Managing your money with children - Part 1

Having and raising children is one of the biggest and most rewarding challenges you can
face in life. Children shift your focus from concern for yourself to concern for the care and
development of your new family member(s). Nothing can prepare you for the range and
depth of emotions you will face when becoming a parent.

• From the never-ending, sleep-deprived exhaustion when they’re very young… to the
  less frequent but more annoyed exhaustion of waiting up all night for them to come
  home as teenagers!
• From the sheer amazement at having this new person in your life and the excitement
  at every new skill they develop… to the anxiety you feel about their safety as they
  take their first steps and later when they start riding a bike or driving a car on the
  road.
• And, from the immense frustration at the mess they make (and how they talk to you)
  when they reach their teenage years… to the pride you have about their progress in
  school and their other activities… and at what they achieve in the world of work later
  on.

This is a time of mixed emotions and uncertainty.

What’s in this guide?

This guide aims to explain how you can reduce the stress of managing your money, allowing
you more time to spend with your children and enjoying each step of the journey. We only
touch on some of the topics and tips for this, so we recommend you use this as a starting
point and follow up to find out more on the issues that affect you.

We will go over:

• What’s the cost of raising a child?
• Make sure you know what you're entitled to
• Avoid the child benefit tax traps
• Control your spending

What’s the cost of raising a child?

How much do you think it costs (on average) to raise a child in Britain from birth until they’re
21 years old? More than half of people surveyed thought it was less than £100,000… and
more than 25% thought it was less than £30,000. (2015 Survey by Ipsos Mori).
The actual cost, according to the insurer LV, could be as much as £230,000, if you include
some money for university support but exclude private education.
The Child Poverty Action Group (CPAG) estimates the basic cost of raising a child to age 18
at around £75,000. This figure excludes additional housing and childcare costs, which vary
and may be offset with state support as we’ll see later in this guide. Include those costs and
the estimate rises to £185,000.
Unsurprisingly, the costs are substantial. That makes it essential to keep a lid on your
spending and get good value on the money you do spend.

Make sure you know what you’re entitled to

If you’ve not done a full check of your entitlements recently, then this is for you.
And by entitlements we mean: leave for welcoming a new child (maternity, paternity, shared
parental leave etc.), as well as tax free childcare and tax credits.
There’s a vast array of support available to help with caring for your children. The benefits
system is extremely complex, so we can only outline the key benefits in this guide. Details
can vary from year to year so check the current details from a more complete list of the help
available to parents by following this link and check what you’re personally entitled to here.
The benefits available to help you support your children could include:

Maternity leave and pay for mothers

You’re entitled to a year of Statutory Maternity Leave, regardless of how long you’ve been in
your job. However, your rights upon return to work may be slightly reduced if you take more
than 6 months off. If you’ve been in your job for 26 weeks by the time you’re 15 weeks away
from your due date and you earn more than a threshold amount, you may be able to claim
Statutory Maternity Pay (SMP) for 39 weeks of your leave. SMP pays 90% of your average
earnings for the first 6 weeks and then reduces to whichever is lower: £172.48 per week
(2023/24) or 90% of your average weekly earnings for the remaining 33 weeks.
More details on the amounts payable and the rules (both of which can change from time to
time) can be found here. Some employers pay more than the statutory minimum, paying
amounts that are more in line with your normal wage for a longer period of time.
Check your employment contract and ask your employer to confirm your entitlement. They
are obliged to make the payments to you. And be sure to provide sufficient warning ahead of
your maternity leave – at least 15 weeks before your expected due date.

Paternity leave for partners

If you’ve been in your job for 26 weeks by the time your partner is 15 weeks away from their
due date and you earn more than a threshold amount, you may qualify for paternity leave.
You can choose to take one or two consecutive weeks at some point within 8 weeks after
the birth. If you have more than one year's service at work, you might be able to take unpaid
parental leave in addition – and have more time to support your new family.
The Statutory Paternity Pay (SPP) is £172.48 per week (2023-24) or 90% of your earnings if
this is lower. But, as with maternity pay, some employers offer better terms. So, check your
contract and speak to your employer.

