They cost a bundle but they are worth it, right? Photo / 123RF
Spawning offspring costs an arm and a leg. But new parents often mistake where the real financial drain will be. It’s not buying that cot-to-die-for or a bundle of nappies each week.
When independent economist Benje Patterson saw an article about the cost of bringing up children recently, it riled him. Sure, you can spend a lot of money on kitting out the nursery. But that pales into insignificance against the opportunity cost of one partner working less or not working at all, says Patterson.
“To this day I am always dumbfounded at people focusing on the cost of the material needs for a baby,” he says.
Patterson has fathered three children in the past five years and estimates the family has foregone $700,000 in earnings thanks to a joint decision that his wife Maddy would stay home with the children and only work part-time. She had worked full-time in senior roles in governance up until then. “Even if she works part-time, it would still be several hundred thousand dollars that we’ve invested in prioritising our children.”
Giving up a well-paying role like that doesn’t just forgo income. I know myself that choosing to stay home with the children can mean giving up an upward trajectory financially. Good employers will still promote staff on parental leave.
Not everyone is that lucky, however. People on low incomes might not have the opportunity. Self-employed people may find their careers frozen in time.
Patterson estimates that the true essential outlay for a baby is around $1000. That may only be the equivalent of a week or two of lost income for some people. “A thousand bucks might seem like quite a bit of money. But it is just so insignificant compared with [going] from two incomes down to one.”
Having a child does require some circus-level financial juggling for many families. Sometimes both parents can’t stay off work for very long. I always remember a Czech friend’s bamboozlement at New Zealand attitudes to mothers going back to work. They worded it to her as if a working mother was committing child abuse. Yet in the Czech Republic, every mother worked when she was growing up and all children went to daycare or grandparents.
Patterson says it’s not practical for every family to have one partner not working from a financial stability perspective. “For some parents returning to work is important for their mental health.”
The other huge cost that would-be parents often don’t anticipate is childcare. Sure parents get 20 hours of free childcare per week after the child turns 3, although there may be top-ups to pay. Many parents work 40 hours, which isn’t all “free”. For those families on low wages who need to work, the $8 or so they pay per child, per hour, eats up a good chunk of minimum wage.
Even when daycare is done with, there may be afterschool care, and those eye-wateringly expensive dance and music lessons and sports activities.
One cost that caught me a bit by surprise in the early years is holidays. Obviously, these aren’t essential. Over the age of 2, you have to pay for children on flights. While accommodation providers may let children stay “free”, it usually means booking a larger room or adjoining rooms with extra beds to accommodate the extra bodies, which costs more.
When it comes to buying stuff for children, Patterson reflects on the vast amount of barely used baby paraphernalia he sees for sale second-hand. He would prefer we circulated this stuff in old-style hand-me-down tradition. “It’s not just financial. It’s good environmental practice. Landfills are just full of all the stuff that we’re buying.”
The Pattersons bought the bare minimum of what was needed day to day for their first baby. “Beyond that, it would be if we identified a shortage that was getting in the way of what we were wanting to do.”
I’ve read the article from Financial Advice New Zealand quoting data from AMP’s Financial Wellness Unit in Australia that got Patterson talking. It’s still worth a read for the useful information for new parents about how to budget for the costs of setting up a nursery. It can be read here: TinyURL.com/NZHbabystuff