By Paul Menge, Actuarial Specialist at Momentum Investo
Recently Momentum Investo did extensive research into what it costs to raise a child. The numbers were scary, but there is hope. Inflation is the usual killer.
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. 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 preprimary 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. Again, adding swimming lessons or Kumon will add another R136 800 per year. Including the cost of braces, these expenses could be R10 440 per month.
During high school the medical aid will, after inflation, be R3 200 per month, school fees R7 167 per month, and uniforms R6 850 and stationery R6 000 per year. Extra lessons may cost R2 000 per month in 13 years’ time. This comes to R16 667 per month.
And will your child receive a car as a birthday gift when they turn 18? And what will their tertiary education ambitions be?
Currently a three-year BSc degree costs about R55 000 a year. According to StatsSA the 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.
But all is not lost. By showcasing how starting to save early for tertiary education may help a parent, we illustrate the age-old principle that starting early can save you a lot of money:
| When you start saving | Contribution required | Total contributed | Savings to cost of tertiary education (R660 000 minus total contributed) | End goal |
| Now | R870 | R322 000 | R338 000 | R660000 |
| In 6 years’ time (start of primary school) | R2 000 | R413 000 | R247 000 | |
| In 13 years’ time (start of high school) | R8 200 | R558 000 | R102 000 |
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.