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It now costs a staggering $812,000 to raise two children from birth until they leave home**, giving some parents reason to question whether they can afford to have more kids.
The latest AMP.NATSEM Income and Wealth report, ‘Cost of Kids,’ found that although subsequent children are cheaper than the first, the combined cost of raising children is substantial.
The report found on average families are spending $281 a week on the first child, $232 a week on the second child and $193 a week on the third child.***
Although additional children cost less per child, this by no means indicates that the costs of larger families are not significantly higher – in fact, some might find that for their level of income, it’s exorbitant.
High income families with three children spend on average around $1,045 a week on their kids, the report found.
But for low and middle income families with three children, the cost hurts even more because they represent a greater proportion of the family’s income.
The report showed low income families with three children are spending $476 a week and middle income families around $667 a week on raising their children.
The pressure on low income families is especially great with these families devoting 41 per cent of their income to their children, if they have three.
By comparison, middle income families with three children spend on average 29 per cent of their income on the kids and high income families with three children around 21 per cent.
So how can people decide if they can afford to have another child?
The choice to have another child is really a decision for the heart as well as the head.
Ultimately, people need to work out what is most important to their family – what their values and life goals are. The cost of extra kids and potential sacrifices that might need to be made are relative to these things.
Some people would rather deal with the financial struggles they may face than not have more children. Other people want to live a life where they can afford to travel, provide private schooling and enjoy other luxuries.
Once people are clear on their values and life goals, they should take stock of their personal financial position – there is no point in comparing with neighbours or friends because everyone’s situation is unique.
It’s important to think beyond the cost of the baby and remember that in today’s economic climate the majority of children won’t leave home at 18.
It’s not the early years of child-rearing that costs the most – it’s in the teen and early adult years where the expenses really hit home. This is because of the extra food and energy budget required as a child grows and also the growing cost of education, travel and recreation.
Children are the most expensive to support from 18-24 years and for more and more families these children are still living at home. The report found that for low income families the weekly cost of providing for these adult children was more than five times that of a child under four years.
Given that older children are significantly more expensive than babies and younger children, people need to think long term and consider if they have the income – or at least a plan to increase their income – to cover the likely costs down the track.
It’s never too late to start planning for tomorrow. Getting back to basics by working out a detailed budget – one that factors in all expenses and income – is great place to start, and then it pays to seek professional advice to put a solid plan in place for the future.
By AMP financial planner Mohamed Said*
*Mohamed Said is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706.
Any advice given is general only and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.
**The cost of raising two children in a middle income family from birth til they live home. Cost for lower income families is $474,000 and for higher income families $1,097,000. Source: AMP.NATSEM Income and Wealth Report, “Cost of Kids”, May 2013
***Table 4, page 9, AMP.NATSEM Income and Wealth Report, “Cost of Kids”, May 2013
