You’ve got it all wrong

You’ve got it all wrong
22 April 2019 AdviserLogic

You’ve got it all wrong

Raising a child is expensive and if you are not factoring in sport, music, dance, gymnastics, clothes, laptops, gaming computers, smartphones and the data plans to run these, then you’ve got it all wrong.

It has long been the way that when calculating the required level of insurance cover to ensure your client’s children are raised in the way they intended for them, an amount around their expected education costs is used.

But some have missed changing this base calculation without factoring the cost of raising a child in today’s world. When we look at some of our industry tools – nothing’s changed.

Most people have at least included the cost of childcare. Recent reports show that child care costs have climbed 150% in the past decade. This is a big chunk of the family’s budget. The other factor you should also be considering is how long children are now living at home.

Looking at some of the key data
the cost of raising a child in Australia):

  • Average cost of raising a child from birth to seventeen years of age is over $297,600
  • ‘long-day’ childcare can cost up to $192 a day
  • 43.4% of 20-24 year olds and 17% of 25-29 year olds continue to live in their parents’ home

A child born in 2018 will cost around $66,000 to educate (Prep to Year 12) in a public school and around $475,000 in a private school in metropolitan Australia.  The figures a slightly less in rural areas but these figures from the Australian Scholarships Group (ASG) are a reminder of how much a significant investment this is.

Statistics also show that the cost of raising a child has increased by 45% in the past 10 years alone and that education is no longer the main large expense.  If you look at activities and school fees, activities is around 40% of that total value. This highlights the importance of ensuring budgeting for future costs for raising children includes activities.  With these growing costs, it is also important to understand that household incomes have only risen by around 23%, this means the cost of raising children is growing at double the rate of our average incomes.

Don’t forget the teenage and later years

When planning for adequate insurance to protect the envisioned way of life for ones children, you should also consider the teenage years.  Apart from sporting and dance type of activities, you need to take a close look at a teenagers other activities. An allowance for an increase in entertainment costs such as money for movies, steam credit for games, money for music platforms and other must have items that come with a tech-savvy teenager.

But let’s not forget transport costs of a teenager.  It’s no longer just the cost of running a child around to their various activities, now they will want to learn to drive too.  Driving instructor fees, increased car insurance costs together with the 100 hours learner drivers hours worth of petrol adds up very quickly.

When you think your done, then also factor in the kids who remain living at home into their late 20’s as the cost of living on their own or buying their own home is out of reach.  Many parents are delaying their own retirement to help support their children longer to save for their first home. 

What seemed like a simple calculation to ensure one’s children are raised the way intended just became a lot more complicated.  Time for proper budgeting around this is important part of life and to get this right.

Insurance Needs Analysis

When completing your insurance needs analysis it is important to ensure you are capturing all of the costs of raising a child.  Allow for the additional what ifs.  From childcare, school fees, activities and even allowing for those children who are likely to remain at home and dependant into their late 20’s.

AdviserLogic’s Insurance Needs Analysis makes this simple and not only will your future expenditure for children be taken into full consideration for insurance, it will also flow into your Cashflow modelling.

Raising a child is expensive – are you ensuring your client’s children will have the full upbringing desired or have you got it all wrong and time to rethink!