Planning to be a parent?
Great. Just be sure to grasp the money issues too.
Take a look at this short video about the pensions gap that can open up when one parent (typically ‘mum’) takes time off to raise children.
The video, which promotes a wide-ranging report, from the People’s Pension on gender pension gaps, is quite powerful but, perhaps, could be more so if they’d used a case study which involved having more children and more work absences – and thus a much bigger differential in pension fund value.
Having Dad acquire 50% more pension than mum is certainly eye-opening… but the reality, as shown in the report, that men typically acquire 300% or more pension wealth than women is simply eye-watering.
This is a genuine challenge for women and the important question, whilst policymakers consider national solutions (which they’re most unlikely to whilst Brexit issues dominate the agenda) is this:
What can you do about it?
Well, the simple truth is that life (and quite often parenting) is seldom planned.
Ideally, of course, couples should go into this family raising ‘business’ with their eyes wide open about the financial impacts – both immediate and long term.
I’d certainly suggest (for couples where finances are stretched – the vast majority, whether you’re having children or not) that you agree on a joint budget to reflect your different incomes and the need to contribute different amounts towards shared bills.
Yes really… that’s the best way… and yes, that’s what I did, as a young dad, back in the day.
Agreeing on what’s ‘fair’ on each item of the ‘shared’ bills might take a bit of ‘discussion’ but typically there won’t be too many of these items so it shouldn’t take too long.
You should also agree on a NEW shared budget each time there is a significant change to either of your incomes.
Clearly, this is essential when mum (or dad or other partner) is going to take time off work to look after children.
Better to scare them off early
If you’re a potential future mum, you might think,
‘I don’t want to scare off the potential father to my children
… with a grisly budgeting exercise’…
However, your partner needs to understand in advance how many more bills they’ll need to pay – once you’ve had your child… or children.
If that reality is going to scare them off, it may be better to scare them off now! 😉
Get the help you’re entitled to
That said before you raise the alarm bells with your partner… find out about the financial support that you might be entitled to – from the government and your employer – and have these numbers ready to plug into your budget.
The areas you need to look into include:
- Maternity (or adoption) leave and Pay – from your employer.
- Paternity leave for partners
- Shared parental leave and pay
- Sure Start Maternity Grant
- Child benefit payments – be aware that if you or your partner (that you live with) have taxable income of more than £50,000 p.a. you might lose some, or all of this benefit through tax.
- Free Childcare for pre-school children
- Child Tax Credit*
- Working Tax Credits – childcare element*
- Tax-Free childcare or Childcare vouchers.
*If you receive tax credits now you may be able to add the childcare element to your claim. However, tax credits are being replaced by Universal Credit across the UK.
So, if you need to make a new claim, check if it should be for Universal Credit. Find out more about Universal Credit and the benefits it’s replacing here
Start your checks here
This is the best resource for checking what you’re entitled to
Thinking longer term
The fact that one partner might accumulate less pension or other savings during their working life should not matter if you stay together and share the spoils of your life savings in later life.
However, I completely understand the desire of each parent to have access to their own savings pots in later life.
In theory, you could plan to build up those extra funds in the name of the parent with care during your joint budgeting exercise… although that might be a cost too far for many stretched parents.
Unfairness cuts both ways
It’s also worth bearing in mind what could happen if you don’t stay with your spouse/partner for life.
If you separate whilst your children are dependent:
- The parent with ‘day to day’ care will often receive significant child maintenance payments from the other.
- Under the ‘odd’ formulae of the child support agency, these payments are only reduced, not eliminated if the children spend similar time in both homes
- The higher earning parent will often lose the lion’s share of their assets on divorce – because assets are split (quite rightly to make sure that children are taken care of) taking account of the earning ability and financial responsibilities of both parents.
The bottom line for parents
If you earn less than your partner during your working life or have earnings gaps to raise children, you might face some financial pain in retirement… but only if your partner is tight with the purse strings at that time!
If you’re a higher earning partner, you’ll almost certainly incur a lot of financial pain if your relationship ends in divorce
So, the financial pain cuts different ways depending on the scenario – and both happen a lot.
So, what is the cost of parenting?
Well, it’s expensive – in terms of time and money and should therefore not be undertaken lightly.
The cost (on average) to raise a child in Britain from birth until they’re 21 years old could be as much as £230,000 (according to the insurer, LV)… if you include some money for university support but exclude private education.
The Child Poverty Action Group (CPAG) estimates the basic cost of raising a child to age 18 at around £75,000. This figure excludes the cost of additional housing and childcare costs which vary and may be offset with state support as listed above. Include those costs and the estimate rises to £185,000.
So, however you cut this, the costs are substantial – making it essential to keep a lid on your spending and get good value on the money you have to spend.
Is it worth it?
Well, different parents will answer that question differently!
Having and raising children is one of the biggest and most rewarding challenges you can face.
It immediately shifts your life focus from a concern for yourself to the care and development of another – your new family member.
That’s a powerful (and healthy) shift for most of us.
Of course, you can’t ever really prepare for:
- The range and depth of emotions you’ll experience
- The never-ending, sleep-deprived exhaustion – when they’re young
- The less frequent but more annoyed exhaustion of waiting up all night for them to come home in their teenage years!
- Sheer amazement at having this new person in your life and the excitement at every new skill they develop.
- The anxiety you feel about their safety as they take their first steps…
- … and later when they start riding a bike or driving a car on the road … or
- The immense frustration at the mess they make (and how they talk to you) when they reach their teenage years…
- The pride you have in their progress at school and in other activities … and at what they achieve in the world of work later on.
As for my personal experience… I’ve been through it (the financially hard way) and yes, it’s been worth every bit of financial and emotional pain 🙂
These fellahs are all grown up now but the journey has been amazing so far and I’m looking forward to what else is to come.
Hope that’s helpful.
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