Wise parents need to do more financial planning

With the cost of raising a child to age 21 rising by almost a third over the past five years to £186,000, according to Liverpool Victoria Friendly Society (LV=), having a baby is a serious financial business.

Two thousand years ago gold, frankincense and mire might have done the trick but these days, parents would be wiser to invest in some tax-efficient savings plans to provide for their offspring.

LV= says that having a child will cost you on average around £9,000 a year, with the largest expenses being childcare and education.

Childcare up to age 14 could cost around £50,500 with another £47,300 going on education, including £32,700 for three years at university. And this is based on a state education.

Plan your kids future financial well-being now!

If you paid for non-boarding private education plus three years at university, this would push the cost up the cost of financing a child to nearly £260,000.

Cost of kids to rocket

Some of the 33% increase has been caused by the introduction of university tuition fees.

Other expenses listed in the study include food, clothes, holidays, baby sitting, pocket money, driving lessons and a first car - but not a deposit on a first home.

LV= said that it since starting the research four years ago, it now has a database of all the costs. It forecasts that by 2012 the cost of raising a child could rise by 43%, reaching more than £12,650 a year.

LV= points out that salaries aren't likely to keep up with this kind of increase so the only way to prepare yourself financially is to do some forward planning, start saving, and change your lifestyle.

Top up the child trust fund

Children born after 1st September 2002 receive a child trust fund (CTF) voucher of £250 from the government, with another £250 at age seven.

Parents can choose to invest this in a cash or equity CTF account and to help the fund grow, you and other family members or friends are allowed to invest up to £1,200 a year tax-free.

Looking to build a nest egg for your fledglings? Take a look at Moneyextras guide to Child Trust Funds.

As it's a longer tem investment, you could afford to take a risk by choosing equities, which history shows outperform cash over the longer-term.

Even if you do nothing else, topping up the tax-free account is a must. Despite the benefits, only around a quarter of CTF accounts are being topped up, according to the Childrens Mutual.

13 December 2007 © Moneyextra.com

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