How to cut the costs of bringing up your children

Parents spend £43,000 raising a child, but the load can be lifted.
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The Independent Online

Starting a family can be a huge financial strain; in the early years, there's the cost of food, clothing and childcare, and in the later years you'll be digging deep to fund the cost of driving lessons, tuition fees, and one day even a house deposit and wedding.

Figures from Invesco Perpetual show that if a child is absolutely dependant for support on his or her parents until the age of 18, the total bill will be more than £43,000 – rising to a huge £150,000 if education-related costs are included.

These findings echo similar research by friendly society, LV= (formerly Liverpool Victoria), from the end of last year, which put the cost of raising a child even higher, at £180,000 – although that figure included supporting the child from birth to the age of 21.

"Having children will cost more than you can possibly imagine," warns Philippa Gee from independent financial adviser (IFA) Torquil Clark. "Financially, it is like moving house, where if you have a budget, you need to at least double it and provide a fairly hefty contingency fund as well."

The good news is, that while the costs of bringing up a child are rocketing, you can take steps to bring those costs down. One of the simplest ways of managing the expense is by starting to save as soon as you can.

At the same time, make sure you make the most of all the help on offer from employers and the state.

MATERNITY AND PATERNITY PAY

The rules on statutory maternity pay changed in April this year, and parents are now entitled to more money and more time off.

To qualify, you have to have worked for your employer for at least six months up to the 15th week before the baby is due.

As before, during the first six weeks off work you are entitled to 90 per cent of your average weekly earnings, but after that, you are now entitled to statutory maternity pay for another 33 weeks – rather than the 20 weeks that it used to be.

Maternity pay has also gone up from £108.85 a week to £112.75 a week.

Fathers are also now entitled to take paternity leave, and also receive £112.85 a week in statutory pay – albeit for just two weeks

It's worth checking with your employer as to what maternity and paternity leave you are entitled to, and what income you will receive – as it will vary from one employer to another.

Both parents need to think about their long-term income and plan carefully, says Gee.

"While the decision should not be purely financial, you need to think about whose career and salary would be less affected by taking a break from work – especially if a longer maternity leave is wanted," she says.

CHILD TAX CREDITS AND CHILD BENEFIT

Child tax credits were launched in April 2003 as one of the Chancellor's flagship policies to help low-income families.

However, the struggles faced by many parents have been well documented. The scheme is not only complicated, but has been plagued by administrative errors and computer glitches which has caused problems for many families who have had money paid into – and then pulled out of – their accounts. That said, this means-tested allowance can provide much-needed financial support.

The child tax credit is for people who are responsible for at least one child under 16, or under 19 if they are still in full-time education. How much you receive depends on the number of children you have and whether you're part of a couple or a single parent, as well as your household income. The cut-off point for qualifying is £58,000.

In the recent pre-Budget report, Chancellor Alistair Darling said that in addition to a £150 increase in the child element of the child tax credit announced in the Budget in March, it would be raised by a further £25 a year from April 2008, and by a further £25 from April 2010.

Further to this, child benefit is paid tax-free to anyone caring for children under 16, or up to 19 and in full-time education, regardless of income or savings – so make sure you claim all that you are entitled to.

For the current tax year, child benefit payments are set at £18.10 a week for the eldest child and £12.10 a week for additional children.

CHILDCARE

While some parents can look to grandparents and other family members to help with childcare, such as the school run and after school, those who do not have this luxury now have to fork out an average of £152 a week for a full-time nursery place for a child under two in England, according to children's charity, The Daycare Trust.

However, you can take advantage of a financial boost from the taxman in the form of childcare vouchers.

You can "sacrifice" up to £55 a week – or up to £243 a month – from your pre-tax salary for vouchers redeemable at any childcare provider scheme. As well as saving you tax and national insurance contribution (NIC) payments, your company also saves on NICs.

Check if your employer offers such a scheme, as the vouchers can be used towards the cost of all kinds of registered or approved childcare.

That said, lower-income families need to beware of applying for the vouchers as they could end up losing out on tax credits.

EDUCATION

Aside from childcare, parents are also having to make provision for the escalating costs of their offspring's education. Although the costs of uniform, travel, food, books and trips all mount up, the cost is even greater for those who hope to send their children to a private school.

The average termly fee, according to the Independent Schools Council (ISC), is £3,391. While the very wealthy may be able to pay for fees from everyday income, others will have to find another means,

Anna Bowes from IFA AWD Chase de Vere says the best way to fund school fees is by building up an investment pot.

"It makes sense to save well in advance, certainly from birth – and perhaps even before," she says. She says that while some parents may consider remortgaging or taking out a loan, this is a "very extravagant idea".

"You'll be paying interest that could have been avoided," she says. "It's far better to have been saving so you can avoid all the extra costs and worries of a long-term loan – and grandparents may also be willing to contribute to the fees."

A further option is to apply for a bursary or a scholarship – so contact the schools you are interested in to find out what is on offer.

There are also a range of "school fee savings products" available to parents, but Bowes warns that these can be expensive.

"A plan designed specifically for school fees is just not necessary," she says. "Parents should simply focus on building up a balanced portfolio that suits their risk profile."

At the same time, the cost of sending a son or daughter to university has also soared – especially since the launch of tuition fees of up to £3,000 last year .

Figures from The Children's Mutual, a friendly society, show that the average total cost of a three-year degree course today is around £38,000 – if you take into account tuition fees, accommodation, equipment, clothing, travel and books.

Once again, the key to helping fund your child through his or her degree is to start saving at as early a stage as possible.

While parents may be tempted to squirrel money away into a very low-risk bank or building society account, cash savings offer low returns and the real value will slowly be eroded by inflation.

"If you are happy to tie up a monthly investment on a long-term basis, for university fees, say, for 10-15 years, and are happy to take the risk, it would be worth considering equities," says Gee. She picks out the Jupiter Global Managed fund and Skandia Global Best Ideas fund.

Get your children saving

As well as saving on behalf of their children, encouraging youngsters to save themselves is another way parents can help ease the financial burden once their children reach adulthood.

The good news is that the Government's Child Trust Fund scheme gets every child started, with a voucher worth £250 – or £500 for those born into households on low incomes.

Friends and family can add another £1,200 each year, while the Government will make further payments into all accounts when a child reaches the age of seven.

It is up to parents to decide where this money will grow tax-free until the child turns 18 – whether in a cash account, a moderate-risk " stakeholder" investing in shares, or a full-blown stock market account.

Parents must invest the voucher within 12 months, as failure to do so will result in the taxman opening an account automatically on behalf of the child.

According to calculations from The Children's Mutual, if families were to save £100 a month into a CTF account over the next 18 years, their children could graduate into adulthood with more than £37,000 – enough to put them through university.

If your child was older than five on 1 September, then you will have missed out on the CTF scheme.

But there are plenty of other children's accounts available.

"Parents must ensure they choose the most appropriate account and make the most of their child's tax exemption – which requires a simple R85 form being filled in," says Kevin Mountford from price comparison service Moneysupermarket.com.

He picks out the Halifax children's regular saver paying 10 per cent and an easy access account from the Chelsea building society paying 6.2 per cent.

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