When calculating what the expenses for a child may add up to, the numbers can be scary.
MOMENTUM INVESTO recently did extensive research into what it costs to raise a child. The numbers were scary, but there is hope.
Investo did the research not to scare people off from having children, but rather to empower parents with the knowledge so that they can make the best financial decisions for themselves and their future family.
Inflation is the usual killer, so the sooner people start to save for major expenses, the cheaper these expenses become.
Determining the cost of raising a child is an extremely difficult calculation to do, and is based on a lot of assumptions. It all depends on several factors that need to be considered, and it will differ for everyone.
For instance, will your child go to a private or public school? We try to portray the average experience a parent will have in South Africa if their child is born today, going to Model C schools. We didn’t calculate prenatal care.
At inflation-related sums, it can cost R550 000 for the first six years, between R640 000 and R880 000 for primary school, and up to R1 million for high school. A three-year degree at a South African university may cost R660 000. These numbers add up to more or less R3 million.
For a pre-primary child, we considered medical aid of on average R1 200 to add to a parent’s medical aid.
The average cost of preschools around Pretoria and Johannesburg seems to be around R3 700 per month. Extramural activities average at R250 per month, but swimming lessons could be R500. This means these expenses could add up to R5 650 per month.
For a child from seven to 13, we took an average school fee of R23 500 per year—but inflation will chase that up to R32 500 seven years from now. From 10 schools we investigated, aftercare adds an additional R1 370 per month, which inflation will increase to R1 890.
We also researched two sets of school uniforms, which will (adjusted for inflation) be R900, twice a year. If you’re lucky, you can get away with R750 for stationery now, which will be R1 000 by the time the new-born goes to school.
During high school the medical aid will be R3 200 per month after inflation, school fees R7 167 per month, with uniforms coming in at R6 850 and stationery at R6 000 per year. Extra lessons may cost R2 000 per month in 13 years’ time. These cots therefore come to R16 667 per month in total.
It doesn’t stop when your child turns 18. Will your child receive a car as a birth-day gift? And what will their tertiary education ambitions be?
Currently a three-year BSc degree costs about R55 000 a year. According to StatsSA, tertiary education inflation is around 8% per year. This means that the total cost of a three-year degree in 18 years’ time is expected to be around R660 000. This is R220 000 a year.
However, all is not lost. By showcasing how starting to save early for tertiary education may help a parent, the table below illustrates the age-old principle that starting early can save you a lot of money. In fact, if a parent starts saving today, they will pay effectively half the cost of tertiary education.
Our children are our legacy, and by planning ahead, we can give them better opportunities.
Paul Menge, actuarial specialist at Momentum Investo.