The royal family may not have to worry about covering costs during parental leave, but among the rest of us, a survey has discovered that a quarter of parents are turning to credit to cover their leave. This sees new parents rack up an average debt of £2,764 – a stressful amount to add to an already stressful situation.
While most parents make every effort to prepare financially for the drop in income that comes with maternity and/or paternity leave, with 53% putting aside around £3,000 in savings and the same percentage doing whatever they can to clear their debt, the reality can be quite different. The research, conducted by credit report provider Noddle, shows that parents can greatly underestimate the cost.
Their figures show that 25% of respondents under-budgeted by an average of £559 per month, due to a combination of new baby costs and reduced income. As a result, many new parents face money worries as well as the general worries related to being responsible for a tiny human.
This has caused 35% of parents to return to work before they'd planned, and 48% sticking to a very tight budget. Others relied on support from family and friends, while some had to turn to their overdraft or even take out a second job.
With 34% of new parents feeling unprepared for the costs that come with parenthood, Noddle urges people to make financial planning an essential part of preparing for a baby. "Having a child can be one of the most exciting, joyful times in our lives, but financially speaking it may be tough," Jacqueline Dewey, managing director at Noddle, said. "Preparing to go on parental leave is a really busy time, but it's important to do as much budgeting as possible before the baby is born to help reduce any financial anxiety.
"You may choose to use credit as part of your planning, and this can be a good short-term solution. But it should be managed correctly, because otherwise it can affect your credit score and potentially your ability to get credit for larger items as your family grows, such as a new home or bigger car."
For those saving before they greet their new bundle of joy, a top savings account can be a big help. While those already expecting may want a notice account to allow them access on time, those planning for the future could put their round-about £3,000 aside in a fixed rate bond to see their returns grow.
If you do have to turn to credit, be smart about it. This means not only checking your credit rating beforehand, but also looking at the best purchase credit cards to help you make a financially savvy decision.
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