Recent stats from the UK show that it costs the average British household GB 7 026 per year to raise a child from birth to 5 years old. That’s around R130 000 per annum.
Research on South African middle income households show that it costs around R90 000 a year to raise a child. On a straight line projection that’s over R1 600 000 by the time the child reaches 18 years old.The main costs involved are education, clothing and extra muriel activities, such as ballet classes, playgroups and soccer clubs.
These should all be treated as lifestyle costs and, therefore, should be funded through your monthly income and not from debt. If you can’t afford to send your child to the best school or buy the best branded clothing, then you need to re-evaluate your affordability and compromise. Quite often our choices pander to keeping up with the Jones’ as the school that our children go to or the branded clothing that they wear give us a certain standing in our social circles.
This comes at a huge cost as you factor the cost of borrowing to strive to raise your child beyond your means. Yes, we are great parents because we sacrifice so much for our children, but at what price for our own financial independence in the future. It has the probable outcome of having to depend on the very same children during our retirement which is the case for 47% of people in South Africa when they reach the age of 65.
What can you do to help absorb these costs?
The costs can be subsidised by setting up a savings account which you can use for those unforeseen expenses, like school tours and extra muriel activities, and, and, and… All you can do is try and save what you can when you can. A fund for the children which you can add to monthly and from time to time.
Cutting back on the many presents on birthdays and Christmas and rather setting aside a portion of the savings in the fund. Getting gran and grand pa to do the same. Pulling back on the branded items will go a long way to reduce costs and create more savings.
Where to save?
You need to keep your investments accessible, so, unit trusts are a useful vehicle. The new tax free savings accounts are probably even better as they have should have a better yield on a like for like basis. Take full advantage of your R22 800 tax emption on interest by having a contingency fund in a money market account. This is your first port of call for unforeseen expenses, so that your can leave your other investments to carry on compounding.
My personal preference for the disciplined saver is the access bond which earns a reasonable return by saving your money at the same rate that the bank is charging you. Your have immediate access to the funds when you need it and there are no taxes or costs to consider.
The great experience of raising children will be so much more worthwhile if they are backed by a lifestyle that you can comfortably afford.
Listen to Africa's conversation with Paul Roelofse...
Read more from Paul Roelofse at www.investforlife.co.za