Article Key financial considerations for first time parents

Becoming a parent brings joy and excitement, but it also comes with numerous financial questions and decisions – especially as kids can be expensive. The average cost of raising a child from birth to 18 years in 2022 was nearly £160,000 for a couple and over £200,000 for a lone parent.1

If you’re expecting a baby, you might be considering your finances from a new perspective. It’s a natural time to reassess your finances and think long-term. To help you navigate this new chapter, this article provides some tips and considerations to help parents feel informed and financially prepared for their next journey in life. 

In this article we look at:

• Preparing for when the baby arrives
• Saving for when your child grows older
• Safeguarding your child’s future

Preparing for when the baby arrives

Budgeting for basic necessities

It’s important to start planning and budgeting your finances even before your little one arrives. After all, the cost of basic necessities such as nappies, bedding, clothing and feeding equipment can all add up. You can use online tools like MoneyHelper’s baby calculator to work out your budget.

If you live in Scotland, your baby can get a box of essential items from the government, containing items such as clothes, thermometers, a bath towel, a changing mat and a mattress.

Taking into account parental leave and pay

You’ll also need to adjust your household finances in preparation for time off work, as you might not be paid your full salary.

In the UK, eligible employees can take up to 52 weeks’ maternity leave, and statutory maternity pay (SMP) can be paid for up to 39 weeks. SMP is usually 90% of your average weekly earnings (AWE) before tax for the first six weeks, and £184.03 or 90% of your AWE (whichever is lower) for the remaining 33 weeks.2 However, some employers can have their own company maternity schemes. Be sure to check the terms of your employment contract.

Fathers are eligible for one or two weeks’ paternity leave, and the statutory weekly rate of paternity pay is £184.03 or 90% of your AWE (whichever is lower).3 Again, some employers might offer their own version of paternity leave arrangements. In addition, parents could be able to share up to 50 weeks of leave and up to 37 weeks of pay between themselves if they meet the criteria outlined on GOV.UK’s website.4

Some financial aid schemes are available. For example, if you’re expecting your first child or a multiple birth (for example twins), and already receive certain benefits, you could qualify for a one-off payment of £500 under the government’s Sure Start Maternity Grant.5 Scotland has a similar scheme called Pregnancy and Baby Payment. For more information on the types of benefits you could be entitled to, take a look at the Government’s Benefits and financial support for families.

Creating an emergency fund

It’s a good idea to build up an emergency fund to cover any unexpected costs associated with a newborn, such as medical fees. MoneyHelper suggests that if you can, saving around three to six months’ worth of your essential living expenses can be a good amount to set aside.6 Consider putting aside small amounts of money each month into an easy-access savings account (or whatever works best for you) before your baby is born to gradually work towards your goal, and try to carry on saving after the little one arrives. To help you get started, check out our article: 5 steps to build an emergency fund.

Becoming a parent brings joy and excitement, but it also comes with numerous financial questions and decisions – especially as kids can be expensive. The average cost of raising a child from birth to 18 years in 2022 was nearly £160,000 for a couple and over £200,000 for a lone parent.¹

If you’re expecting a baby, you might be considering your finances from a new perspective. It’s a natural time to reassess your finances and think long-term. To help you navigate this new chapter, this article provides some tips and considerations to help parents feel informed and financially prepared for their next journey in life. 

In this article we look at:

• Preparing for when the baby arrives
• Saving for when your child grows older
• Safeguarding your child’s future

Preparing for when the baby arrives

Budgeting for basic necessities

It’s important to start planning and budgeting your finances even before your little one arrives. After all, the cost of basic necessities such as nappies, bedding, clothing and feeding equipment can all add up. You can use online tools like MoneyHelper’s baby calculator to work out your budget.

If you live in Scotland, your baby can get a box of essential items from the government, containing items such as clothes, thermometers, a bath towel, a changing mat and a mattress.

Taking into account parental leave and pay

You’ll also need to adjust your household finances in preparation for time off work, as you might not be paid your full salary.

In the UK, eligible employees can take up to 52 weeks’ maternity leave, and statutory maternity pay (SMP) can be paid for up to 39 weeks. SMP is usually 90% of your average weekly earnings (AWE) before tax for the first six weeks, and £184.03 or 90% of your AWE (whichever is lower) for the remaining 33 weeks.² However, some employers can have their own company maternity schemes. Be sure to check the terms of your employment contract.

