Mastering the Costs of Child-Rearing: An Australian Perspective
Raising a child in Australia is a rewarding journey, but it can be financially challenging. This article offers insights into managing these costs effectively, leveraging government support, and planning for your child’s future.
Of course, there is a real cost – raising a child is expensive, particularly now as the cost-of-living spirals higher. Estimates vary widely from the few studies completed but it is fair to say that over a child’s lifetime families can spend hundreds of thousands of dollars on living, medical and schooling expenses for their children.
So, having a financial strategy in place to cover the costs and taking advantage of government support where available can make a big difference.
Taking care of the basics
The first step is updating your Will, ensuring you’ve nominated guardians for your children should the unthinkable occur. You may also consider life insurance and income protection to ensure your family is protected.
Next, establishing a savings and investment plan provides financial certainty as you navigate the journey of parenthood. Adding small amounts of money regularly to an account for education and other expenses can help to ease financial stress. The MoneySmart savings goals calculator shows what can be achieved. You could consider fee-free high interest savings accounts or your mortgage offset account as a way to save cash for short-term needs.
Consider longer-term investments like shares, exchange-traded funds, or listed investment companies for future financial support. They can offer the possibility of capital growth and diversification for a relatively low cost.
Super splitting
Future-proofing your finances also involves careful consideration of your superannuation. If one partner is staying at home to care for the children, the other partner can split their super contributions with them. You will need to check if your fund allows it, whether they charge a fee and complete some paperwork.
There are also some tax considerations, so it is important to make sure you understand the implications for you.
Government support
Investigate the various government payments and supports available to Australian families. For example, the Paid Parental Leave Scheme provides support for mothers for up to three months before the birth.
A recent change to Parental Leave Pay and Dad and Partner Pay sees these two payments combine into one payment that is available to both parents for up to two years after the child’s birth.
You will need to meet income and work tests and claim within certain timelines.
Even if you are not eligible for parental leave pay, you may still be able to apply for both the Newborn Upfront Payment and the Newborn Supplement.
Then there is the Family Tax Benefit, a two-part payment to help with the cost of raising children. To receive the benefit, you must have a dependent child or a full-time secondary student aged 16 to 19 who is not receiving any other payment or benefit such as a youth allowance, care for the child at least 35 per cent of the time and meet an income test.
Grandparent gifting
Grandparents eager to provide financial assistance can consider gifting money to their children or grandchildren. Be aware that Centrelink has gifting rules for those receiving an age pension. You can give $10,000 in one year or up to $30,000 over five years without your pension being affected. If you give more, the amount will be treated as though you had retained it in your own accounts.
However, gifts and inheritances are generally not considered as income for tax purposes. The ATO says neither the donor nor the receiver will pay tax on a gift if:
- it is a transfer of money or property.
- the transfer is made voluntarily.
- the donor does not expect anything in return.
- the donor does not materially benefit.
Tax may apply in some cases where property or shares are gifted.
Raising a child is a joy-filled journey, and with a solid financial plan in place, you can focus on the moments that matter. Get in touch with us to create a plan to secure your family’s future.
This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.