Can you afford the increasing costs of parenthood?

Love may be in the air, but we’re not having enough kids.

Of course it’s partly due to contraception. Without it, there were lots of babies, but with high infant mortality and poor nutrition only some made it to adulthood. As things improved, and the economic prospects for women broadened beyond motherhood, couples could improve their quality of life (and the lives of their children) by having smaller families. 

But it’s also about progress. Demographers identify an inverse correlation between birth rate and GDP: as countries get richer, they have fewer children. Whereas agricultural societies require abundant manual labour, with an extra pair of hands around the farmstead quickly put to good use, advanced economies instead need highly educated people. So large families mean extra costs with little additional economic benefit.

But what now happens when people in rich countries suddenly feel less wealthy? A baby un-boom. It’s a worrying trend that pre-dates the cost-of-living crisis.

Britain's birth rate has fallen to 1.61 children per woman, compared with 1.94 a decade ago. According to a 2020 YouGov poll, one of the most common reasons for people choosing not to have children is that it’s just too expensive.

And who could argue with that? GDP might be trending up (blips caused by the pandemic and fiscal mismanagement aside) but it’s nowhere near keeping up with the costs of having a family. 

According to the Child Poverty Action Group’s (CPAG) latest ‘Cost of a Child’ report, the estimated cost of raising a child to 18 is £160k for a couple and £200k for a lone parent – providing just the minimum socially acceptable standard of living.

The main factor driving up costs is childcare. Statutory maternity leave lasts 52 weeks, but isn’t terribly generous unless employers opt to sweeten the deal. After the first six weeks, the amount new mothers must receive in UK law falls from 90% of earnings to just £156.66 per week for the next 33 weeks. 

There are many reasons why mothers might return to work early. But when they do, who’s taking care of the children? CPAG found that childcare accounts for around 60% of the lifetime cost of a child for a couple working full time, compared to about 40% in 2012. UK families now face some of the highest childcare costs in the world. Changing that would cost billions, but is shaping up to be a major policy battleground in the next election.

Some government support is available in the form of Child Benefit and Childcare Vouchers. If you earn under £100k and at least £152 per week (both you and your partner need to be in work to qualify, and each need to earn less than £100k) you can get tax-free childcare: for every £8 you pay into an online account, the government will add an extra £2, up to £2,000 per child per year. 

For example, if your childcare costs are £750 per month, you’d pay £600 into your childcare account while the government pays £150. This would add up to an annual saving of £1,800 per child, until they reach age 1. But the average cost of care outside school hours is £62.13 a week – nearly £2,423 a year during term time. 

No wonder campaigners Pregnant Then Screwed found that two-thirds of 20,000 parents who participated were paying more for childcare than housing.

While inflation remains in the double digits, every household will be feeling the squeeze on its finances. But those with children have a particular burden, and one likely to outlast the current cost-of-living crisis. 

That’s especially pertinent because parents who can afford to often continue to support their children even after they leave home. More than half of school leavers now go on to university, which can be pricey. And as students face a further squeeze on living costs with maintenance loans only rising by 2.8% from this autumn, they’ll be over £1,500 worse off than they would have been if student support was tied to inflation.

Even after contributing to their further education, parents may seek to support their children to face the high cost of housing. According to Legal and General, more than half (56%) of those under the age of 35 received a financial gift to help them get onto the housing ladder. 

One way and another, as households count the costs and look at their future finances, the question is: will the ‘Bank of Mum and Dad’ still be able to afford it? If not, and we do nothing about this, birth rates will continue to fall, and without enough people of working age to balance the growing community of retirees, the UK will face a pensions timebomb in the years ahead.