Planning for clients’ kids

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There’s no questioning that raising kids is a costly business, but that cost has gone up by 50% in the past six years.

A typical middle income family will spend around $812,000 to raise two children, according to the latest AMP.NATSEM Income and Wealth Report.

AMP Financial Services managing director Craig Meller questioned the larger implications of the findings: “If the proportion of income devoted to raising children is double that of actual income growth, what will the picture look like in the future and what does a scenario like this mean for other areas of our life, such as our retirement?”

Two important driving factors in the price are that families are devoting more resources to private school education and child care, and the prices paid for these services are also increasing sharply.

How much should your clients budget for weekly?

It costs parents five times more to support an 18-24 year old than a 0-4 year old.  For low income families, a 18-24 year old will set them back $483 per week compared to $86 for a 0-4 year old, while for middle income families a 18-24 year old costs them $678 per week compared to $133 for a 0-4 year old. For each income group the cost of raising a child increases as the child gets older.

Should the second income earner return to work?

The often high cost of child care, coupled with the loss of government benefits and having to pay income tax can impact whether a secondary income earner will return to work. Over the first 19 hours of work, for every dollar earned, 60 cents in the dollar is lost to lower government benefits, higher personal income tax and child care costs.

Where does the money go?

  • Food: Low income families spend $89,000 on food for two children from 0-24; High income families spend up to $167,000 on two children over the same period
  • Transport: For low and middle income families transport is their biggest cost at $97,200 and $159,000 of a total household bill of $474,280 and $812,043 respectively
  • Clothing: Across all income groups, the cost of clothing accounts for about 7% of the total household budget
  • Recreation: Middle income families spend 12% of their total budget on recreation
  • Education: High income families spend 26% of their household budget on child care and education, compared to low and middle income families who spend 6% and 12% respectively. High income families spend $10 on their child’s education and child care to every $1 low income families spend.