Half of parents in the UK with a child aged five or under are reluctant to have more children due to the cost of childcare, despite recent Government initiatives to support them financially, according to Killik & Co, the independently-owned investment house.
In The Real Cost of Childcare Report (the full report can be accessed here), Killik & Co – which has been advising clients on how to save, plan and invest for almost 30 years – highlights couples with a child under five are spending £6,500 a year on childcare on average. However, the vast majority of these couples are not using two recently launched Government schemes that offer combined savings of £8,384 for parents with children aged three to five: 30 hours per week of free childcare in England – raised from 15 hours in September 2017 – and the Tax-Free Childcare Scheme introduced across the UK in April 2017.
- Only 31% of parents are using the initial 15 hours free childcare, with average savings of £3,192 per annum;
- None of the couples have started using the additional 15 hours free childcare introduced in September, worth an additional £3,192 in savings. However, just over a fifth (21%) do plan to use them in future;
- Only a fifth are using the Tax-Free Childcare Scheme, with inherent savings of up to £2,000 if a couple spends £8,000 on childcare via an online account which can be opened through the GOV.UK website;
- 40% of couples are using an existing Childcare Vouchers scheme, which will be closed to new applicants from April next year, allowing parents to make £933 worth of savings per year each. Childcare Vouchers can be used in conjunction with the 30 hours free childcare scheme highlighted above.
This lack of awareness and uptake follows widespread news coverage of usability problems affecting the Government’s website when introducing the schemes.
Given that over seven in ten parents surveyed hope that at least one of their children will attend university and one in eight is planning on private education for their children, these schemes are the perfect incentive to save and invest on a regular basis.
Svenja Keller, Head of Wealth Planning, Killik & Co. said:
“We are now living in an economic environment where the cost of childcare is influencing parents’ decision on whether or not they choose to have more children. This is a shocking position to be in, given that this decision comes as parents are still underestimating the cost of raising a young child by 34%.
This situation could be easily prevented as parents could make significant savings towards their goals through financial planning, regular savings and by making use of financial incentives. As we show in this report, parents could make over £8,000 worth of savings a year on childcare by using Government help. Also, our Killik Private Education Index (2015) showed that keeping a child in a state school until the age of eight would cut £97,000 – more than a third – off the total cost of a private education.
At Killik & Co, we believe in planning ahead – of setting aside small amounts and doing so regularly. That way, parents benefit from the power of compounding on their savings and investments.
Start small, start early and seek advice – this is a mantra all parents should keep in mind.”
Not only is the cost of childcare putting parents off from having additional children, but they are relying heavily on family support with their existing children. Over 71% of respondents depend on extended family as the main source of childcare, with 65% of help specifically from the child’s grandparents.
Our survey reveals 40% of parents have cut back their working hours in the last five years due to the cost of childcare. More than double the number of women (49%) than men (22%) have reduced their working hours in the last five years due to the cost of childcare.
Looking at parents’ preferred savings habits, the average amount of savings per couple is 14% of household income. These preferred habits were spread out as follows (with some parents providing multiple answers): 64% are putting their money into savings accounts, followed by cash ISAs (37%), stocks & shares ISAs (18%), pensions (13%), unit trust funds (9%), direct investment in stocks (7%) and direct investment in bonds (4%).
When asked what parents would do with any potential savings from the new childcare schemes, respondents gave a variety of answers: 48% would add it to an existing savings account, 31% would put the money towards their mortgage, 18% planned to spend more on childcare, 10% were keen to invest, 9% would add to their pension and 4.5% would pay off debt.
Unsurprisingly, London emerged as the most expensive place for childcare with parents spending on average £152 per week compared to the lowest of £95 in the North East (please see a detailed regional breakdown in the attached report or here [hyperlink]). The highest take up of the 15 hours of free childcare was in the East Midlands with 38% using the service, with the North East the lowest at 23%.