How much does it cost to raise a child in New Zealand?

WINTER 2017

By Amy Hamilton-Chadwick, Freelance writer and registered FA

It’s often said that it takes a village to raise a child. From a financial perspective, though, you had better hope the village has a solid investment portfolio. Raising children is a costly exercise, and the more you earn, the more you’re likely to spend.

The hard costs

The hard costs are the actual day-to-day expenses incurred by each child, either directly or as part of the family’s total bills: for example, food, clothing, accommodation costs, education, and healthcare. Australian bank Suncorp found in its 2016 Cost of Kids Report:

• The 9 to 11 age range is the most expensive, followed by ages 6 to 8, then 3 to 5, 12 to 14, and 15 to 17. The under threes were the cheapest.

• The first-born wasn’t the most expensive – parents actually spent more on each child as the family expanded, although housing costs didn’t increase much, which helped to offset the higher spending.

• Food is the biggest expense when it comes to your children.

For most Kiwi families, though, the basics are only part of the story. Optional activities like sports and music lessons add up rapidly, as do additional toys, technology, and sports gear. Then there are family holidays, private schooling, and extra tuition. And do you need a bigger house?

Those discretionary decisions are why there’s a big gap between what various households spend: estimates range from about $150–$450 per child per week, depending on your income. That’s a range of $7,800–$23,400 a year or $140,000–$420,000 across 18 years – plus another $12,000–$20,000 per year if your child attends a private school! And, as many parents discover, if your child stops costing you money at the age of 18, you’re in the minority. Plenty of parents are now assisting children in their thirties into first homes.

An extremely rough estimate

Obviously, you didn’t have kids to turn a profit. You love the expensive little blighters. But what does the average Kiwi kid cost to keep for a month, in hard costs alone? Here’s a very rough estimate, based on numbers from local and Australian research:

Food  $320

Housing and utilities $215

Education (public)  $40

Activities  $60

Holidays $95

Clothing $80

Transport $75

Entertainment $70

Healthcare $60

Pocket money $35

Communication/technology $60

Extra and unexpected costs $50

That’s a total of: $1,160 per month, or $13,920 a year, or $250,560 from birth to age 18.

The ‘Stay-at-Home Parent Penalty’ 

The biggest hidden cost of parenthood is taking time out of the workforce. This can be extremely expensive over the long term, even if in the short term it can seem like it’s a money saver when you weigh up the costs of childcare, transport, clothing, and so on.

Five years out of the workforce, missing out on all the promotional opportunities and additional KiwiSaver contributions and gains that entails, can result in the loss of hundreds of thousands of dollars in income. When you go back into the workforce, you’re often earning less money than when you left, too. This penalty will have an impact on whichever parent takes time out, but some research suggests stay-at-home dads are even harder hit than stay-at-home mums.

The good news

Holy mackerel, there’s got to be an upside, right? Yes, there is. Parents actually earn more than non-parents in New Zealand, according to Statistics New Zealand. One or both working parents may benefit financially, although fathers get a bigger boost.

In other good news, a 2015 Melbourne Institute paper found that children “have a very small impact upon wealth accumulation, seemingly at odds with the large ‘costs’ implied from expenditure-based estimates.” So even if the numbers look huge, over the course of your lifetime, it’s a surprisingly small dent out of your overall wealth.

So, if you are considering having a first child, or adding to your already growing brood, it’s wise to keep the costs in mind – even if the rewards are priceless.

The editorial above reflects the views of the editorial contributor only and content may be out of date. This article is sourced from a previous JUNO issue. JUNO’s content comes from sources that it considers accurate, but we do not guarantee that the content is accurate. Charts are visually indicative only. JUNO does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions

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When is the best time to buy Pet Insurance

You may ask yourself whether you should get pet insurance when you have a kitten or puppy, or wait a while and get it as they are older in life. Although you may think that your puppy or kitten is healthy and unstoppable, they can be susceptible to illnesses and still learning their way around this big world.

Puppy or kitten

Pet insurance for many is the last thing on the mind after bringing home a new pet. You’ve paid for the animal, initial vet costs and vaccinations, microchipping plus all their toys, bedding and food. Many people hold off on purchasing insurance as they cannot afford it immediately.

