The cost of raising kids in Australia is on the rise, with a typical middle-income family spending around $812,000 to raise two children, up by 50 per cent on 2007 figures when it cost $537,000 – potentially with dire consequences for retirement savings.
According to the latest AMP.NATSEM Income and Wealth Report, it gets more expensive to raise a child as the child gets older, with those aged 18-24 the most expensive, and costing five times as much as babies.
The survey found food and transport account for a sizeable portion of family budgets across all income groups. Middle-income families with two children spend 18 per cent of their household budget on food from the ages of 0-24, while transport accounts for 20 per cent of the total bill.
Costs increasing
AMP Financial Services managing director Craig Meller said the report indicated that now, more than ever before, parents are spending more of their income raising children.
“The cost of kids for a typical middle income family has risen by around 50 per cent since 2007 but average household incomes over the same period have only grown 25 per cent,” Meller said.
“If the proportion of income devoted to raising children is double that of actual income growth, what will the picture look like in the future and what does a scenario like this mean for other areas of our life, such as our retirement?
“The drivers of this increase are complex but two important factors are that families are devoting more resources to private school education and child care and the prices paid for these services are also increasing sharply.
“It highlights the importance of having a sensible budget and savings plan in place to ensure the best for both you and your children.”
Discretionary costs
The report also found that for the typical second income earner, the financial incentives to return to full-time work are limited given the loss of some government benefits, increased child care costs and income tax.
For example a secondary income earner moving from part-time to full-time work on a gross full-time salary of $70,000 would receive only $32,345 per year, equivalent to an effective tax rate of 75 per cent.
NATSEM principal research fellow Ben Phillips said the report focused on what parents choose to spend, rather than what they need to spend.
“The cost of raising children is significant, however, the report also shows that much of this cost is discretionary with high income families spending much more on their children than low income families,” he said.