Shared parental leave and pay

This option could allow both you and your partner to take a reasonable amount of time off (at
different times) after the birth or adoption of a child, to share the time off to care for your new
addition. Fathers are still entitled to two weeks of paid paternity leave and mothers must still
take the initial two weeks after birth.
But, they can then cut their maternity leave short and exchange it for shared parental leave.
In deciding whether shared parental leave is the right option for you, compare the amounts
of your prospective shared parental pay (for both you and your partner) to what you might
get under a maternity or adoption leave pay arrangement.

The statutory minimums might be a lot lower with a Shared Parental Pay arrangement for
the first 6 weeks, and top-up payments with some employers may be lower too. Check your
entitlements using the government’s calculator which also looks at paternity and maternity
leave, to give you a good overview of your options.

Adoption leave and pay

The rules for adoption leave and pay are similar to those for maternity pay. More details here.

Sure start maternity grant

This grant is a one-off payment of £500 to help with the costs of a new child – and is usually
only payable if you have no other children aged under 16. You must claim it in the period
from 11 weeks before a baby is due until three months after the birth (or three months after
the adoption, residence or parental order if you’ll be responsible for a child under 12 months
old). The grant is only available to those on a ‘qualifying benefit’ when the claim is made.
Find out more here.

Child benefit

You may be able to claim this valuable benefit if:

• You’re responsible for a child under age 16 or
• Your ‘young person’ is still in education (like A levels, GCSEs or NVQ/SVQs)

Child Benefit can continue after your young person turns 19, provided they were enrolled on
their course before age 19. And the benefit stops at age 20, or when they finish their course if earlier.
The amount for your first child is £20.70 per week, with £13.70 being paid for subsequent children.
If you or your partner (that you live with) have a taxable annual income of more than
£50,000, some or all of your Child Benefit may be paid back through a tax charge. More on this later.
You will normally get a claim pack when your baby is born, or you can call the Child Benefit
Office on 0300 200 3100, or follow this link. 

Free childcare for preschool children

There are many different government-funded schemes offering free childcare for children
aged four and under across the UK. Each scheme has its own rules, so check what’s
available and right for you.
Here’s a summary of the three schemes currently available in England:

• 15 hours per week free childcare (in term time) for all 3 & 4-year-olds This is available regardless of what you earn or the hours you work. Contact your childcare provider or local council to apply.
• 15 hours per week free childcare for 2-year-olds This may be available if you’re
  receiving a ‘qualifying benefit’ or your 2-year-old child is classed as having additional needs. Contact your childcare provider or local council to apply.
• 30 hours per week free childcare for 3 & 4-year-olds This help may be available if
  you (and your partner) expect to earn more than the equivalent of 16 hours a week at your national minimum wage – up to £100,000 per year. (You may still meet the earnings requirement if you or your partner are on maternity, paternity or adoption
  leave). You can apply for this help whilst you or your partner earn up to £100,000.

Application is made online here where you set up an account and get a code to give to your
childcare provider. Free childcare is available in addition to other help with childcare costs –
either through working tax credits, universal credit, tax-free childcare or childcare vouchers.

Child tax credit

Child Tax Credit (CTC) may be available if you’re responsible for a child under 16, or for a
young person under 20 in certain types of education or training.
The amount of your CTC will depend on your household's income. To work out how much
you could get, use the government’s calculator. Further details and notes on how to apply
are available here.

Working tax credits - childcare element

If you meet the conditions for Working Tax Credit you may also be entitled to help with
childcare costs under that benefit. The maximum award is currently £175 a week for one
child, or £300 for two or more – but the amount you get depending on your income. To work
out any extra tax credits you could claim to help with child care costs, use this government
calculator. The childcare element of Working Tax Credits is normally only payable where the
parent works 16 hours or more, or (if there are two adults) both work 16 hours or more. You
could, in theory, use childcare vouchers at the same time as tax credits, but most people
save more money using the Working Tax Credit childcare element alone.
However, you can get up to 30 hours per week of free childcare at the same time as claiming
tax credits.

Universal credit roll-out

If you already receive tax credits you may be able to add the childcare element to your claim.
However, tax credits are being replaced by Universal Credit across the UK and if you need
to make a new claim you’ll need to check if that should be for Universal Credit. Find out
more about Universal Credit and the benefits it’s replacing here

Tax-free childcare & childcare vouchers

Both tax-free childcare and childcare vouchers aim to help you with childcare costs. You can
only use one or other of these schemes – so you can’t use tax-free childcare if you are receiving Universal Credit or tax credits.
Childcare vouchers were provided by employers through a salary sacrifice scheme –
allowing you to avoid paying National Insurance and income tax on your child care costs.
They’ve not been available to new applicants since October 2018, but you can continue
receiving vouchers if you joined up before that date and stay with the same employer.
With tax-free childcare, eligible parents open a childcare account which is topped up by the
Government (up to £2000 per year per child) to cover 20% of childcare costs. To work out
how much you could save on childcare costs and to compare childcare vouchers (if you’re
already entitled to them) with tax-free childcare, tax credits and Universal Credit, use this
online calculator from the Government.

What’s next?

As mentioned, there is a vast array of support available to help parents pay for the care their
children need. But the benefits system is extremely complex and constantly evolving. So, if
you feel that you’d like some personal help in navigating this information minefield, talk to
someone at a Citizens Advice Bureaux or one of the other agencies listed here and make
sure you get the financial help that you’re entitled to.
Avoid the child benefit tax and pension traps
If you or your partner earn more than £50,000 per year, your child benefit will start to be
taxed away – and will be completely taxed away if either of your incomes exceed £60,000.
The result depends on how many children you support – but it could be an effective tax rate
(on your income between £50,000 and £60,000) of somewhere between 50% and 75%! You
may be able to reduce this tax with some simple financial planning.
So, if you think this issue could apply to you, seek good quality financial advice.

Warning

Not registering for child benefit (if one of you earns more than £60,000) may be a mistake if
you look after your children when they’re under the age of 12, rather than working. This is
because claiming child benefit triggers accrual of valuable state pension credits while you’re
not earning.
You can register for child benefit (to secure your state pension accrual) whilst choosing not
to receive the benefit payments (to avoid the need to pay a tax charge)! You cannot,
currently, backdate child benefit registration more than three months.
So, if you’ve only just become aware of the issue, unfortunately you’ll not be able to accrue
state pension credits for child caring more than three months previously. So, make sure you
do the right thing for your circumstances. If you need more help or information, go to
www.gov.uk/child-benefit or phone the Child Benefit Helpline on 0300 200 3100.

Control your spending

We all know it’s important to keep our spending under control – but it’s essential once you
have more mouths to feed. There are plenty of websites and TV programmes offering ideas
for saving money on the things you buy – from baby walkers to school clothes and holidays.
But remember… controlling your spending is really about two things:
1. Getting great value on the things you must buy. That often includes avoiding expensive
brands and buying second hand where it’s an option and makes sense.
2.Avoiding spending on things you don’t need. Putting a few days of ‘thinking time’ between
your ideas for new discretionary purchases and going ahead with them, will help with that.
That way you’ll break the cycle of debt and avoid needing more credit when an expensive
emergency crops up. It’s worth remembering that just £3 a day of savings (the price of a cup
of coffee!) can see you put aside more than £1,000 for emergencies each year.
You’ll find more ideas on spending control and debt repayment in Season one of our Money
Insights videos available here.

And it’s worth seeing just how quickly you could save money by cutting out wasteful
spending with this ‘cash finder’ tool.

Next steps

In our next blog on this subject we’ll look at housing, insurance and saving aspects of
managing your money with children.