What Is The True Cost of Raising Children | December 9, 2015
As a parent, there are many things you want for your children; a fulfilling and happy life, a job they love and plenty of opportunities for success. In terms of rewarding return, raising children can be the greatest investment you can make. But what is the real cost to achieve all of these things? While it is true that money doesn’t buy you happiness, wanting “the best” for our children can often mean serious implications for the household budget.
A report released by AMP found that the cost of raising children in a typical middle-income family today has risen by around 50% since 2007, from $537,000 to $812,000 – for high-income families, the real cost was found to be around $1,097,278. This is based on a family raising two children from birth to 21 years, equating to $19,300 per child per year – roughly in line with international estimates from other high-income countries.
With household incomes over the same period having grown only by 25%, the growth of costs associated with raising children is double that of income growth.
This naturally raises concerns over costs into the future and whether continued growth will see the cost of raising children surpass that of what we’re earning, impacting on other areas of life such as retirement, basic living expenses and everything else. With all this statistical doom and gloom, the importance of having a functional budget and savings plan in place is more important than ever, meaning you can secure a financial future for yourself and your children.
The main expenses associated with raising children in each of Australia’s capital cities have been broken down into the following categories.
Transport, food and housing are the dominant areas of expenditure. Housing and utilities are an area of general underestimation, being the main expenditure if you have one child, however, if you have 2.7 kids, food is the main expense.
Most notably in AMP’s report, it can be seen that the cost of child care and education has substantially increased since 2007.
Education and higher standards of living are the key factors in it costing higher income families close to $1.1 million dollars to raise two children while lower income families, who educate their children through the public schooling system, will outlay $473,000 raising their kids. Australian families are spending on average 12% of its budget on child care and education, while high-income families spend, on average, 26% of its budget on child care and education – these parent’s tending to require more child care as both parents are likely to work while the children are young and return to full-time work sooner, and the children are more likely to attend private schools. The report also highlighted that the cost of raising children can often increase when children finish high school as many parents contribute to university fees, rent assistance, first home deposits and weddings. And almost half of young adults between the ages of 20 and 24 still live at home with their parents.
With all of this daunting information in mind, it can be seen that as a parent, your financial responsibilities substantially increase. Having a “future plan” in place for your finances is a good start, as is ensuring that you are insured to cover any possible illness, injuries or scenario where you are unable to meet your financial obligations for yourself and your children. 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. Talking to your financial planner is one way to get the solid advice you need to make an informed decision about your personal situation.
Overall, increasing income, as well as government policy centred on allowing households to meet the increasing costs of raising children means parents are spending more on their kids because they can. Yet, for the majority of Australians, raising children is the biggest economic decision we’ll ever make, and while it is challenging, it is also enlightening and rewarding. Despite the very high expenditure-based estimates, having children and raising them comfortably is something that every Australian can afford to achieve. Just remember, it’s often the simplest things, not the most expensive, that we all find the most enjoyment.
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