The true cost of raising a child

People often wonder why they should worry about investing for their children when they are struggling to pay the bills, let alone putting money aside for their own retirement.

There is a very simple and straightforward answer to that: most parents want their children to have a better, more fulfilling life than their own, and that includes having enough money to be financially secure.

Children can be eye-wateringly expensive right from the moment they arrive so even if your family is still in the planning stage, it is worth thinking about what you want to achieve for them and how much it is likely to cost.

There are several studies into the cost of children and while the figures they produce may seem outlandishly high, many parents will assure you from personal experience that they do not overestimate the potential effects on your wallet.

For many parents, it's the additional cost of childcare that really hits their finances. According to the Family & Childcare Trust, even part-time childcare costs are outstripping the average mortgage. In its 2014 survey on childcare costs, it says that for a family with two children, the cost for one child in part-time nursery care and one in an after-school club is £7,549 a year compared to the average UK annual mortgage repayment of £7,207.

The figures are dazzling.The cost of sending a child under two to nursery part-time (25 hours) is now £109.89 a week in Britain or £5,710 a year. For a family with two children in full-time childcare, the yearly bill is £11,700.This makes childcare costs 62% higher than the cost of the average annual mortgage repayment for a family home.

Over the past five years, childcare costs have risen 27%, meaning parents pay £1,214 more in 2014 than they did in 2009. Moreover, most parents buying full- time care contribute 20 to 30% of their gross income on childcare.The average cost of an after-school club is now £48.19 a week in Britain or £1,830 a year.

The cost of raising a child 2013-14

Category This year: 2014 % change from last year
Childcare and babysitting £66,113 3.70%
Education* £73,803 1.30%
Food £19,804 2.80%
Clothing £10,935 1.50%
Holidays £16,506 1.90%
Hobbies and toys £9,433 1.30%
Leisure and recreation £7,419 0.90%
Pocket money £4,553 2.10%
Furniture £3,453 -0.30%
Personal £1,157 0.20%
Other £14,091 1.30%
Total £227,266 2.20%

*Does not include private school fees but does include day-to-day costs associated with going to school (eg school trips, text books, uniform and school lunch) and university fees. Source: LV=

Day-to-day costs

The annual Cost of a Child report from insurer LV= estimates that parents can face spending £227,266 on raising their child from birth until they are 21. Worryingly, this does not reflect the optional cost of private school fees but does include a whopping £73,803 for the day-to-day costs associated with education.

If you choose to educate your child privately, you can add another £117,357 to the total, while lunches alone cost an average of £437 last year (according to deputy prime minister Nick Clegg when he announced his free school meals policy, due to be introduced this month). Multiplied by 14 for the number of years that your child will attend school, that comes to £6,118.

Then there are school trips. Gone are the days when children simply visited the local museum or went on a netball tour round the neighbouring county.These days the netball tour is likely to take them to South Africa, while a trip to learn about politics or photography could mean they end up in Washington DC or New York.

The biggest contributor to educational costs is a relatively new one - university fees at £9,000 a year. However, at least these costs are spread over 14 years. The £66,113 LV= calculates that parents spend on childcare and babysitting disappears from your bank account over a much shorter time period.

The increasing cost of raising a child means that parents are now estimated to be spending on average 28% of their annual income on bringing up their child each year, a rise of five percentage points since 2004.

The costs are so extreme that one in five parents is delaying having another child, one in 10 has opted for a smaller family and one in four mothers has returned to work earlier than they wanted.

So should you give up on your plans for a large family of well-educated, well-travelled and hobby-tastic children? Not according to Philippa Gee, managing director of the eponymous independent financial adviser and mother to two small children.

She says: "The key thing is not to let the financial issues dictate your family life. Children are a joy, and by saving in advance you can have a positive impact on family finances."

Even if you can only afford to save small amounts, it could make a huge difference to you child later on. Provided you start saving and investing when your children are very small, the biggest costs you could face - helping with your child's university fees, providing a deposit for their first home and possibly paying for a wedding - are a long way off.

Gee says: "Eighteen years' worth of small amounts can add up to one very big helping hand when it's needed."