Counting the cost

As parenthood beckons, so too does the financial reality of having to support a child for at least the next 18 years. Financial expert Nic Cicutti recommends not hitting the panic button and taking a realistic look at the help available instead...

Becoming a parent for the first time is, simultaneously, one of the most fulfilling and scary events that can happen to you.

The real cost of bringing up children is what you can afford.

As you will discover, the rewards are many – and the worries too. One of them is money. Surveys suggest that raising a child from birth to, say, the age of 21 will cost up to £180,000.

Don't panic!

You may wonder how you will ever be able to meet your kids’ financial needs. Don’t get scared: spread out over 21 years they are nowhere near as frightening as they first seem.

• The estimate works out to about £23 a day. Besides, the real cost of bringing up a child is what you can afford, not what someone else expects you to spend.
• There are also several sources of financial help available. For a start, the government pays Child Benefit for every child - a payment from the state currently worth £17.45 a week for the first child and £11.70 for any subsequent children.
• Child Benefit

Taxing times

In addition, there is also Child Tax Credit, or CTC, which is available to most parents. The payment is made up of two separate parts:

• One of them is a family element, paid to any family with at least one child and worth up to £545 in the current tax year.
• The second part is a child element. It is paid for each child in the family and can be worth up to £1,765 a year. If you have a child under one year old or a disabled child you may get more.
• Child Tax Credit

Calculating exactly how much you may be entitled to is fiendishly complicated.

• The most important thing to know is that it depends on various things, including your annual income.
• All families currently earning up to £58,175 a year, or £66,350 if the child is under one year old, are eligible for CTC. As an example, a couple with a two-year-old child, where the mother is taking a break from work and the father earns as much as £48,000 would still qualify to receive £545 a year.

Even more help is available through the Working Tax Credit, a scheme that tops up earnings for working people on low incomes, whether employed or self-employed.

It also includes help with childcare costs. Again, working out how much you may be entitled to is difficult, as it is also linked to one or both parents’ income. But the basic element paid to everyone who is entitled to receive Working Tax Credit is £1665 a year. You can choose to receive this money weekly or every four weeks.

• Working Tax Credit

Saving the day

Another source of help is the Child Trust Fund, or CTF.

This is a savings account that can be accessed once your child is 18 or older. The Government kick-starts a CTF with a £250 voucher paid to all children born on or after 1 September 2002. (Children in lower income families receive an additional payment of £250 and a further £250 top-up is likely to be made when the child is seven.)

• The voucher allows you to open a CTF account with many building societies or other savings institutions, and any money saved in it rolls up tax free.
• The beauty of a CTF is that parents or grandparents can invest up to an extra £1200 a year into a CTF, which means that by the time your child is 18 and gains access to the money we could be talking about a tidy sum.
• If the full £500 is invested and grows at 7 per cent per year, the Child Trust Fund would be worth £1410 after 18 years. But if you top up the fund by just £10 per month, the amount saved would grow to £5210.
• And if you pay your weekly child benefit into the fund as well, it would grow to £27,000 after 18 years, assuming the same annual growth.  
• £250 free: Child Trust Funds  
• The best Child Trust Funds on the market  

But whatever you do, don’t panic. You will always do your best for your son or daughter, regardless of how much money comes into the house. Generations of parents have learned to do that – without listening to meaningless surveys. 

• The best 18 year investments

Author

Nic Cicutti is a journalist and broadcaster. An award-winning former personal finance editor at The Independent and editor of the Financial Times’ website FTyourmoney, he tries to practice what he preaches but doesn’t always succeed.

Your tips

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