Parent traps for beginners: how to prepare financially for children

After a Covid-caused lull in new families, children are back on the agenda but potential parents should ask some key questions.

People who put off their parenthood plans during the pandemic are now facing fresh cost of living challenges, but surging prices shouldn’t be a deal-breaker for starting a family.

Preparing financially for children should start with asking yourself some key questions, having honest conversations with your partner, and planning for both the short-term and long-term, money specialists say.

Financial education company SkilledSmart’s founder, Paridhi Jain, says people understand that a family requires greater financial responsibility.

“I’ve had a number of people share with me that they want to have children, but don’t yet feel financially secure enough to do so,” she says.

“So many people were already feeling challenged financially before the cost of living surged – this added pressure is making it more challenging for people to find ways to increase their savings.”

A July 2021 report by the Australian Institute of Family Studies found one in five women changed their plans of having children because of Covid-19 – with most delaying a family.

Almost two-thirds of the women who stopped trying to conceive blamed income loss, it found.

SkilledSmart founder Paridhi Jain says rising living costs add extra challenges to parents.

Money coach Karen Eley has noticed a shift in people being mindful about the cost of raising a family, and starting to plan earlier than in the past.

“I think with less couples having spent money on holidays the past few years they have more cash reserves and while they still want to holiday, they’re also thinking ‘we should earmark some of this for starting a family’,” she says.

Other couples are considering scaling back initial plans of having three children to a “more financially manageable” two, Eley says.

She says anxiety is created by the cost of raising children clashing with the fact that people don’t want to wait too long and miss their opportunity for family.

Eley says future parents can control their finances by:

• Allocating cash to a baby budget – regular direct debits can help create this.

• Stress-testing their current spending by adding extra family expenses and eliminating costs that may be reduced.

• Considering buying baby goods second-hand.

• Checking their annual leave and parental leave entitlements, life insurance, income protection insurance, and whether their health insurance has pregnancy cover.

SkilledSmart’s Jain recommends having money conversations with your partner to discover where you agree and disagree, identifying what is most important to you, and doing a “360-degree” review of your income, insurance, investments, superannuation and will.

“It’s easy to get caught up in preparing for the obvious expenses in the immediate future,” she says.

“However, it can be invaluable to also start thinking long-term as soon as possible.”

Sara Ocean’s net worth jumped from near-zero to $80,000 in just 2.5 years, with help from SkilledSmart’s mastering money program, and she and her partner are now expecting a child.

“I had to unlearn a lot of old attitudes around money, and fundamentally change my perspective on topics like spending, saving, investing and wealth,” she says.

“At first it was little things, but those changes add up over time.”

Sara Ocean says new parents should not be afraid to buy second-hand items.

Ocean says having a family has been a great reason to put more effort into looking at income sources during maternity leave, superannuation, insurance and opportunities she would previously have missed.

“For example, now I have a ‘one-in-one-out’ policy, so if I’m going to buy something, I try to sell one item I no longer need,” she says.

Ocean says parents should not be afraid to buy second-hand items.

“Baby things are very, very expensive, but there are wonderful mums out there whose babies have growth and are selling things you might need at a cheaper price,” she says. “Your baby won’t notice the difference, and you can potentially save thousands of dollars.”

DISCUSSIONS WITH YOUR PARTNER

Talk about these points before the baby arrives:

• Do you share the same views about who takes time off work?

• What are the likely new costs and how will you pay for them?

• What are your short-term and long-term financial plans for your family?

• Do you agree on how you spend money today for enjoyment?

• Do you agree on putting money aside for the future?

Source: Paridhi Jain, SkilledSmart