25 June 2019

Why winging it is not a good strategy when it comes to family financial planning

7 min read

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Becky O'Connor

Personal Finance Specialist


I’m 38, with two children aged 7 and 4. In the last seven years, I’ve spent the best part of £60,000 on childcare – so just under £10,000 a year. 

Until the end of last year, I was self-employed for most of that time - part-time, so I had no maternity pay (besides the very small amount the government gives you), irregular income and significantly reduced income compared to what I was earning before I had children, when I was employed full-time.

We had help from my mother-in-law for that time, too. On average, she came to help two days a week. I dread to think what our childcare bill would have been without her contribution and I wonder whether I, like legions of mothers, would have decided it wasn’t worth going back to work at all were it not for that bit of free help. God knows how we got through it even with that help, to be honest. £60,000 in seven years…

I’m explaining this because the cost of childcare – and the difficulty of paying for it and living on a reduced income AND paying more for housing, food and energy, plus all of the other stuff you end up paying for when you have young children, was a massive shock.

There’s a conspiracy of silence on many things in relation to having children – the best known being the experience of childbirth itself – but lips are also sealed on how incredibly difficult home economics are post-parenthood. It’s time to open up about it.

No one told us. I think now: how could no one have told us how difficult it was going to be? I can only assume it is because it wasn’t quite so difficult for my parents’ generation to cope when children arrived, and so they didn’t know there were warnings to give.

Things probably were different in their day. A generation ago, the biggest modern living expense – your mortgage or rent, was based on a “breadwinner” model - one main income was taken into account when determining what a household could afford– if there was another income in the household (usually the woman’s) that used to be considered a bonus, but not something a lending decision would be based on. That was because everyone knew women took time out of earning to look after children.

Fast forward 30 years, and things look very different. It’s hard to afford a mortgage or rent on a decent-sized family home on a single income. Men and women both work and expect to continue to work. Their outgoings are geared around 2x full-time earnings.

So at the point when couples decide to have babies, these days, they are a lot more stretched. Stretched into debt in many cases.

The usual approach is frankly, to wing it. Get by, day-to-day, week –to-week, year-to- year, and look forward to the day the childcare hours are at least part-funded and then the holy grail: when your children reach school age and expensive nurseries and childminders are for the most part, no longer required.

If you send your children to a state-run primary school, your outgoings finally go back to something like normal (although nor should you underestimate the cost of before and after-school clubs or holiday activities) and you might just glimpse a shot at earning a “normal” income again. But even this is not straightforward – the school day ends at 3pm whereas most jobs require you to work until at least 5pm.

The logistics of managing the school run are one reason most mothers work part-time until their youngest child is 11, only returning to full time work in the secondary school years.

That’s a decade of reduced earnings – when many women may have only expected to be off for a couple of years while their children were babies. That’s a big, life-changing expectations gap. And sadly, it’s the woman’s financial future that will take the hit from this: a pension pot being one of the biggest sacrifices women make for their children that many don’t even realise they are making.

Given how hard-pressed the millennial generation is generally – on incomes and housing costs in particular - it’s not surprising that many young couples are moving “having kids” way down the priority list – or off the cards altogether.

But for those that do want to have children, the key to managing the money situation is to go in with your eyes open and plan as far ahead as you can.

Ignorance is not bliss when it comes to the cost of having kids and having a one, five and even ten-year plan – or at least an idea – for how you’d like to tackle this life phase will save you headaches, particularly in the early years, when it can really feel like you aren’t sure how you will get through.

That’s why I have written this guide. The financial consequences of what you do when you have your children can last a lifetime. I’m sure I didn’t play the wisest game I could (I’m not sure I’d have tried to do it all while being self-employed if I’d known, for instance, how important maternity pay was).

If you, or someone you know, perhaps a child or grandchildren, are planning a family, then do let them know about it. It won’t change the realities of the costs young families face, but it might mean they are less inclined to wing it and hope for the best.

Helping you understand your money and improve your financial capability is a priority for us at Royal London, which is why we’ve created our Good With Your Money guides. If you want to read more about the topic of financial scams, you can read our full guide here.​