Cost of raising a child shocks Surrey House Dad into buying his 11-month baby a new pension!

Cost of raising a child in the UK

It has been almost a full year since we welcomed our son into the world in December 2019. It had been a long journey for my wife and I, but the wait was worth it given the immeasurable joy we have since had. There have been some significant events in our son’s first year of life – UK General Election Dec 2019; Leaving the EU 31st Jan 2020; Global Pandemic (COVID) with the first lockdown in March and the second lockdown in England in November. If there has been one silver lining in recent months for us, it has been the amount of time we have been able to spend with our son. Pre-birth and the first year of life throws up a whole range of expenditure on baby paraphernalia but this is just the beginning, so I am told!

According to the Child Poverty Action Group, their 2019 report into the cost of raising a child up to the age of 18 (including housing and childcare) is £185,000 for lone parents (up 19% since 2012) and £151,000 for couples (up 5.5% since 2012) – staggering amounts. According to the Office for National Statistics, the median salary in 2019 was £585 per week equating to a little over £30,000 p.a. (pre-tax) per person. Net income is c. £24,000 p.a. Therefore, a household with two earners will generate £48,000 of net income on average. On the basis that it costs £151,000 to raise a child over 18 years (or £8,388 p.a.) this means that c.17.5% of all net household income goes on raising one child!

Many parents will also have aspirations for their children to go to University once they turn 18. According to the Times Higher Education team, the current cost of English universities is up to £9,250 per annum not to mention the cost of rent, books, food, and entertainment for a period of 3 years. Course fees alone amount to c. £28,000. In 17 years’ time I can imagine these will be an awful lot more. 

Several parents would like to and indeed do help their children onto the property ladder. According to finder.com the average age of a first-time buyer in the UK is now 34. This essentially means that parents continue to support their children into their 30s…..does it ever end! 

As new parents, we ask ourselves what we can do to ensure sufficient provision is made to help with the costs of raising our son. Several of the day to day and near-term costs will come from earned income. But in terms of future projected costs it is possible, not to mention sensible, to start that plan as soon as possible?

So, what are some of the options?

• Junior ISA – this is a tax-free account set up by a parent or guardian for children below 18 and is a natural starting point for many given their tax efficiency. A junior ISA can either be in cash or in stocks and shares. In the current tax year (20/21) the limit is £9,000 p.a. If fully utilised until the age of 18 and assuming no growth, this would achieve a pre-fee amount of £162,000 which should be more than enough. However, the reality is that most people get nowhere near the maximum limit allowed. According to ISA statistics from HMRC, 954,000 Junior ISA accounts were subscribed to in 2018/19 with the average subscription being only £1,020. Although better than nothing, 18 years * £1,020 would achieve a pre-fee savings amount of £18,360. A useful amount but it would not quite cover projected costs of someone with aspirations for a University education. The good news is that anyone can contribute to a child’s ISA so it may be worth asking the grandparents to contribute this Christmas time!
• Coins – I recently received a marketing email from a coin company offering all keen Numismatics (coin collectors) an advent calendar with coins from around the world – an interesting idea but surely too much for our son to appreciate. At this age he would only try to eat them! Having said that,  our son did receive a gold coin to commemorate his birth and not of the edible variety either! However, for those interested in gold coins the returns can be meaningful depending on your entry point. For example, according to Investopedia from 2005 to 2020, the price of gold has increased by 330%. Over the same period, the Dow Jones increased by only 153%
• Stamps – with Christmas just a matter of weeks away, there will be a new festive focused stamp collection for the enthusiasts (Philatelist) to enjoy and invest in. According to Stanley Gibbons, rare stamps have averaged an annual compound return of 10% over the last 50 years – pretty impressive. I’m not sure that our son’s Paddington Bear stamp collection will ‘cut the mustard’ from a value point of view but at some stage it will get his mind thinking about the importance of saving no matter what form it takes

Concluding Thoughts

The cost of raising a child is expensive. Although some of the above ideas might be tongue in cheek (no baby is going to interested in coins or stamps unless they are edible) the underlying point is a real one. A greater level of savings needs to be made to meet the increasing costs of raising a child in the future. Speaking of the future, our son is in the process of having a pension opened in his name. Madness you might shout but think about this. Anyone who does not earn money can still pay into a pension up to £3,600 p.a. (grandparents can also contribute). In truth, because of tax relief you only pay in £2,880 and the government will top this up with basic rate tax relief – in effect they will add £720 to the pension pot. If you take an 18-year view, this equates to £12,960 (18 * £720) of government money waiting to be grabbed. Does not sound so mad after all!

We will be discussing pensions in our upcoming webinars. Be sure to check out the next available dates on our website www.cragsidefinancialsolutions.co.uk 

In the meantime, your views, thoughts, shares, and likes are most welcome!

Notes:

• The value of pensions and investments can fall as well as rise. You may get back less than you invested.
• Tax treatment varies according to individual circumstances and is subject to change.