Cost of raising a family

Between feeding and nappies and sleep deprivation, your budget is probably the last thing on your mind in those first few weeks when you bring your bundle of joy home from the hospital and settle into life as a new family.

There’s no doubt our children bring us joy; enrich our lives; and test us in equal measure, but according to the latest economic data, the costs of raising children are rising much faster than our wages, which means setting a budget and being realistic about our spending is essential.

Raising two children from birth to adulthood for a typical middle income family is $812,000, according to figures from the NATSEM (University of Canberra) Income and Wealth Report. Lower income families spend $474,000 to raise two children, while higher income families spend $1,097,000, according to the report¹.

These figures have risen by 50 per cent since 2007, in comparison to our household incomes which have only risen by about 25 per cent in the same time period¹.  

And if you think your budget will get easier to manage as your children grow, don’t get too comfortable, because children cost more as they get older, according to the report.
 
An average middle income family will spend $133 a week per child from birth to four, $198 on a child between five and 9, $228 for a 10 to 14 year-old child, $414 a week on a 15 to 17 year old and $678 a week on a child from 18 to 241. 

And the reason parents continue to spend on their children after they turn 18, rising property and higher education costs mean children are staying in the family home longer². 

One potential relief for growing families is that subsequent children cost less than the ones before them. For a middle income family, while the average cost of one child is $263 a week, a second child will cost $220 a week and a third $184 a week¹.

The report suggests the reason subsequent children cost less than the first is that it is likely parents buy the big ticket items like prams and cots and play equipment like trampolines for first children, which are still in good condition and able to be used for second and third children.  

While there isn’t much you can do to lessen the costs associated with your children, Australian finance expert and commentator Noel Whittaker says it pays families to be smart with their money, avoiding potential pitfalls by being realistic about their outgoings and incomings. 

“There are all these traps out there for families and they are non-stop,” he says.

“Families do need advice and they do need insurance and they do need superannuation in the right areas, but with banks cross-selling and the industry being so regulated, it can cost up to $2000 to walk through the doors of a financial advisor.

“I heard recently that a bank was encouraging people to pay their home loans back slower, which is just ridiculous,” he says.

When it comes to the crunch, Mr Whittaker says the only two things you can do to improve your budget is to either increase your income, or decrease your expenses. 

“What I would recommend any client to do is to make annual lists of all your fixed costs like your rates and mortgage or rent; all those fixed expenses that you can’t change,” he says.

“Then add them up and divide it by how often you’re paid and then that is the first amount that comes out of every pay and put into a separate account and you only use it to pay off all of those fixed costs.

“And then you need to take out whatever investments you might have, and then you make do with what’s left over, so if you only have $100 left, that’s what you go to Coles with knowing you can’t spend any more than that.”

He says setting aside small amounts of spare cash each week and researching options for investing it in ways that make use of compounding interest was a way families could potentially increase their earnings. 

1 http://www.natsem.canberra.edu.au/storage/AMP_NATSEM_33.pdf (based on 2012 data which is the most recent data to report) 
2 http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/4102.0Main+Features50June+2009