Starting a Family? Get Your Finances Sorted.

Have you been thinking about starting a family?

If so, you might wonder whether having kids is the right decision from a financial point of view and how it will affect your budget.

The National Centre for Social and Economic Modelling estimates that a typical middle-income Australian family spends $812,000 on raising two children from birth to 21 years.

This proves that couples without children are financially advantaged compared to couples with children, right?

Not really. Thinking about children in this way isn’t helpful, as it fails to consider other factors.

The Cost of Having Children

This is a complex issue. There is, in fact, no consensus between economists around the estimation methods of this cost. I certainly won’t delve into the details around empirical estimates or wealth accumulation approaches (you’re welcome).

What’s important to consider is that children provide benefits as well as costs, as stated by Bankwest and Curtin University. 

Nights at home with the family, a simple visit to the park with the kids, or watching them play sports are a source of joy, entertainment and reward. Couples without children gain the same enjoyment through other pursuits, often income-intensive, such as holidays and dining out.

Therefore, we can’t really use the opportunity cost as a measuring stick. How can we say that the money or energy invested into building a family would generate more enjoyment if directed towards other activities? And what about the renounces and sacrifices that have to be made in both cases?

Photo by Maksim Goncharenok

Happiness, pleasure and pain are personal concepts, which can’t really be measured.

The same research reveals that couples with children spend roughly the same as couples with no children, although they allocate their money differently. 

Because it doesn’t affect total expenditure, having kids doesn’t impact families’ ability to save either.

In many countries, families with children also receive a range of benefits, such as allowances, tax concessions and ‘bonuses’ (Newborn Upfront Payment and Newborn Supplement are some of Australia’s family tax benefits).

Last, we need to consider the value generated within the household and not gained by purchasing products or services. In families with children, parents tend to take care of the cooking, cleaning, home decorating, teaching, entertaining and so on instead of paying for them.

Once you consider all these variables, you’ll appreciate why it’s so hard to make an apples-to-apples comparison. 

But overall it seems that in Australia, families who have children enjoy a similar standard of living as couples without children.

So if you’re contemplating having a child or adding a second one to the family, don’t be put off by money worries. Yes, having kids costs money. But even if you are on a low income, you can afford to have kids, and to raise them comfortably.

Now let’s talk about how you can plan and prepare your finances for starting a family.

Preparing Your Finances for Starting a Family

There are two key steps to set your family up for success: