23 May 2013

The cost of raising two children has increased by 50 per cent since 2007 to $812,000, according to AMP research – but incomes have only increased by 25 per cent.

The report on the cost of having children, compiled by the National Centre for Social and Economic Modelling (NATSEM) at the University of Canberra on behalf of AMP, found the cost of raising two children in a middle-income family has increased from $537,000 in 2007 to $812,000 today.

But according to a 2012 AMP.NATSEM paper entitled ‘Prices these days!’, average household incomes only increased by 25 per cent over the same period.

AMP Financial Services managing director Craig Mellor said the rising proportion of incomes devoted to raising children could have significant ramifications for parents in the future.

“Will we get to a point when the cost of raising children is actually more than we’re earning? And what does a scenario like this mean for other areas of our life, such as our retirement?” Mr Mellor asked.

But according to NATSEM principal research fellow Ben Phillip, much of the cost is discretionary, with higher income families spending far more than low-income families.

The AMP.NATSEM research found that it costs a middle-income family $458 per week to raise a child, a low-income family $320 per week and a high-income family $734 per week.

When government assistance is taken into account, low-income families are only $46 out of pocket per week. The $83 subsidy from the government for middle-income families means they end up paying $375 a week. High-income families, however, only save $1, effectively paying $733.

The loss of government benefits – combined with high childcare costs – can affect the decision of the secondary income earner to return to work.

“Over the first 19 hours of work, for every dollar earned, 60 cents in the dollar is lost to lower government benefits, higher personal income tax and child care costs,” said the report.

Across all income groups, the report found that older children cost their parents more money. Families typically spend five times more to support an 18 to 24 year-old than a 0 to 4 year-old.

A middle-income family only spends $133 per week during the first four years of a child’s life – but this blows out to $678 per week for 18 to 24 year-olds.

The report also found that each additional child costs less than the first child. On average, families spend $281 on one child, $232 on the second child and $193 on the fourth.

Breaking down the costs into categories, food is one of the biggest costs for all three income groups – ranging from $89,000 over the lifetime of two 24 year-old children for low income families to $167,000 for high-income families.

Transport is the single biggest expense for both low- and middle-income families, making up 20 per cent of the total cost. Clothing and recreation are also two of the biggest expenditures for parents.

For high-income families, the biggest expense is education – with 26 per cent of the household budget spent on child care and education.

Parents who send their children to private schools spend an average of $216 per week on fees – as opposed to $12 per week for public schools and $81 for Catholic schools.

By Tim Stewart of Investor Daily.

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