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The Cost of Raising a Child in Australia

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The Cost of Raising a Child in Australia

Parenthood: a joy, an adventure and a constantly growing expense!

Being a parent changes your life. You become an instant expert in time management. Your relationship with your partner faces new challenges and priorities. Your once-neat home becomes a minefield of toys, sporting equipment and unwashed, haphazardly strewn clothing. You’re forced to reacquaint yourself with things you thought you’d left far behind – like algebra homework, finger painting, band practice and science projects. As a parent, you soon realise that you have less spare time than ever before – and a lot less spare cash, too.

while child-raising costs have gone up by 50% since 2007, our household incomes have only risen by about 25% , which means the cost of raising children is growing at double the rate of our average incomes

Figures from the latest NATSEM (University of Canberra) Income and Wealth Report show that for a typical middle-class Australian family, the cost of raising two children from birth to adulthood was $812,000 in 2012. What’s scary about this number is how much it has gone up in the previous decade (the same figure in 2002 was $448,000).

And the news gets worse: while child-raising costs have gone up by 50% since 2007, our household incomes have only risen by about 25% , which means the cost of raising children is growing at double the rate of our average incomes. If the costs of parenthood have nearly doubled in just one decade, what will the dollar amounts look like in 10 more years, or 20?

Also, with the costs of parenthood taking a larger slice of the total income pie each year, where will the money come from for retirement, investment, basic living expenses and everything else? It is no exaggeration to say that for most Australians, the most important economic decision they’ll make in life will be about having a child.

Child education costs

According to the Australian Scholarships Group (ASG), a child born in 2014 will cost around $63,000 to educate (from Prep to Year 12) in a public school in Metropolitan Australia. To educate the same child in a private school, the cost jumps to around $459,000.

There is a common perception in Australia that sending your child to a private school will result in a much improved educational outcome. Several studies conducted in the past few years contradict this.

The costs are a bit lower for regional Australia – $51, 656 for public schools and $323,006 for private schools. These figures include tuition and predicted expenses for transport, clothing and extracurricular activities.

Where you live in Australia also affects your child’s education costs, with Sydney and Melbourne being pricier regardless of whether your child attends a government school or a private school. Hobart and Adelaide currently boast the most affordable public education in the country (for capital cities) at around $50,000 per child.

There is a common perception in Australia that sending your child to a private school will result in a much improved educational outcome. Several studies conducted in the past few years contradict this assertion, however.

The latest, conducted by the National Institute for Labour Studies, found that the main determinant for higher raw test scores in private schools was the higher socio-economic status of the students who attend those schools, and that “school quality does not depend directly on the sector of the school”.
A large number of similar studies have come to the same conclusion – for example, the OECD’s Programme for International Student Assessment found no significant difference in public, Catholic and private school results after taking socio-economic background into consideration.

What’s also interesting is that a study published in the Economics of Education Review found that Australia’s decline in academic performance in international tests over the past decade was primarily due to poorer results in private schools – not public schools.

Childcare

For some couples, having two incomes isn’t a choice – it’s a monetary necessity. With both parents working, child care becomes a major expense. Some parents even call it ‘our second mortgage’.

Childcare in Australia isn’t cheap. A recent report showed that costs have climbed 150% in just the past decade, with the result that parents who return to full-time employment are losing up to 60% of their gross income to childcare costs after skyrocketing childcare fees, higher income tax rates and loss of benefits are factored into the equation.

With over 600,000 Australian families paying up to $170 a day (per child) for ‘long day’ childcare , it’s no wonder that telecommuting and work-from-home options are becoming increasingly popular.

The costs we don’t really think about

The main costs associated with raising children are food and transport – as anyone who has tried to feed three teenagers and drive them all around to soccer/ballet/chess practice can attest. But there are a lot of other expenses that tend to creep up on us without warning when we become parents.

The more children you have, the bigger your car and house will need to be to accommodate them. If a child is sick and has to stay home from school, you have to take time off from work to look after them – which costs you money. Each child will have their own sports, hobbies and activities to fund. And while you always wear the same sized shoes and clothing, children have this inconvenient habit of growing out of theirs.

Children: the older they get, the more they cost

When you have a new baby it seems like there are so many new things to buy: prams, cots, bouncers, baby carriers, soft toys, clothing, formula, inoculations, nappies, baby capsules, etc. But the serious expenses of raising children don’t really kick in until they get a bit older – when education, recreation and transport costs start to take centre stage in a big way.

Of course, teenagers can sometimes offset these costs by taking on a part-time job, but there’s no getting around the fact that older children eat more, enjoy a wider range of social, educational and sporting activities and cost their parents more money than the younger ones.
And don’t think the costs of raising your offspring necessarily end when they turn 18.

According to recent research, about a quarter of Australians aged between 20 and 34 continue to live in their parents’ home for a variety of reasons: the high cost of tertiary studies, the frightening costs of buying a new home or the difficulty in finding suitable employment, to name a few.

According to recent research, about a quarter of Australians aged between 20 and 34 continue to live in their parents’ home for a variety of reasons: the high cost of tertiary studies, the frightening costs of buying a new home or the difficulty in finding suitable employment, to name a few. There are even special names for these ‘late-leavers’: S.L.O.P.s (Singles Living Off Parents) or K.I.P.P.E.R.S. (Kids In Parents’ Pockets Eroding Retirement Savings).