Puppies and kittens often have very weak and sensitive immune systems and as such more susceptible to illness and disease.  This can turn in to thousands of dollars in vet bills. By paying monthly instalments for pet insurance as soon as you pick up your new furry friend, you can give yourself the peace of mind knowing that they will be covered.

Injuries and illnesses to your pet can come at the worst of times, so if you decide to put aside some money and not get pet insurance, you may be hit earlier than expected and not have enough to cover the treatment bills.

Older dogs and cats

Our pets get more fragile with age and tend to find themselves sick or injured even with the best care. For most, this is the perfect time to have pet insurance, however most companies will not take on a new policy if the pet is over 8 years old – although will continue to cover the pet if the policy was registered before the 8th birthday.

If you do decide to insure your pet in their later years, they may come with pre-existing conditions that can be excluded from your insurance cover. The longer you wait for pet insurance, the higher the chance there is going to be exclusions.

When should I get pet insurance?

Accidents and injuries can happen at any time; with younger animals being prone to injuring themselves while older dogs and cats being more susceptible to illnesses. The perfect time to get pet insurance is when you can’t afford to be paying for any unexpected injury or illness. Although it may seem like an unnecessary expense to some, when you cannot afford an unexpected big expense and don’t want to compromise your pet’s health, pet insurance is the perfect option for you – therefore get it as soon as you can.

If you are keen to look at getting insurance for your beloved cat or dog, then you can either contact us on info@insurenz.co.nz or click on link and get you pet covered ASAP – 1 Cover Pet Insurance

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Will OCR change next week?

The Reserve Bank is expected to leave the official cash rate at 1.75% next week and continue projecting very little increase for the next three years because inflation has slowed in an economy that’s has been on a faster than expected track, BusinessDesk reports.

The Monetary Policy Statement next Thursday will provide a new set of forecasts and adjusted are expected because both the currency and inflation aren’t where the central bank was expecting back in November and Stats NZ has recalculated its measure of gross domestic product for the 2016 and 2017 March years.

The Reserve Bank will also have to consider the deflationary impact of free first-year tertiary education.

Fourth-quarter inflation of 0.1% was a third of the pace the bank forecast in November and the annual rate slipped back to 1.6%, a bigger drop than it expected.

The November MPS didn’t price in a 25 basis point hike until March 2020 and on that basis the RBNZ could be overtaken by the Federal Reserve this year after chair Janet Yellen repeated there would be gradual increases in the federal funds rate, currently in a target range of 1.25% to 1.50%.

The trade-weighted index was recently at 75.02, above the 73.5 level that the RBNZprojected for the first quarter.

Weaker inflation, the higher kiwi and the impact of the government’s tertiary education policies “are likely to see headline inflation retreat towards the lower end of the target band once again,” said ANZ New Zealand senior economist Phil Borkin in a note.

“The RBNZ will be mindful of the potential implications of this for the formation of inflation expectations.”

The ANZ Roy Morgan consumer confidence survey published today shows Kiwis wound back their expectations for inflation in the next two years.

The survey showed a net 3.2% general increase in prices is expected, down from a 3.5% rise seen in the previous month’s survey.

National house price expectations rose to 2.9% from 2.4%.

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Reserve Bank Hold Official Cash Rates

Statement by Reserve Bank Governor Grant Spencer:

The Reserve Bank today left the Official Cash Rate (OCR) unchanged at 1.75 percent.

Global economic growth continues to improve, although inflation and wage outcomes remain subdued. Commodity prices are relatively stable. Bond yields and credit spreads remain low and equity prices are near record levels. Monetary policy remains easy in the advanced economies but is gradually becoming less stimulatory.

The exchange rate has eased since the August Statement and, if sustained, will increase tradables inflation and promote more balanced growth.

GDP in the June quarter grew broadly in line with expectations, following relative weakness in the previous two quarters. Employment growth has been strong and GDP growth is projected to strengthen, with a weaker outlook for housing and construction offset by accommodative monetary policy, the continued high terms of trade, and increased fiscal stimulus.

The Bank has incorporated preliminary estimates of the impact of new government policies in four areas: new government spending; the KiwiBuild programme; tighter visa requirements; and increases in the minimum wage. The impact of these policies remains very uncertain.

House price inflation has moderated due to loan-to-value ratio restrictions, affordability constraints, reduced foreign demand, and a tightening in credit conditions. Low house price inflation is expected to continue, reinforced by new government policies on housing.

Annual CPI inflation was 1.9 percent in September although underlying inflation remains subdued. Non-tradables inflation is moderate but expected to increase gradually as capacity pressures increase. Tradables inflation has increased due to the lower New Zealand dollar and higher oil prices, but is expected to soften in line with projected low global inflation. Overall, CPI inflation is projected to remain near the midpoint of the target range and longer-term inflation expectations are well anchored at 2 percent.

Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.

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12% of Kiwis pay interest on ‘free’ loans

Nearly half of Kiwis have made the most of deferred interest deals to purchase items with what could be called a “free” loan, but consumers are getting caught out by not repaying the loan in time, new research from CreditSimple.co.nz has found.

While most Kiwis paid off the loan within the interest free period, 12% did not complete the payments in time and paid interest on their purchase.  Almost half of those 12%, took more than a year to pay back in full and ended up paying a significantly higher price for the item.

According to CreditSimple.co.nz analysis, 18% of people with a personal loan were overdue on monthly repayments at least once in the past 12 months.

Interest rates charged on store cards can be as high as 26% – higher than credit cards and personal loans from banks, the research showed.

CreditSimple.co.nz spokesperson Hazel Phillips said paying off a hire-purchase interest-free deal on time is doubly positive: borrowers avoid having to pay interest and it can help improve their credit score.

“Young people setting up their first house or flat often lean heavily on credit cards and interest-free deals to buy furniture and appliances. Our own data shows that missing a payment on a finance deal is one of the biggest factors impacting your credit score.”

Phillips said a good credit score is 500 or more on a scale of 0 to 1,000. Falling behind in regular payments soon starts to affect someone’s credit score – a high score means better deals from banks, insurance and utility companies, she said.

“Some people get into the habit of paying as late as they can every time, but that’s not a good strategy. The reality is with banks now reporting ‘positive’ credit behaviour such as paying on time, late payers stand out.

“You may earn a few cents extra interest by delaying bill payments. But it’s just not worth it if it’s wrecking your credit score, as it can affect your ability to get credit down the track, ” she said.

CreditSimple.co.nz said most New Zealanders have a credit score between 400 and 600.

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Travel Insurance – How do you choose?

I recently had a trip to Europe and being in the insurance profession, decided to look at options available for travel insurance.

Like all insurances, there are a number of companies to choose from and they all have slightly different cover options and wordings.

I decided that I would look at 1 Cover Travel Insurance as it looked cost effective and seem to cover what I needed it for. As I said to my wife, you do not know how good they are until you have a claim.

We were travelling to Europe and first flight was to Hong King via an Air NZ flight, which left at midnight. (We have 2 children, it was there first time on a plane and thought the late flight will mean they will be able to sleeep through the flight… we were hoping anyway). The children had fallen asleep (yay!!) when there was an announcement – the plane, was going back to Auckland as the pilot got sick. So after 5-6 hours in the air, we were in Auckland again, (where we started) kids did not want to get up and we had to hand back duty free and go back to check in.

The confusion and chaos when we arrived was crazy, we had no communication from Air NZ and did not know what was happenning and how we were going to get new flights to start our holiday. – my daughter was asleep on the bags, my son was being amazing but extremely tired, never mind us.

We were given a number to call Air NZ to rebook our flight… as you can imagine the lines were busy and 3 hours later nothing – they offered us accomodation at Sky City (back in the city) – at this stage we were at our wits end and so called 1 Cover and asked what our options were, they were friendly and gave us our options.

We made the call to book into the Novotel across the road, luckily they had a day room available. The kids and my wife went to bed, while I called Air NZ to rebook our flight. – Finally after 6 hours, we got a new flight booked that was leaving that night. We slept, had some food and then started the journey again.

Once we got back to NZ, I had kept all the relevant documents like they had said when I originally called and made the claim. 3 days later had confirmation of claim being approved and payment a few days after that. We were happy that we could choose where to stay and they paid for our food and drinks while we were delayed.

