By Carla Hindman
PRIDE Financial Columnist
Starting a family is a major milestone in a person’s life, and along with your bundle of joy comes significant financial considerations. When you’re starting to plan for a family, take some time to consider the costs of raising children.
According to MoneySense.ca, the average cost of raising a child to age 18 is $243,660. Breaking that down, it’s about $12,825 per child, per year – or $1,070 per month.
For prospective parents who are considering starting a family, there is a lot to consider. Can your home accommodate a growing family? How will you discipline your children? Will one of the parents stay home, or will the children go to daycare? Are you willing to change or shift your lifestyle to accommodate a young family? Can you afford your living expenses on a reduced income while on leave?
Before the baby arrives, it’s wise to evaluate where current finances stand. While many couples have a thorough money talk before they wed, it works for family planning, too. Couples and single parents will benefit from complete financial transparency before pregnancy, adoption proceedings or fertility treatment starts.
Here are some tips to help prepare finances if you are planning on having or currently expecting a child.
According to Service Canada**, Employment Insurance can only give you a maximum of $524 per week, which is taxable income. Will that be enough to support your family while you’re on leave? The first step is to create a budget, figure out how much EI you’re eligible for and amend your budget with that figure. If it’s not enough to meet your expenses, see where you can adjust spending. If possible, it’s also a good idea to decrease your spending before you go on leave to build up some savings and help supplement your reduced income.
The basic expenses
Babies need certain items such as cribs, car seats and strollers, which can come with a hefty price tag. Second hand stores or hand-me-downs from friends or family members can help cut costs, but make sure to research current safety standards when accepting second-hand items. For example, car seat regulations changed in 2012, so car seats manufactured before that may not be compliant with current safety standards. As with anything, the price range for baby items is very broad, so you should able to find the necessities at a modest price. Buying in bulk can also help cut down every-day expenses such as diapers. And remember, there is a difference between needs and wants: babies need clothing, but they don’t need designer duds. Choose where you want to splurge carefully.
If both parents will be working outside the home, start planning for childcare as soon as possible. Full or part-time childcare services for working parents can be expensive and difficult to secure, depending on location. According to the Canadian Centre for Policy Alternatives*** the median monthly cost of child care in Canada can range anywhere from a low $152 a month in Quebec to a high of $1,676 for infant care in Toronto. Make sure to research your options and get on the wait lists as soon as possible. When your children are older, you many need to consider before and after school care as well. Reminder: day care is a tax-deductible expense for the spouse with the lower income, who can claim up to $8000 per year.
If your family chooses to hire a nanny, you’ll need to pay employer contributions to the Canada Pension Plan (CPP), Employment Insurance (EI) and Workplace Safety and Insurance Board Premiums. Other factors that can impact the cost include whether your nanny lives in your home, and overtime restrictions. Remember that a nanny’s salary is also tax deductible.
If possible, try to set some funds aside in an emergency fund. Unexpected expenses can pop up when you least expect it. Experts suggest that the emergency fund should equal three to six months of expenses saved into a savings account – but even if that’s not manageable, setting aside a small sum each month will get you started.
Once you have a family it is even more important to ensure you have the proper protections in place. Consider the options for life insurance, designate a legal guardian for your children in the event of your death, and ensure you have a legal will in place. No one likes to imagine the worst, but planning for it is the responsible thing to do.
Bottom line: it pays to plan early for a family. Evaluate your finances, reach out to friends and family for advice and get help from qualified experts if you need it.
Carla Hindman is Director of Financial Education at Visa Canada.