial sense. But realistically, there are many other life events likely to plan for and not everyone has the luxury of being able to save.
Children are expensive, but many new parents (including myself) would say that you somehow find ways to cover the cost, and that there is some support available.
In fact, many parents would say they’d still be saving if they waited until they thought they could afford a baby.
“Grit your teeth and go for it,” says one parent. “It gets a lot easier once they reach school age and costs reduce – at least from the childcare perspective. Just aim for financial survival for the first few years and find ways to manage.”
Preparing for a baby: Top financial tips
Look into your company’s maternity / paternity policy: If you have been with your current employer since the start of the pregnancy, you should be entitled to statutory maternity or paternity pay.
Statutory maternity pay is 90 per cent of your average weekly earnings (before tax) for the first six weeks, followed by £156.66 or 90 per cent of your average weekly earnings (whichever is lower) for the next 33 weeks. Statutory paternity pay is £156.66 or 90 per cent of your average weekly earnings for up to two weeks.
However, many employers offer more generous maternity and paternity schemes and it’s worth checking your company’s policy well in advance.
If you’re self-employed, you can claim maternity allowance, which is between £27 and £156.66 a week for 39 weeks if you’re self-employed. Statutory paternity pay is not available to those who are self-employed.
Consider life insurance: Charlotte Wood, founder of Rosewood Financial Planning, says both parents should consider personal protection insurance that covers them for serious illness and death.
“You need to think about how you would cover your essential bills. Remember that if one partner looks after the children, you would need to cover the equivalent childcare costs if anything were to happen. It is also a good time to either make a will or update a current one.”
Are you eligible for child benefit? If both parents earn under £50,000 a year, you should be eligible to receive the full child benefit of £21.80 a week for one child, and £14.45 for any subsequent children.
If you or your partner’s individual income is over £50,000, the benefit tapers down and if you earn over £60,000 you lose all of the child benefit. This is known as the High Income Child Benefit Charge. It is complicated to navigate, but essentially if you earn over £50,000 you pay a charge at the end of the tax year that means you pay some, or all, of the benefit back.
You can opt not to receive the benefit, but stay-at-home parents should be wary of losing access to national insurance credits that entitles them to the state pension.