My kids will cost me how much!!!

Two weeks ago my fourth child was born, as any parent would you start to think about what lies ahead for the child. But as a financial planner I started to think how much is he going to cost me?

I looked around online but the data available was either too out of date or didn’t provide enough detail to satisfy my curiosity.

So I set about calculating it for myself. I am in the privileged position in that my clients share their outgoings with me so I was able to work out a good average.

This does however slightly skew what might be considered average expenditure. I delighted to have a broad client base however it would lean towards higher earners.

But more interestingly is that research from Canada has shown that people who engage a financial planner are likely to have 2.5 times the net worth of people who don’t when they reach retirement.

This could be due to the fact that people only engage a financial planner because they have financial reason to do so, or that there financial position improves as a result of the financial planners involvement.

I think it is probably a combination of both with a biased sway to the financial planner having the influence. What is in no doubt in my mind is that your long term financial position will be improved by engaging with a good financial planner.

So I went about calculating the cost of my little bundle of joy. I factored in all the usual childcare, pocket money, clothing and footwear, extracurricular activities and hobbies.

I also apportioned some of the costs associated with running a car, a home, paying a mortgage and going on holidays. For the purposes of the calculation I took ¼ of the average costs of such expenses. Lastly I allowed for a €20,000 gift at age 25.

The calculation ran from age 0 to 22 and included four years in college.

If I won the lotto today I would need to set aside €360,000 to fund all of his expenses.  If I want to pay for it all from salary it looks more like I would need €23,500 per annum net of taxes.  Expensive little fella!

As most people will just suck up the day to day expenses and pay as they go, I considered college fees seperately.

A lot of clients come to me with some resemblance of a fund towards their child’s future college expenses. The biggest mistake made is they save the money in a deposit account. For lots of reasons (which would deserve a blog of their own) this is the wrong way to go about it.

If you save in a deposit account from 0-18 to fund for a child’s college expenses you would need to save €132 per month or all of the current children’s allowance. However if you go for a well diversified portfolio you would need to save just under €90 per month.

I am assuming college fees will cost €9000 per year for 4 years and will rise by 5% per annum between now and then.

If you leave things a little later and you have only ten years before your child is heading to college the figures for deposit account investment rise to €260 per month or twice the original investment or €210 per month for the diversified portfolio.

I discussed this topic with Ian Guider on Newstalk on Tuesday June 3rd 2014 and you can listen to it here. (skip to about 9mins 50sec)

 

 

Comments 2

  1. Brendan

    Hi Eoin,
    “college fees will cost €9000 per year for 4 years” : Sounds reasonable – though that’s perhaps an average of a lower amount for those whose kids don’t need separate accomodation versus a higher amoutn for those whose kids need separate accomodation.
    And then there’s the other model – the “American” model – where kids pay for college through loans!

  2. Parsnip

    most people see their home as the biggest investment they make in their life but shouldn’t we think of our kids in the same way? a similar investment in each of your children as in an average family home. And….
    they are your investment in your future – educate them well and they will be funding your care placement and looking after you at the other end of your life. When you are changing nappies just think to yourself who is going to be wiping your a*** when you are 90?
    on a more serious note think of all the children not lucky enough to be brought up in a stable loving family. It can cost up to €360,000 to keep a child in youth custody and that price tab would probably keep two children in a regular children’s home for a year.

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