5 March 2013

When starting a family, plan early

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When starting a family, plan earlyIt is estimated to cost more than $1 million to raise the average Australian family of 2.7children up to age 24.


1So the more financially prepared you are for the patter of tiny feet, the more you will be able to cope as they grow into their size 11 boots.  Preparation needs to start even before you are pregnant – private health insurance will not cover childbirth until a year after you have joined the fund. 2 Once pregnancy occurs, you need to work out your current financial situation, how long you plan being away from work and how you can afford to live on only one salary. At this stage, it is important to find out whether any insurance you have through your super will continue while you are on maternity leave and not making superannuation guarantee contributions.  It might also be a good idea to negotiate with your employer whether you can salary sacrifice the cost of childcare once you return to work.


Now that the family is growing– it is also appropriate to check if you have the right insurance cover, particularly if the sole breadwinner were to lose his or her job. Amending, or preparing your will is important too.

Of course there is government assistance for many Australians. Paid parental leave will provide $606.50 a week before tax for up to 18 weeks any time in a child’s first year.


3 From January 2013 fathers and partners can claim two weeks’ pay ($1200 approx. in total before tax) in parental leave for those earning less than $150,000.


4 Or you can take advantage of the baby bonus if your estimated combined taxable income is less than $75,000 in the six months following the arrival of the child. This entitles you to $5,000 for your first baby, payable in 13 fortnightly instalments, $846.20 for the first fortnight and $346.15 a fortnight for the subsequent 12 fortnights. The bonus for the second child is proposed to reduce to $3,000 from July this year.


5 You cannot benefit from both schemes and it

is generally accepted that paid parental leave

is the better option.

6 Note: to be eligible for a government payment, you must meet specific eligibility criteria.



Education costs

After all the excitement of a new child, the next major hurdle is the cost of education. Figures show that secondary school education will cost $34,990 at a government school,$121,244 at a Catholic school and $272,522 at an independent school. 7Clearly, the sooner you prepare for these sorts of costs, the better. Multiply these costs by two or three children and it can increase substantially. There are several ways you can put money away for your children’s education, particularly as the money has a reasonably long investment


If you are on the top marginal tax rate, you may consider an insurance bond. Once you have held the bond for more than 10 years, it is capital gains tax free, although an internal tax rate of 30% is still applied to income (less imputation credits) earned throughout the investment period. However, a managed fund that is structured to achieve a return adequate to meet education expenses as and when they fall due, generally provides more investment choice and overall flexibility.


Of course, should you have adequate savings on hand, you could pay for the education upfront, locking in current prices. As well as the considerable fees, you need to consider all the extras – uniforms, excursions and extracurricular lessons.


A case in point

Lucy and James have two children aged two and five who they want to educate at a private secondary school. Assuming the cost is  15,000 for years 7-9, $20,000 for years 10 and 11 and$25,000 for year 12, how much money would they need to cover the basic fees?

The couple went to a financial adviser to help put together a plan. The adviser calculated that to cover the cost, the couple would need to invest $1,208 every month for the next 15 years with a seven per cent annual return. While this may sound like a lot, it is comparable

with lease payments on an upmarket car – and money spent on your children’s future is a much better investment than money spent on a depreciating asset. To achieve the seven per cent return, the money was invested in managed funds, split between the more conservative fixed interest and a growth fund investing in shares. All the returns were reinvested in the funds, and every year the proportion would be rebalanced to continue to meet their risk profile. With a plan now in place, the couple knew their children’s education expense was secure and they would be able to provide them with a private secondary education. Bringing up a child is certainly not cheap. But if you plan carefully, it will be one of the most rewarding investments in your life.



1 ‘Bringing up baby is a maturing investment’, 23 October 2011, The Sydney Morning Herald, http://www.smh.com.au/money/planning/bringing-up-babyis-a-maturing-investment-20111022-1mdqm.html

2 ‘Waiting periods’, Australian GovernmentPrivate Health Insurance Ombudsman, viewed14 December, http://www.privatehealth.gov.au/healthinsurance/howitworks/waitingperiods.htm

3 Maternity Leave Australia, viewed 14 December2012 http://www.maternityleaveaustralia.com.au/payment_amounts_3.html

4 Misha Schubert, ‘Parental leave to keep dadsat home with newborns’, The Sydney MorningHerald, 4 September 2011, viewed 3 December2012, http://www.smh.com.au/national/parentalleave-to-keep-new-dads-at-home-with-newborns-


5 ‘Baby bonus’, Australian Government Departmentof Human Services, viewed 14 December 2012,http://www.humanservices.gov.au/customer/services/centrelink/baby-bonus?utm_id=10

6 ‘Having a baby’, Australian Securities & InvestmentsCommission, viewed 14 December 2012, https://www.moneysmart.gov.au/tools-and-resources/lifeevents/


education add up’, The Sydney Morning Herald,30 March 2012, viewed 13 December 2012 http://www.smh.com.au/lifestyle/doing-the-sums–does-aprivate-education-add-up-20120327-1vw9g.html

7 Lucinda Schmidt, ‘Doing the sums – does a private

When starting a family, plan early

Verante Pty Ltd is a Corporate Authorised Representative of Viridian Select Pty Ltd, ABN 41 621 447 345, AFSL 515762. This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information consider its appropriateness, having regard to your objectives, financial situation and needs.