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Pay It Forward

Baby on the way? Smart ways to avoid price shock

About the author

Kate Ashford is a New York-based freelance journalist who writes about personal finance and health. She has written for Money, Real Simple and Redbook magazines.

(Max Mumby/Indigo)

(Max Mumby/Indigo)

Any day now, England’s Prince William and Kate Middleton will welcome a long-awaited royal baby. With their bundle of joy, they will enter the world of parenthood and all it entails — with at least one key difference: They are probably not worried about how they are going to afford it.

They are likely not calculating the cost of childcare or saving to pay for a pricey stroller or nervous about paying for schooling. For the rest of the world, however, having a baby can mean taking a serious financial hit — one that not everyone is adequately prepared for.

Expenses vary, and depend on your culture.

For instance, while the US offers no paid maternity leave, mothers in Japan, Italy, Norway and Canada receive 20 to 50 weeks, according to Washington, DC’s Center for Economic and Policy Research. In Malaysia, India and Singapore, many parents rely on extended family to help with childcare, which cuts costs tremendously, said Mei Leng Wong, editorial director of BabyCenter Malaysia. But in Britain, a parent paying for 50 hours of childcare per week for a child under age two would pay about £11,000 ($16,600) per year, according to London’s Daycare Trust and Family Parenting Institute.

Much depends on family size, of course. If you have three children, as is common in Belize or the Philippines, you will probably spend more overall than someone in China, where having more than one child is largely prohibited. Indeed, having a second child registered in China may cost the equivalent of three years average salary, said Peter Murphy, a financial consultant with Rock Private Office in Shanghai. 

If you are going to take the baby plunge, here are a few things to keep in mind:

What it will take: In the US, middle-class families will spend about $235,000 on a child through age 17, according to the Department of Agriculture. That does not include college, which averages more than $22,000 a year for an in-state public college in the US. In Australia, it will cost up to AUD$400,000 ($362,300) to raise a child to age 21, and that, too, excludes university education, said Brett Evans, executive director of Atlas Wealth Management in Southport, Australia.

In China, families spend 100,000 to 300,000 yuan ($16,300 to $48,900) raising a child to university age, according to Chinese news site ChinaDaily. UK families spend £222,000 ($335,600) to raise a child to age 21 — up 58 percent from 10 years prior, according to the Cost of a Child Report. In short, it is not cheap.

How long you need to prepare: Nine months? Maybe. If you are deeply in debt or living in a studio apartment, you need more time than someone with a sizable nest egg and a nursery in the house.

“Most people address it when they find out they are pregnant,” said Kristin Harad, a financial planner in San Francisco, California. “And a larger percentage than I would like do not address it until six to 12 months after the baby is born.”

Do it now: How much do you have in the bank? You should have enough cash on hand to cover three months of living expenses, minimum. Six months would be even better.

“The number one priority is to build up the emergency fund,” Harad said. “Liquidity and having cash on hand will give you the most flexibility.”

Set up an automatic transfer from your checking account to your savings account every payday.

Once you have a cash cushion, tackle consumer debt. “Pay down as much as possible before the children come along,” Evans said.

Many experts suggest the snowball approach: Put as much money as possible toward your smallest debt, paying the minimums on everything else. Once that is paid off, roll that money into your payment on the next-smallest debt. And so on.

Do it later: One of the biggest expenses parents face is childcare, and many underestimate how much it will cost. “They assume, I work eight hours, so I need eight hours of care,” Harad said. “They need more like ten.”

If both parents will be working, research childcare costs ahead of time. In middle-class Asia, hiring a live-in helper is common. “Many families feel a maid is cost effective,” said BabyCenter Malaysia’s Mei Leng Wong. “Besides being the nanny, she is also the cook, cleaner, personal assistant, dog walker and gardener.”

In the US, some families participate in a nanny share, which allows two families to pay less overall. “Your nanny may even end up making more than he or she usually would,” said Elena Mauer, deputy editor of US site TheBump.com.

This is also a good time to track your spending. If you do not know where your money is going, it will be tough to earmark funds for diapers and baby gear — not to mention the occasional babysitter. For a month or two, write down every purchase — even cash — so you can pinpoint money leaks.

If one of you is going to stay home with the baby, try living on one income to see how it goes. Use the other paycheck to build up savings, eliminate debt, and pay for one-off expenses, such as hospital costs and start-up baby paraphernalia.

Do it less expensively: In some ways, having a baby can be as expensive as you would like. For instance, you do not have to buy baby gear new. Canvas area families for gently used cribs, car seats, toys, and other equipment. TheBump.com’s Mauer recommends checking out Freecycle.org, a website that allows members to list items they would like to give away. (Freecycle has sites in many countries.) “Just be careful with certain items like car seats that have expiration dates or older cribs that may not meet safety standards,” Mauer said.

If you can breastfeed, do it. “The cost of formula can add up really quickly,” Mauer said. “A typical baby will drink an average of $35 worth of formula a week.” If breastfeeding is not an option for you, buy formula and baby food in bulk to save money.

Do not try to keep up with others. For some parents, a new baby triggers a spending spree in an effort to surround the child with nice things. Keep in mind that children are happy playing with spoons and an empty box. “Many parents think they are shortchanging their child by not having an antique teak changing unit,” said Nick Combes, director of financial planning firm Holder & Combes in London. “Your baby does not know or care whether it is wearing expensive clothes or paying with expensive toys, so do not waste money on things they do not appreciate.”

For some parents, a new baby triggers a spending spree in an effort to surround the child with nice things.