To help struggling older children with deposits for a first home or fees for higher education, some parents may even opt to delay retirement, sacrificing their own financial security to make life easier for their kids. In a tightening economy, it can be hard to find the right balance.

Life insurance: a safety net for your children

As a parent, your financial responsibilities substantially increase. There are car payments, a home loan, education costs, ongoing living expenses and a host of other obligations to meet. But what happens to a child if a parent succumbs to illness, injury or death?

The primary function of life insurance is to provide an income source for your partner and children if something unexpected should happen to you. It ensures that your family is financially looked after if you and/or your partner are unable to look after the home or work again.

As the costs of raising children continue to increase, life insurance becomes increasingly important. Here are some options to consider:

Death Benefit

A Death Benefit offers financial protection for your family if you should pass away unexpectedly. It provides a lump sum benefit to help your family deal with both ongoing living expenses and any accumulated debt commitments.

TPD (Total and Permanent Disability) Cover

If you should suffer from a total and permanent disability that prevents you from working or managing your home, TPD cover is designed to provide a lump sum to help you and your family under those circumstances. TPD is what is referred to as a Living Benefit.

Trauma Cover

Trauma cover is another type of Living Benefit that comes into effect in the event of a serious illness or injury, which might include (but is not limited to) stroke, certain kinds of cancer, heart attack and coronary artery bypass surgery.

Children’s Cover

Children’s Cover provides you with the opportunity to take time off work to look after your child if they should face a serious injury or illness, and helps you meet mortgage, rehabilitation and other expenses at the same time. A lump sum benefit allows you to keep your household running in the event of a child becoming seriously ill or injured, or passing away, and relieves the financial strain if you should need to take unpaid leave. Children’s cover supports you so you can support your child – when they need it most.

Life insurance is much more than a safety net for your family – it’s a vital investment in your children’s future financial security. Each policy is different and your needs as a family are unique, so make sure you shop around for life insurance that gives you the policy options that suit you best at a price you can afford.

Read the PDS as Life Insurance policies may differ.

Tips for cutting costs

While some of the costs of raising children are fairly easy to measure (food, toys, recreational activities), others are harder to pin down to an exact figure (increased household energy consumption, transport costs). Finding ways to save is tough, especially in these economically stressful times.

Over the course of an entire childhood, there is an awful lot of transport to and from school. Have you worked out whether it’s cheaper to drive your children or let them take public transport? If the child is old enough and you feel comfortable with the safety aspects, a bicycle can be one of the most inexpensive ways for a child to get to and from school.

When it comes to buying food for our children, there are plenty of simple ways to save. First, look at the nutritional value of the food in relation to its price. Colas, chips, mass-produced refined foods and flavoured beverages have very little nutritional value but can cost even more than healthier alternatives.

When it comes to buying food for our children, there are plenty of simple ways to save. First, look at the nutritional value of the food in relation to its price. Colas, chips, mass-produced refined foods and flavoured beverages have very little nutritional value but can cost even more than healthier alternatives.

Buy produce when it’s in season. Look for home brand items. Take advantage of sales and coupons. Pack your child’s lunch instead of giving them money for school tuckshop or a takeaway. Buy food that’s tinned, dried or frozen – it may be considerably cheaper than the fresh version but equally nutritious. Keep your portion sizes under control to reduce food wastage.

Recreational costs are a major expense when raising children. By the time you add up all the group sports, music/dance/karate lessons, beach holidays, video game requirements and all the rest, it’s clear that keeping your kids happy, engaged and occupied can become quite expensive. When money is tight, give your children the choice between two recreational options rather than paying for both.

On weekends, don’t have your schedule so crammed with expensive, organised activities that there’s no time for the free stuff: kicking a ball around in the park, going for a bushwalk or flying a kite with your kids.

Because children grow out of their clothing all too quickly, you’ll want to use every trick in the book to save money on clothing purchases. One tip is to buy gender neutral clothing so that either your daughter or son can wear the same item (and future children too).

Because children grow out of their clothing all too quickly, you’ll want to use every trick in the book to save money on clothing purchases. One tip is to buy gender neutral clothing so that either your daughter or son can wear the same item (and future children too).

Buy second-hand clothing – it can often be of perfect quality and heaps cheaper than a similar item new. Before you hit the shops, check eBay – there are some impressive clothing deals there, even with the costs of shipping factored in.

Seek expert advice when planning for your child’s future

It isn’t always easy to make the right long-term financial decisions for your children’s future. You want to give them the very best life experiences and supportive environment you can, but not break your budget in the process.

It’s difficult, and that’s why it’s a wise move to talk to a financial planner. A professional can give you the solid advice you need to make an informed decision about investment options, term deposits, home loan offset accounts and how to make the most of your super.

1 https://www.amp.com.au/wps/amp/au/FileProxy?vigurl=/vgn-ext-templating/fileMetadataInterface?ids=1c047918d9ece310VgnVCM1000004320220aRCRD

2 http://www.goodschools.com.au/news/survey-reveals-the-cost-of-an-australian-school-education

3 http://www.theage.com.au/national/education/fourth-study-this-year-confirms-private-schools-no-better-than-public-20141109-11jlgn.html

4 http://www.smh.com.au/national/parents-take-hip-pocket-hit-as-childcare-costs-skyrocket-20140622-zshr7.html

5 http://www.smh.com.au/money/planning/boomers-go-bust-over-kids-20110910-1k2rs.html