There are many people you can call in when you have a baby - sleep trainers, lactation consultants, potty training experts, but few new parents leave panicked late night messages for the financial adviser. On the urgent / important scale, personal finance management slides way down, yet of all the changes parenthood can wreak, those to your money, who earns, how much, and where it goes, can be the most life changing.
Good news: you don’t always need professional help to figure out how to save and manage money as a parent, but there are lots of schemes, apps and accounts that are worth knowing about if you’re going it alone, if you don’t ask, you don’t get.
Here’s what to keep in mind...
Maternity, paternity and shared parental pay
Let’s start with the most basic, the amount you and a partner will receive for giving birth, adopting a child or having a baby with a surrogate.
There are four types of pay that you might be eligible for: maternity pay, maternity allowance, paternity pay and shared parental pay.
Maternity pay is for mothers who are “employees” and have been at that company for at least 26 weeks. Statutory - i.e. the amount you have to receive by law, you might work for a company that offers you more - is 90 per cent of your average pre-tax weekly earnings for the first six weeks after you become a parent, and then £151.20, or 90 per cent of your average weekly earnings, whichever is lower, for the next 33 weeks. You can take up to 52 weeks off work, but 13 of those will be unpaid, unless you have an extremely generous boss.
Maternity allowance is for those who aren’t employees, the self-employed, for example. You get £151.20 a week for up to 39 weeks. It’s the same amount for paternity leave, up to two weeks for your partner, and for shared parental pay, which you and your partner can both take.
If, as is still usually the case, maternity pay is more lucrative, you could take maternity pay for a few months, and then your partner takes up shared parental pay when you go back to work.You can also take maternity pay and shared parental pay at the same time.
Maternity benefits
You are entitled to paid leave for antenatal appointments and you get free NHS dental appointments and prescriptions while pregnant and for a year afterwards. If you claim benefits, including universal credit, you may be entitled to a one off £500 SureStart Maternity Grant, too. You can see if you are eligible at Turn2Us.org.
Child benefit
All parents, provided neither of you earns more than £60,000 can claim child benefit. You receive £21.05 a week for your eldest child, and £13.95 for any additional children until they have left school or college. If one of you earns between £50,000 and £60,000 you get a reduced amount. You can still claim, and repay the money owed as a tax charge. This is a good idea if one of you doesn’t work or reduces their hours to look after kids, because child benefit counts towards your national insurance credits for your state pension. If you don’t get enough credits you won’t receive as much pension when you retire, which can catch women in particular out. There’s more information on this here.
Marriage Allowance
There is a tax break worth £250 a year if you are married, which is particularly handy if you are temporarily not earning much money because you’re on maternity or parental leave.
All workers get a personal allowance, which is an amount you can earn before you pay income tax, at the moment £12,500. If you earn no more than this you can pass some of it on to your spouse, and they pay less, saving up to £250, as long as they are a basic rate taxpayer (earning under £50,000).
Tax-free childcare
You are entitled to up to £2,000 a year for each child to help towards the cost of childcare for kids under 12, a nursery, or a nanny, a childminder, or afterschool clubs. You and your partner need to earn at least £139 a week, and no more than £100,000 a year each. If your child is disabled you can claim up to £4,000 until they are 16.
For every £8 you pay into your online childcare account, you receive £2 top up from the government to use to pay whoever looks after your child. Apply at childcarechoices.gov.uk.
Free childcare for 2, 3 and 4 year olds
If you are claiming benefits such as universal credit, or your child has special educational needs, you are entitled to up to 15 hours of free childcare a week for your two year old.
All families with children aged three and four can get up to 30 hours a week free childcare for 38 weeks of the year (some nurseries let you stretch this to fewer hours a week over 52 weeks). You and your partner, if you have one, need to be working to get this, and earning at least £139 a week and no more than £100,000, though you can usually still claim if you’re on parental leave or can’t work because of disability or other caring responsibilities.
If you or your partner don’t work, you can still get 15 hours a week free. Apply at gov.uk/30-hours-free-childcare.
Top up your pension even when you’re not working
Here’s a godawful stat: a woman earning the average UK salary who takes a year-long career break at age 30, and another at age 33, to have two children, stopping pension contributions during that time, loses nearly £25,500, according to calculations by the investment company AJ Bell.
What it’s easy to forget is when taking time out of work you are earning less now but it is also affecting, more dramatically (because of compounding, and because you get the benefit of tax breaks and top ups from your employer) how much you have in savings for your future.
Think about this if you’re taking maternity leave and speak to your company about your options. If you can afford it your partner could pay into your pension while you’re off so you maintain the tax breaks and full employer contribution.
Pensions for children
Ok, we can barely afford to save into our own pensions, but if you happen to have some spare cash knocking around, or keen Boomer grandparents that do, you could open one for your child, which can be topped up by other friends and relatives. This is a seriously long term investment, they won’t be able to get their hands on it - and nor will you - until they are at least 57 but that’s what makes it lucrative. If you paid in £2,880 a year (£240 a month) from birth to a child’s 18th birthday, you’d have given them £51,000. If they left that money alone until they were in their mid 50s it would be worth more than £660,000, according to financial advisers The Private Office. This is dependent on future tax-breaks, investment return and inflation, but you get the idea.
Junior Isas and children’s savings accounts
If you want something slightly less long-term, savings that your child could use towards university or maybe a flat deposit one day, open a children’s savings account for much better rates than you’ll get on an adult one. You can save up to £9,000 a year (in the tax year 2020-2021) into a Junior Isa - a cash or stocks and shares account, where all returns on it are earned is tax free, and the money is locked away until your child turns 18. At that point the savings are theirs, so you might want to make a call on how likely they are to spend the money on say, tuition fees, rather than Thai Redbull buckets. A regular children’s savings account is accessible earlier and offers better interest rates on cash. The best is 3.5 per cent at the moment.
Budgeting apps for parents
Apps like Moneydashboard and Yolt that let you see all your bank accounts and credit cards in one place, helping you set family savings goals or track spending, are a really helpful way to get a handle on what’s going where when life’s chaotic but every penny counts. Lifetise offers a handy tool to show you how much childcare you can afford, while there are some useful baby budget spreadsheets online, including this from One Family, the financial advisers and this one from MoneyAdviceService .
For children age 4 and and above you could open a pocket money app like Otly, Rooster Money and GoHenry, to help you manage their allowance or get them into learning about spending or “earning” money for chores.
Wills and life insurance
If you are not married, you do not have rights to inherit any money or savings from each other automatically, even if you’ve got children together. That means unless you own your property as joint tenants 50:50, you won’t automatically inherit your partner's share of the home when they die.
You need to draw up a will, particularly when you have kids. You might also want to consider life insurance that pays out a large sum of money if you or your partner dies while your kids are still at school, helping the other person pay a mortgage or cope with the added cost of being a single parent. The younger you take out life insurance, the cheaper it is.