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Your Money > Family Finances Articles > Kids or cash...
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By Investopedia
For prospective parents, weighing the decision to have children has not got any easier. According to 2008 figures from a variety of sources, including Daycare Trust and National Union of Students along with independent surveys done by market research firm LV=, the average cost of raising a child from birth to the age of 21 is a staggering £193,770. This figure varies on where parents live: those in outer London tend to pay the most, followed by parents in inner London. Parents in the West Midlands face the lowest costs. Managing income during retirement 5 retirement questions everyone must answer The financial dilemma, therefore, is similar for many developed countries. If household incomes were unlimited, the decision to raise children might be a strictly personal choice. In reality, however, the decision to have children is also a financial one. In this article, we'll provide some food for thought from the financial side of the equation. The Expenditures If £193,770 sounds like a lot of money to you, consider that the parents in inner London spend on average £202,650, while those in the posh neighbourhoods of outer London pay a whopping £212,000, by far those most among parents in the U.K. Figure 1 below outlines the average costs in areas around the U.K.
Figure 1: The average cost of raising a child in the U.K. Sources: LV=, Daycare Trust, National Union of Students. The majority of these costs are made up of education and childcare expenses. The national average for childcare (including nursery, day care, etc.) comes to a healthy £54,000, and education (including university expenses) come in at £50,000. When taking into account the fees associated with private and boarding school, educational costs rise £72,000 and £130,000 respectively. Of course, the old adage “the more you make, the more you spend” certainly applies to child rearing. Families earning a higher pretax income spend considerably less to raise a child to age 21. Lower-income families spend less to raise their children because they are financially unable to offer them the same amenities available to higher-income earners. Being a "DINK" Families that consist of two working adults and no children (also known as dual income with no kids, or DINKS) are sometimes stereotyped as hedonists or are decried by child-rearing families as shirking their moral imperative to procreate. Righteous indignation aside, a quick reality check will help us focus strictly on the economic aspects of the child/no child decision. According to the Jubilee Centre, the percentage of married couples with children has dropped from nearly 92% in 1970 to 57.8% in 2009, a 47% drop. As well, the percentage of married adults has fallen from 85% to 54% over the same time period. Similar numbers can be seen in the U.S. and other countries in Europe as well. It seems that the idea of a “traditional family” may be falling by the wayside. The Economics of Family Economics quite obviously plays a role in the decline of traditional families. People are waiting longer to get married and are having fewer children, in part because life is becoming increasingly expensive. Young couples also face the financial challenges of paying off student loans while paying for other living expenses such as rent/mortgage, car payments, food, clothing, utilities and saving for retirement. No Kids? Why Get Married? Love and affection aside, coupledom provides greater financial stability than going it alone. When both people work, all but the most foolhardy couples enjoy significantly greater financial benefits than other families. So, smart couples can leverage marriage to increase income and decrease expenses. Instead of making two rent or mortgage payments, these couples make one. Likewise, most utility bills have a minimum payment that would be higher if the couple was living apart than the incremental increase in living together. The most financially savvy couples live on one income and save the rest. They usually have two employers from which to choose health plans and won't have to worry about bankruptcy if one income earner is temporarily unemployed. Economically speaking, the absence of children results in lower fixed expenses. It also results in more money to spend. Regardless of your feelings about children, the bottom line is that you can do a lot of nice things for yourself, your spouse and your finances with the hundreds of thousands of pounds that it takes to raise a child to age 21. Conclusion - Kids or No Kids? Economic reality forces tough choices. The decision to have children is a politically sensitive topic; those who have children abhor the cold economic reality that DINKS factor into their equation, while some DINKS maintain the view that unchecked population growth contributes to environmental strain. In the end, having children is still a deeply personal and challenging choice - just remember to add the financial implications of raising children into the equation. You need to review your personal situation and make the choices that are right for you and your family, whether it will consist of two people or 10. |
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