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Family budget series - raising toddlers

15 May 2017

We look at some financial factors to consider when raising a toddler or pre-schooler. By Rachel Stocker from BT Financial Group.

This is the second instalment of the Family Budget Series and follows how to budget for your newborn baby. 

As your children grow older different financial considerations arise and costs tend to increase. We look at financial factors to consider when raising a toddler or pre-schooler. 

Some of the major expenses to consider in your family budget are:

Healthcare costs

Childcare / preschool expenses

Toys and entertainment

Saving for education

The labour force status of the primary carer has a big impact on the cost of a preschool age child and can impact income levels through:

Changes to income

Financial assistance

Below are some possible expenses and ways that your income may change associated with raising a toddler or pre-schooler for you to incorporate into your family budget.

Healthcare Costs

It is probable that a young toddler or pre-schooler will require regular health check-ups, paediatric visits, immunisations and other medical needs. To assist with the medical costs (that are not covered by Medicare) or protect yourself from unforeseen issues you may consider private health insurance for your child. 

Private health insurance premiums vary according to the type cover provided and demographics. If you are already in a private health fund, you can ask you insurance company if you can simply add your child to your current policy. In most cases, the premiums will increase with the addition of a new member. 

If you are unable to add new members to your policy or you do not have an existing policy you can research online to compare different providers and find the policy that best suits the needs of your family. It is important that you fully understand the policy benefits before your new policy commences. 

Childcare / Preschool

Many parents with toddlers/pre-schoolers are in the labour force and must pay for childcare/preschool. 

Childcare options for toddlers are similar to those of babies and outlined in Family Budget Series #1 – Preparing for the arrival of your baby.

Preschool fees vary between services and between States and Territories. According to the Australian Scholarship Group, it is estimated that at a government preschool in metropolitan NSW families will pay up to $2199 per annum, including $1242 on fees, $511 on extracurricular activities, $121 on clothing, $89 on necessities, and $236 on travel. Families using preschools may be entitled to the Child Care Benefit however families using preschools cannot claim the Child Care Tax Rebate.


Toys & Entertainment

It can be difficult to keep a toddler or pre-schooler entertained for longer than 5 minutes so the costs of children's activities and toys to interest a child can quickly add up. The toys you purchase to keep your children occupied at home or activities you take your toddlers to all impact the family cash flow. 

A survey conducted by McCrindle Research reveals that the average household has in excess of 100 toys. 96% of parents surveyed said they spend at least $100 on toys per child per year and 25% of parents have an annual toy spend of over $500 per child per annum. 

Activities that are quite common for toddlers or preschools to participate in are:

Playgroup: a membership fee of approximately $40 per annum and a weekly session fee of $5 per day

Swimming lessons: approx $15 per lesson

Kindergym: $15 per session

Dance classes: $15 per lesson

Children’s birthday parties

Saving for education

According to the Australian Scholarship Group, for a child born in 2012 the education expenses (including school fees, uniforms, school bags, books, stationary, transport, technology costs and extracurricular activities) from preschool until their final year could range up to about $60,000 for a public school, $200,000 for an independent school and $400,000 for a private school. Saving to pay for your child's education is similar to saving for any other long term goal - the earlier you start the better. There are a number of ways to save for future education expenses:

Prepay school fees: Some schools let you prepay fees for a child who is already studying or who is enrolled or accepted for enrolment in future years. As a result of prepaying the school may discount the fees. This is commonly done by parents to insulate them against future fee rises.

Education Savings Plans (ESP): These are tax effective investments designed to assist funding education expenses right through to a tertiary level. Contributions are made through a regular savings plan or lump sum payments. ESP's often have relatively high fees and are inflexible investments as you will not receive the tax benefits if the funds are not used for education expenses.

High interest savings accounts: Setting up a dedicated education savings account with a high interest rate will allow you to start saving whilst you retain full control over your money. Interest earnings will be taxed at your marginal tax rate.

Changes to income

Motivations for parents returning to work vary widely, but when considering this decision you will need to take into account practical issues such as:

Work/life balance considering the extra workload

Potential additional costs of childcare or preschool

Implications for financial assistance you are eligible to receive

Financial Assistance

The government provides a number of payments and services to support parents with the costs of children and assist with returning to work.

Family Tax Benefit Part A (FTB Part A) is a payment paid for each child. The payment is income tested and is based on your family's individual circumstances. You may be eligible for FTB Part A if you have a dependent child or student aged up to 22 and care for the child for at least 35% of the time.

Family Tax Benefit Part B (FTB Part B) gives extra help to single parents and families with one main income. This payment is income tested. You may be eligible for FTB Part B if you have a dependent child or student up to age 18 and care for the child for at least 35% of the time.

More information and eligibility requirements on the Family Tax Benefit Part A and Part B

Health Care Card provides concessions on health care costs, allowing you to get cheaper prescription medicines and medical services funded by the Australian Government. This card also gives access to services provided by the State and Local Governments (public transport and education costs).

More information and eligibility requirements on the Health Care Card

Child Care Benefit helps cover the cost of child care. To claim the CCB you must use approved care, be responsible for paying the fees, have your child immunised, be a resident and meet the income test. 

Child Care Rebate: The CCR pays up to 50 per cent of the out of pocket expenses for child care up to an annual cap of $7,500 per child per year. Importantly, the CCR is not income tested subsequently families which have an income that exceeds the eligibility to access the CCB can still access the CCR should they meet the other requirement as set out for the CCB (even though the CCB assessment maybe rated at zero).  Recent figures produced by the Australian Government confirmed that up to 100,000 families currently using approved childcare do not claim their child care rebate, subsequently missing out on a collective sum of approximately $190 million in government payments.

We hope that the above information provides a starting point to help you navigate financially through the early childhood years. 

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The information in this article has been prepared to provide you with general information only and should not be relied upon without obtaining professional advice.

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