This article is from the Good Guide to Financial Planning, which is available to download free here.
Children are wonderful – and expensive! The basic cost to a couple of raising one child to the age of 18 is now a whopping £166,000 for a couple or £220,000 for a lone parent, according to the Child Poverty Action Group.
Then you just need to multiply this cost by the number of children you want to have. Are your eyes watering yet?
As with all things that involve money, the more prepared you are the better. Costs are usually higher in the early years (depending on your schooling plans etc), so a little financial planning before you start a family can go a long way. Here’s what to prioritise:
1. Check your parental leave entitlement
If you’ve been working at your company for at least 26 weeks and earn £123 or more on average per week, you are entitled to Statutory Maternity or Paternity Pay (SMP). This is 90 per cent of your average gross weekly earnings for six weeks, followed by 33 weeks at £184.03 or 90 per cent of your average weekly earnings (whichever is lower).
Most larger companies will have their own (more generous) scheme. You can check your parental leave entitlement in your contract, or ask your HR department.
If you’re not eligible for SMP, you might be able to claim Maternity Allowance. You can get this if you’ve been either registered as employed or self-employed for at least 26 weeks in the 66 weeks before your baby’s due.
If you’re employed, you’ll get £184.03 a week or 90 per cent of your average weekly earnings (whichever is less) for up to 39 weeks.
If you’re self-employed, you can get between £27 to £184.03 a week for up to 39 weeks, depending on how many Class 2 National Insurance contributions you’ve made in the 66 weeks before your baby is due.
If you’re a dad, you could claim Paternity Pay. You can take one or two weeks off, all in one go, once the baby’s born. You’ll get £184.03 per week, or 90 per cent of your average weekly earnings, whichever is lower.
If you are sharing parental leave, you would qualify for Statutory Shared Parental Pay (ShPP). This is £184.03 a week or 90 per cent of your average weekly earnings, whichever is lower, and is paid for 50 weeks.
2. Check your benefits entitlement
Some benefits are available to most families with children, such as child benefit, and others paid only to those on a lower income, such as Universal Credit.
Child benefit
You can get £25.60 a week for your first (or only) child and £16.95 a week for any additional children, up until their 16th birthday – or later if they stay in education or training. (From April 2025, these rates will increase to £26.05 and £17.25 respectively).
While child benefit is payable regardless of income, those who earn more than £60,000 a year must pay a tax charge. If you or the other parent earns more than £80,000, the charge cancels out the Child Benefit you receive.
Universal Credit
Universal Credit is the government benefits model for people on a low income that replaced Working Tax Credit and Child Tax Credit, plus several other means-tested benefits. You can use this free benefits calculator to work out how much you might get.
3. Start saving for the future
You can give your child the best possible financial start in life by opening a savings pot for them early. Putting aside just £10 a week from birth to age 18 in a savings account paying six per cent interest would turn into almost £17.000.
A Junior ISA allows you to save up to £9,000 a year tax-free. You can choose to save your money in cash or invest it in stocks and shares, which comes with higher risk but potentially greater returns. Consider investing ethically on behalf of your children – see our top ethical JISAs here.
It will provide a useful introduction to them of the impact money has in the wider world, where profits come from, and being responsible citizens and investors. Be aware that once your child reaches 18, they can access and withdraw the money themselves.
Another option is to use your own, or your partner’s, ISA allowance (up to £20,000 a year) to save for your children. You can pay up to £2,880 into a child’s pension per tax year. The government will add 20 per cent in tax relief, taking this up to £3,600.
4. Make a will!
If you haven’t already, you need to organise your will to protect your children’s future. Remember that if you’re not married or in a civil partnership, then your partner won’t receive anything from your estate (that isn’t jointly owned by them) unless this is specified in your will.
You should review your will whenever your circumstances have changed: for example, marriage can invalidate an earlier will. It is also a good idea to set up a Lasting Power of Attorney at the same time, as this will ensure someone you know can deal with your affairs if you lose the ability to do so.
5. Buying a house after children
People will go through their financial life stages in various orders, and this could mean having kids before buying a home. Bear in mind that having children first could dent your chances of getting the size of mortgage you need for a home. Lenders use affordability criteria (which can include childcare costs) to work out how much you can borrow.