Fathers are eligible for one or two weeks’ paternity leave, and the statutory weekly rate of paternity pay is £184.03 or 90% of your AWE (whichever is lower).³ Again, some employers might offer their own version of paternity leave arrangements. In addition, parents could be able to share up to 50 weeks of leave and up to 37 weeks of pay between themselves if they meet the criteria outlined on GOV.UK’s website.⁴

Some financial aid schemes are available. For example, if you’re expecting your first child or a multiple birth (for example twins), and already receive certain benefits, you could qualify for a one-off payment of £500 under the government’s Sure Start Maternity Grant.⁵ Scotland has a similar scheme called Pregnancy and Baby Payment. For more information on the types of benefits you could be entitled to, take a look at the Government’s Benefits and financial support for families.

Creating an emergency fund

It’s a good idea to build up an emergency fund to cover any unexpected costs associated with a newborn, such as medical fees. MoneyHelper suggests that if you can, saving around three to six months’ worth of your essential living expenses can be a good amount to set aside.⁶ Consider putting aside small amounts of money each month into an easy-access savings account (or whatever works best for you) before your baby is born to gradually work towards your goal, and try to carry on saving after the little one arrives. To help you get started, check out our article: 5 steps to build an emergency fund.

Saving for when your child grows older

Factoring in childcare costs

Childcare makes up a sizable proportion of your outgoings, especially after parents return to work. A quarter of families in the UK spend £800 or more per month on childcare.⁷

The government has a tax-Free Childcare scheme to help with childcare. For each child you can get up to £500 every three months (up to £2,000 a year). This goes up to £1,000 every three months (up to £4,000 a year) if your child is disabled.⁸ If you’re qualified for universal credit, you might be able to claim up to 85% of your childcare costs back from the government.⁹

If you’re working, you might be able to get a certain number of free childcare hours, depending on your child’s age and circumstances, and where you live. Read our article for more tips on how to manage your childcare costs.

Signing up for Child Benefit

Parents in the UK receive Child Benefit for bringing up a child who is under 16 or under 20 if they stay in approved education and training. This allowance is usually paid to you every four weeks. The weekly rate is currently £25.60 for the eldest or only child, and £16.95 per additional child.¹⁰

Saving for education

The average cost of sending a child to primary school in the UK is £864.87. Rising to £1,755.97 a year when they move to secondary school.¹¹ This includes school fees, uniforms, tech, activities and more. It’s important to start setting aside money early if you can.

Explore tax-efficient savings options to get the most out of your money. For instance, you might consider setting up a Junior Individual Savings Account (ISA), which is a long-term, tax-free savings account for children. The maximum amount you can save is £9,000 in the 2024/2025 tax year.¹²

The value of any tax benefits will depend on individual circumstances. The favourable tax treatment of ISAs may not be maintained in the future.

Safeguarding your child’s future

Opening a bank account

You can open a savings account for your child aged up to 18. By setting up a bank account, you can help your child learn how to manage their money, understand the importance of saving and develop healthy financial wellbeing habits for the future.

There are two types of accounts. Easy or instant access accounts allow you or your child to withdraw or deposit money at any time. On the other hand, regular savings accounts might not allow you or your child to take money out as easily, but they often pay a higher rate of interest.

There’s usually no tax to pay on children’s bank accounts, but if your child receives more than £100 in interest from the money you give them, you will have to pay tax on the interest if it’s above your own Personal Savings Allowance.¹³

Planning for unfortunate circumstances  

As a parent or guardian, it’s natural to worry about what will happen to your child in the event of your death. A life insurance policy could make sure your child is taken care of financially if you pass away, giving you greater peace of mind. Such a policy pays out either a lump sum or regular payments after your death, enabling your child to take care of your final medical bills and cover their living expenses.

You can also draw up a will to appoint a legal guardian to look after your child’s wellbeing, and to make sure your child inherits your assets after your death. In addition, should you have any unspent pension funds, you can pass them on to your child when you die if you nominate them as your beneficiary.

Do note that the inheritance tax threshold is currently set at £325,000 per individual.¹⁴ This means anything above the threshold will be taxed at the standard rate of 40%.

Looking forward to your child’s future with confidence

While expecting a child can feel overwhelming, there are many things parents and guardians can do to financially prepare for their new arrival. By doing so, you can build a secure foundation for your family and give your child a head start in life.