Every year the Centre of Economic and Business Research (CEBR) publish their annual ‘The Cost Of Raising A Child’. This year the total needed to raise a child from 0 to 21 years is put at a staggering £231,843! Parents around the country will now be discussing whether or not their outgoings equate to this substantial sum, saying ‘oh but we used washable nappies so it can’t be that much for us!’ or ‘we’ve never booked a babysitter, we never go out!’
While the actual figure is going to vary somewhat between families, it is indisputable that having children isn’t cheap with an average of 38% of your household net income being spent on raising a child. It’s no wonder that 6 in 10 parents say that they struggle to manage their outgoings.
So what happens if your salary stops? What happens if you have an accident or become ill and have to take time off work – unpaid?
49% Of Parents Don’t Have Any Income Protection In Place
Unfortunately parents are not immune from accidents, injury and illness. In fact, for some groups such as smokers, the chance of having to take time off work is significant. For a husband and wife age 40, both smokers, working to age 65, the chances of being unable to work for 2 months or more are 69%.
Not smokers? Well, you’ve still got a 59% risk of being unable to work for 2 months even if you don’t smoke. The same non-smoking 40 year old couple also have a 26% risk of having a serious illness, and a 13% risk of dying before retirement age.
If you’re one of the 49% of parents who don’t have any income protection in place, could you manage?
Let’s look at what you need…
The average UK household spends £531.50 a week*: that’s £2,126 per month or £4,252 for those two months you have a 59% statistical risk of being unable to work. Of course, you’ll no doubt be able to make some savings; travel costs, going out etc. are likely to be minimal if you’re unwell or recovering from an injury. However, potentially you will need to factor in some additional costs such as prescriptions, maybe the cost of getting to hospital appointments, and of course the rest of the family will still need their needs met.
The Government might help you out a little. Currently £88.45 a week for up to 28 weeks if you can’t work due to ill health. But not everyone is eligible for Statutory Sick Pay, you need to be employed, and before you think that this sounds very generous, remember tax and NI contributions are still deducted from this.
Perhaps you have a two-month buffer in your savings account that could see you through this period. That would be great if your illness or injury conforms to a statistical average, with recovery exactly timed when your savings run out. However, this is unlikely. With luck you’ll recover quickly and still have something in the pot for a celebratory meal out, but you could also be looking at a more protracted illness or recovery, something no one can predict.
Other options?
Put your spouse out to work? If you’re the main breadwinner it may be difficult for your partner to find a job in such a short space of time that pays anywhere near your salary. On top of which, a role reversal may not be feasible if you are too ill or immobile to take on the role of main carer and run the home while your spouse is at work.
If you think your children could help out, think again! Children can’t do fulltime paid work until they are 16. If they’re 14+ they can work for 2 hours on a weekday, but this is not really a practical solution.
The suggestion above is tongue-in-cheek, but you can see the predicament you could be in and how desperate it could get if you don’t have the financial buffer in place to survive any long periods off work.
More Sensible Options
The most sensible option would be to join the 51% of parents who do have a financial protection plan in place. For example taking out the following policies:
- Income Protection: this pays you a regular monthly amount, if you’re unable to work due to sickness or an accident, essential if you want to maintain your lifestyle with as little disruption as possible;
- Critical Illness Cover: provides a one-off lump sum payment on diagnosis of one of a number of defined illnesses covered by the policy you choose;
- Life Insurance: this might provide a one-off pot for your dependants should you die, or monthly payments to ensure they have a regular income, or a combination of these.
If you would like to speak to me about any of the above, please get in contact for an informal chat exploring your options. In the meantime here is how your £231,843 is being spent, in this breakdown of the cost of raising a child.
Click on the graphic above to use this calculator and see how much it will cost you to raise your child or children…
* Office for National Statistics. Household Expenditure, 2015 Edition