- Date : 16/12/2019
- Read: 8 mins
With all the excitement a new baby brings in new financial responsibilities. Here are some tips on how to share the responsibility of raising a child.
One of the most life-changing events a person can experience is perhaps becoming a parent. Life takes a different dimension altogether when there’s an addition to the family – a brand-new individual who’s totally dependent on you.
But the excitement that a new baby affords comes with great financial responsibilities. In the beginning, expenses relate to daycare and nannies and sundry expenses (diapers, baby food, toys etc.), followed by kindergarten and then primary school.
So, what kind of expenses does a baby entail? And what kind of planning is required to cope with the situation?
The baby years
In 2013, a survey was conducted among middle to upper-middle-income families in India by financial website Moneylife. It revealed that the monthly child-rearing expenses from birth to the age of four accounted for at least 10% of the monthly income for about 84% of respondents.
Although the range of expenses across families was wide – some respondents said they spent up to 25% of their monthly income on their kids aged under five – the fact is that adding a little one to the family can be quite expensive, even for cautious spenders.
The main problem, as the survey by Moneylife showed, was a lack of planning. Many couples approached parenthood with a ‘will cross the bridge when we come to it’ frame of mind. One in three respondents, or a considerable 33%, said they had not budgeted for the increase in monthly expenditure. Worse, about 55% said they did not have basic life insurance.
But it does not need to be like this. One can begin to plan their finances even before the child is conceived. Once the decision is taken to have a child, couples should revisit their priorities and discuss what is important to them from a financial planning perspective. Should one maintain an active social network with friends, or save that amount? Pay off debt or live it up?
This is the time for long-term planning (tackling debt, investing, and making big purchases.) The same goes with meal planning or home maintenance. Basically, budgeting should be made with savings and the changed scenario in mind.
If 10% of one’s salary is assumed to be the average baby expenses as mentioned in the Moneylife survey, perhaps it would be a good idea to start saving for purchases before the baby arrives (baby toiletries, clothes etc.) In fact, it would be a good idea to save for childbirth as well. Like many aspects of life, even pregnancy can – and should be – planned, given the high costs of delivery.
It is also advisable to get health insurance with maternity benefits before conceiving. We shall discuss this in the next section.
Soon after a couple gets married, one of the first financial decisions they must take together is getting health cover, especially if they have no insurance plan.
There is, of course, the tax angle, and the possibility of a sudden illness requiring hospitalisation. But this is also important for another reason: no individual or family floater plan will cover the maternity expenses if the policy buyer is already pregnant.
It is advisable to choose a comprehensive family floater health insurance plan that also covers maternity costs, apart from all other expenses that come with childbirth. One can also plan to time the pregnancy after the annual renewal of the existing health insurance coverage, with the addition of maternity benefits to the base plan.
Most maternity plans offer the same broad benefits:
- Maternity expenses related to hospitalisation based on sum assured;
- Pre- and post-hospitalisation expenses for a certain period (say, 30 days and 60 days respectively);
- Ambulance expenses up to a certain limit per claim;
- In-patient care and daycare treatment expense;
- Medical expenses of the newborn for the first 90 days.
Some insurers extend the coverage to the baby under the regular policy after 90 days on payment of additional premium. That aside, some employers also provide group health cover, though not all do. Nonetheless, if one spouse does get group health cover at work, it should be explored for maternity benefits.
When the baby is born, get the process rolling for a birth certificate; it will be needed for various purposes, including starting school.
A simple process is completed at the earliest, it can become complicated when the child is older. Hospitals are mandated to issue a certificate, based on which the municipality will issue the official birth certificate. In fact, some hospitals fill the official application form themselves and submit it to the local authorities within 21 days of birth.
Your child will need a birth certificate to open a bank account, but for children below 10, the account will have to be held jointly by the child and one parent.
Why do you need an account for your child? Well, for many years, your little one will be receiving cash gifts and cheques, so why fritter away these little amounts when starting a saving account for the child would be so much better? It would also help instil the saving habit in the kid from an early age.
All savings schemes for children should be explored (though not necessarily invested in); for instance, the Government’s scheme for the girl child, Sukanya Samriddhi Yojana, is a good investment product. Saving for future goals like higher studies and marriage should also begin at the earliest.
Drawing up a will with your child as the nominee may not be a bad idea either; the document is critical because it allows the parents to name the person they trust the most to take care of their child if they were to die unexpectedly.
Another early financial move that new parents should take pertains to health insurance for the baby. This is to take care of any medical exigencies.
A separate individual cover may not be possible for the infant immediately after birth in view of possible medical complications that can arise soon after birth. But the family floater coverage or group health insurance for the parents/family can be extended to cover the toddler, typically after 90 days.
However, some insurers offer coverage for the newborn from day one under the maternity and newborn cover as a benefit or additional cover. In this case, the insurer should be contacted within a week of the baby’s birth.
New parents need to keep at hand the documents that insurers will ask for: birth certificate, maternity discharge card, and the baby’s medical reports (if any). A photo may be required too.
It is natural for young people to believe they will be around for many years. So, it is common for many new parents to question the need for life insurance, especially if one already has a health plan. The Moneylife survey findings confirm this – 33% of those polled did not have basic insurance.
However, one should not lose sight of why life insurance exists; it is designed to financially protect you and your family against worst-case scenarios. Moreover, life insurance for young and healthy adults, specifically term life insurance, is usually very affordable.
The premium may be even less than what one pays to defray the monthly petrol bills. In the bargain, young parents get the financial protection their families need in case of an unexpected tragedy.
The final point on the list is not entirely finance-related, but it’s equally important. For a perfect work-life balance, new parents must divide their leave availability to meet child-related work.
The problem is, India does not have parental leave policy in the true sense of the term. Parental leave mainly comprises paternity leave, maternity leave, adoption leave, and family leave, which is taken for family responsibilities that include taking care of minor children.
There is no provision for paternity leave in the private sector either, though Central Government employees are entitled to it under the Central Civil Services (Leave) Rules, 1972.
On the other hand, the law allows maternity leave for both sectors, on reduced wages if need be, if the applicant has been working as an employee for at least 80 days in the past 12 months. After completion of maternity leave, an employer may permit the woman to work from home, provided the type of work she is engaged in allows this.
These are the only flexible working conditions allowed for to-be, new, or young parents for a better life-work balance; for further flexibility, the husband and wife have to work things out between them.
The parent with more flexibility should take charge of emergencies like a middle-of-the-day doctor or dental appointments. The other parent, because of less flexibility on the work front, can book days off in advance for daycare and teacher appointments.
Reconfirming and adjusting their ideals will help both partners feel they are planning for the future together, making responsibilities seem less onerous and more manageable. Ultimately, the mantra should be to work together, in sync, to meet your goals. Look at these 8 Financial steps to take before you have a child.