Budgeting for a baby

Ashleay: Welcome to iA Financial Group's “In Your Interest!” podcast, where our goal is to share with you the essentials of economic news and its impact on your finances. My name is Ashleay and I'm here with you for this summer episode in remote mode, but always in the company of our Chief Strategist and Senior Economist, Sébastien Mc Mahon. So, let's talk babies. Sébastien, our days of having little kids and babies running around are over, but many people are thinking of starting or expanding their families, especially, it seems, during the summer. So I have a few questions. Financially, what can the arrival of a baby look like? And what should parents do to help cover these expenses while also thinking about their kid's future?

Sébastien: Having a baby, of course, is a very important personal and familial decision, but financially it's something you need to plan for. There's been ample studies that show that raising kids costs about $10,000 a year until they are 18 years old. So, it's quite expensive to raise a family, and the first year can be even more expensive than the others. I don't have a definitive Canadian study on this, but there's one from the U.S. that was released showing that for the first year—let's say for the average household—it costs about 10,000 USD. If you convert that to Canadian dollars, it's about $13,000 to $14,000 just for the first year. So it's quite expensive. And one of the most important conclusions from this study is that the more money you make, the more you tend to spend on stuff for the baby during that first year. So it depends on the household; there's no magic number. Now, there are multiple things you need to plan for. The first and the most expensive thing will be, of course, daycare. Per month, the prices vary widely in the country. In Quebec, the public system is quite affordable, it costs on average about $180 per month for daycare, when you consider all the subsidies and tax credits. The most expensive number that I found, taken from a study from the Canadian Centre for Policy Alternatives, is for Toronto at about $1,500 per month. So it can add up pretty quickly. There are also essential items to consider for your shopping list. In the first year of raising a child, for example, you’ll need a bassinet, a crib, car seats, a stroller, a change table. These things cost a lot of money if you want to buy them new—but we always encourage reusing and recycling. So if you know someone who can hand these down to you or if you can buy used, you can save a lot of money because it can add a few thousand dollars to the bill if buy everything new. And also, don't underestimate the cost of diapers. That can add up to about $50 per month, at least. So that's a lot of elements to think about; lots of new things to budget for if it's your first baby. One thing that's widely recommended by financial planners is to dedicate about 20% of your after-tax income to pay for these new expenses. So it’s a huge chunk of the budget that is impacted by a new baby. To do that—of course, we always like to talk about financial products here—you can use a TFSA, a Tax-Free Savings Account. It’s a great way to save money, you earn interest without having to pay taxes on them. It’s always important to save, but it’s even more important to invest those savings because you need to make sure the money you’re saving for your future is not just sitting in a low interest account—even if you’re planning on using it shortly. With inflation being more of an issue right now, your money needs to generate a rate of return if you want it to grow. So this is for a TFSA. But here on the podcast we're big on RRSPs; we’ve often mentioned them in the past. When you have a child you can start to contribute to a Registered Education Savings Plan or RESP. There are very few investment opportunities out there that offer such generous subsidies and potential returns of more than 20% right off the bat. So the earlier you start, the less of a financial burden it will be when your kids are older and it's time to pay for their tuition. And remember that you should make opening an RRSP a priority, and that if you have a second child or a third child, your contribution limits will increase, so there's more opportunities there.

Ashleay: Great! Thank you, Sébastien. And to all our listeners, thank you for being here. If you enjoyed this episode, we invite you to share it with your friends and family or give us your opinion on the listening platforms Apple, Spotify or Google podcast. And if you feel like it, send us your comments and suggestions on social media or by email at social@ia.ca. Thanks, and we'll see you next week! Love this podcast? Want to know more about economic news? Follow our “In Your Interests!” podcast available on all platforms. Visit the Economic News page on ia.ca or follow us on social media.