How to navigate your personal finances while bringing up children: Sarah Coles

Before I had kids, I drew up a budget of everything coming in, and all the new expenses we’d face with a baby on the scene. I frantically tried to find a way to make the maths add up, gave up, and decided to just hope for the best. We eventually scraped through financially in one piece, but I wouldn’t recommend it.

And while the early years are unspeakably expensive, the secret they don’t tell new parents is that it never ends. In fact, HL’s Savings & Resilience Barometer shows that over the course of 18 years, a child born today will cost an incredible £163,175 to bring up. It’s a wonder that anyone can ever afford it.

The incredible cost takes a toll. Couples with kids have less cash left over at the end of the month than those without, and running to close to the edge means they’re more likely to have spent their savings during more expensive months. The basic rule of thumb is that while you’re working age, you should have enough cash in an easy access savings account or cash ISA to cover 3-6 months’ worth of essential expenses. Parents simultaneously have a bigger target to aim for, and a tougher time putting money away, and as a result fewer than two thirds of those with kids have enough emergency savings. They fall short when it comes to life insurance too: only around a quarter of couples with kids have enough cover.

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The price we pay continues long after the kids leave home, because parents have fallen horribly behind on their pension contributions during the expensive years. Only 43 per cent of couples with kids are on track for a moderate retirement income – which is far from lavish. For single parents the picture is even bleaker, with only 17 per cent on track with their pension. In fact, they struggle across the board because fewer than a quarter have enough savings put aside to protect themselves from the unexpected and fewer than one in ten have enough life insurance.

How to navigate your personal finances while bringing up children: Sarah Coles. Photo: Dominic Lipinski/PA WireHow to navigate your personal finances while bringing up children: Sarah Coles. Photo: Dominic Lipinski/PA Wire
How to navigate your personal finances while bringing up children: Sarah Coles. Photo: Dominic Lipinski/PA Wire


It means parents need all the help they can get. Fortunately, you’re not completely on your own. You can get some help with childcare. For a while now, once your children hit the age of three, you’ve been able to get up to 30 hours of free childcare during term time. From April this year it has been extended, so working parents of 2-year-olds can get 15 hours. From September it will be widened to include children from 9 months to 2 years, and then from September next year, it will rise to 30 hours.

The system is far from perfect. These hours only cover term time, so if you need care beyond the school year, it works out at 11 hours a week. Nurseries also have their own rules about how you can use those hours, and because they’re struggling for staff, they may not be able to offer what you need. They’re also likely to add charges for ‘consumables’, and as their costs rise, they may charge more for additional hours. Some parents won’t qualify at all, because you need to earn at least £183 a week to get the free hours, and less than £100,000.

If you’re paying for additional care for children under 12, you can also use a tax-free childcare account, where for every £8 you pay in, the government will add another £2 to spend on childcare. The system lets you claim up to £500 every three months – up to a total of £2,000 for each child. There are exactly the same limits on income in order to qualify.

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If you make just over £100,000, you can use pension contributions to bring you back down below the threshold – because they’re counted as reducing your income. When you earn £100,000, you also start to lose your personal allowance, so you could escape an effective tax rate of 60 per cent into the bargain.


6.91 million UK families get child benefit, which can be a lifeline when budgets are so tight. This offers £1,331 a year for your first child, and £881 a year for second and subsequent children. It can be paid to either parent, but if one of them is stopping work for a period, they should claim, so they qualify for the National Insurance credits that come alongside it (which count towards the 35 years of National Insurance contributions you need in order to get the full state pension).

Things are slightly complicated by the fact that higher earners have to pay at least some of it back. However, since 6 April, the threshold at which you start to repay has moved from £50,000 to £60,000, and the rate at which you repay halved, so you only need to give it all back when you make £80,000. If you’re over the upper threshold, you should still claim it in order to get the NI credits, but contact the Child Benefit Office and opt out of payments, so you don’t need to go through the faff of repayment. If you make over £60,000, check whether pension contributions would cut how much of the charge you have to pay.

If you’re on a lower income, there may be other help available from the government, including the childcare parts of Tax Credits and Universal Credit. You might be able to claim 85 per cent of childcare costs if you’re eligible for Universal Credit. Bear in mind, however, that if you receive these, you can’t use the tax-free childcare scheme.

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Millions of parents couldn’t manage without the support of grandparents. Childcare is a major part of this, but it doesn’t have to be a one-way street. If grandparents are under state pension age and looking after a child under 12, parents may be able to hand over their NI credits to them. If they don’t already have the full 35 years, this could boost their state pension. For grandparents who want to offer more hands-off support, there’s always the opportunity to pay into their grandchild’s Junior ISA, to help build a nest egg for when they turn 18.

Finally, throughout all of this, you need to keep your own needs in mind too. If you put your savings and long-term investments on hold, you’ll have an enormous amount of ground to make up later – particularly when it comes to pensions.

It can be difficult for parents to find the space to prioritise themselves, and for some periods, it’s frankly impossible. However, there will be times when a brief opportunity opens up – when tax bills drop or energy bills are cut for example – and at this point we need to jump on it, before our children have time to soak up any extra cash.

Less chance of treats for voters

This week’s snapshot of the public finances doesn’t bode well for anyone hoping for a pre-election tax cut, because the government has had to borrow £6.6 billion more than the Office for Budget Responsibility expected. This is partly because inflation has proven sticky, so fewer interest rate cuts are being priced in by the financial markets, making government borrowing more expensive.

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Last weekend we saw rumours that Jeremy Hunt could be planning a pre-election tax giveaway, cutting everything from National Insurance to stamp duty on property. These figures make that look far less likely.

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