The cost of having children

What is the biggest expense in your life? Your house? Your car? Perhaps a Jimmy Choo habit? If you're a parent then it's far more likely to be your child. Around 700,000 babies are born every year in the UK and they don't come cheap. Whoever said 'the best things in life are free' obviously never had children. If you are considering - or already have - little ones of your own then get ready to spend a small fortune on your small person.

Before the stork even lands, you will need to have some serious savings . You will also need to review your life assurance and make a will if you don't have one. Your budget will need a complete overhaul to take account of the new demands on it, particularly if you are losing one income for a while. But you're bound to find some areas where you can cut back because, let's face it, you will never have another night out.

Here's looking after you, kid

The total cost of raising a child in a typical two-parent working household from birth to age 21 is now an eye-watering £140,398. That's just slightly more than the price of the average house. The research from financial services company Liverpool Victoria shows that this translates into an average annual bill of £6,686 for each year up to age 21, that's £129 a week – more than any other European country and 30% more than the cost in France. It means the total cost of raising all the UK's children born in 2002 could be a staggering £91bn.

If these figures take you by surprise, you are not alone. The total cost of having a baby comes as an unexpected shock to almost half of first-time parents, according to a survey by American Express. Some 47% of parents with children under the age of five, said their firstborn was more expensive than they had expected and only 15% of respondents said they had budgeted sufficiently for their first child. More than 80% of men taking part in a Virgin Money survey admitted that financial fears would make them put off having children until later than they'd planned and that money worries would make them reconsider the amount of children they had.

So what are babies and toddlers doing which costs so much? American Express found that average costs before birth and during the first year include: pregnancy clothes and toiletries, £177; nursery furniture/decorations, cot and bedding, £410; pram, £233; car seat, £79; baby skincare products, £380; formula milk (average £50 per month), £600; baby food, £360; clothes, £280 and disposable nappies, £500. Then there are toys plus activities for the mother and baby. Swimming classes, baby gym classes and music classes. There is an industry of classes for the under-twos, none of which come cheap.

Pitter patter of pounds and pence

You could be mistaken for thinking that younger children cost less. Not so. The most expensive years for raising a child in a typical two–parent household in the UK are between the ages of one and five when you will need to find nearly £47,000:

•  First year = £7,138 - the largest expense at this age is nursery furniture and equipment and child care

•  Years 2-5 = £39,557 - largest expense is childcare

•  Years 6-11 = £31,000 - largest expense is recreation and food

•  Years 12-18 = £33,747 - largest expense is food and clothes

•  Years 19-21 = £30,000 - largest expense is education

Most of those surveyed by Amex said that they had had to make lifestyle sacrifices to accommodate unexpected, additional baby costs. The biggest change had been cutting down on entertainment such as eating out and going to the cinema - perhaps an inevitable result of having a young baby as much as because of the costs involved, closely followed by buying fewer clothes. Other lifestyle changes included giving up expensive, foreign holidays or holidaying in the UK instead, buying cheaper groceries, postponing DIY projects and reducing financial contributions to pensions, investments and savings.

The nanny state

You are also likely to need childcare, the cost of which has risen by an astonishing 81% in five years, according to the Office for National Statistics. When you consider that the average household income is £562 a week, it is easy to see how so many parents find childcare a significant financial drain. According to the Daycare Trust, childminders cost between £97 and £157 per week depending on where you live and while nurseries are increasing, demand often out-strips supply by 6:1. Expect to pay anything between £114 and £350. A survey by magazine Nanny World reveals that salaries for nannies rose by a 18% in 2003 to almost £19,000 outside London and £27,320 in the city. This means that parents would need an income of at least £40,000 just to cover the costs of employing a nanny.

Sending your child to state school is much cheaper than private school but will still set you back more than £7,700 according to the Halifax. Teenagers bring additional insurance demands. Research from Zurich reveals that teenage mishaps including smashed windows, stained carpets and furniture and damaged cars cost parents £134 million a year in repairs. If you do let them near a car after that, expect to spend a minimum of £38 on a provisional licence and about £20 per hour on driving lessons. And that's before the cost of car insurance.

For new parents, university seems a long way off but is potentially the biggest cost of all. The National Union of Students puts the cost of university, including tuition fees and living expenses, at an estimated £8,500 a year, and more than £10,000 in London. After that, you have to hope that they can finally earn enough money to take care of themselves unless you are among the two million parents in the UK who, according to Prudential, have adult children above the age of 30 still living at home. Talk about big babies.