I would now use them all the time and am lucky enough to be on their affiliate program and offer travel cover through 1 Cover Travel Insurance – I am not a specialist in the area and still recommend that you find the company that suits you, but if you wish to have a look at cost and options for 1 Cover Travel Insurance, please click logo above or here

 

 

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If you complete your details at the end, you will go in the draw for a $4,000 House of Travel Voucher or one of ten $100 GrabOne Vouchers.

I offer a 30 min free advice session for anyone wanting to learn how to make the most of their KiwiSaver savings.

Get in touch today by emailing or, phoning me on 09 551 3500 and we can set up an appointment.

Please note: The prize draw T&Cs along with a copy of the Product Disclosure Statement can be found at generatekiwisaver.co.nz

Homeowners not losing sleep over interest rate rises, survey shows

A new survey has revealed Kiwi homeowners are largely unfazed about their ability to cope with mortgage rate rises, but they are continuing to find it difficult to curb spending on consumer items.

The nationwide survey by mortgage franchise network New Zealand Home Loans (NZHL) found more than half of respondents (57.6%) were either not concerned or were neutral about the potential for future interest rate increases.

The sentiment comes after the Reserve Bank held the official cash rate (OCR) last month at 1.75%.

Speaking to NZ Adviser, NZHL chief executive Julian Travaglia said although interest rates are slowly going up they are not completely unpredictable like in the past.

“I remember the days when rates were bouncing around like an elephant on a bungee cord,” he says, in contrast to their current slow but steady climb and the Reserve Bank indicating an OCR increase is unlikely any time soon.

“I don’t see the pressures that would require the Reserve Bank to force the OCR up particularly given that the housing market, at least temporarily, seems to be cooling.

“I think has made people a little bit complacent. I think people still don’t really understand that interest rates are by and large driven by off-shore funding costs by the banks as opposed to necessarily the OCR.”

He says mortgage holders should be paying off their debt faster and smarter.

“What we’ve seen from people’s spending habits is that they’ve managed to get themselves a home loan over a long period now when rates go up – when they come off that fixed rate and go on a new one, they can’t suddenly extend their home loan term out to make the payments lower again.

“So it’s going to force people into a position where they’re going to have to either make some reasonable cut backs or they’re going to get into some financial difficulty.”

Despite the view on interest rates, the survey found that homeowners have some areas of spending that don’t feel they have under control, with the biggest problem area of unplanned spending being around consumer items such as household electronics, tools and sports goods where 47% of respondents found difficulty controlling spending and secondly for services like household maintenance at 46%.

Travaglia he is concerned about those who have overextended themselves in the last few years and now tied to a hefty mortgage.

“If they haven’t been paying that off sooner – making hay while the low interest rate sun’s shining – they could find themselves in trouble down the track,” he told NZ Adviser.

The survey respondents consisted of 1,994 NZHL clients.

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RBNZ makes cash rate call

The Reserve Bank of New Zealand has today left the official cash rate unchanged at 1.75%. The result was expected by all 11 economists surveyed by Bloomberg, the majority of whom also forecast the benchmark rate of 1.75% will hold for another year.

The Reserve Bank Governor Graeme Wheeler released the following statement:

Global economic growth has become more broad-based in recent quarters.  However, inflation and wage outcomes remain subdued across the advanced economies, and challenges remain with on-going surplus capacity.  Bond yields are low, credit spreads have narrowed and equity prices are at record levels. Monetary policy is expected to remain stimulatory in the advanced economies, but less so going forward.

The trade-weighted exchange rate has increased since the May Statement, partly in response to a weaker US dollar.  A lower New Zealand dollar is needed to increase tradables inflation and help deliver more balanced growth.

GDP in the March quarter was lower than expected, adding to the softening in growth observed at the end of 2016.  Growth is expected to improve going forward, supported by accommodative monetary policy, strong population growth, an elevated terms of trade, and the fiscal stimulus outlined in Budget 2017.

House price inflation continues to moderate due to loan-to-value ratio restrictions, affordability constraints, and a tightening in credit conditions.  This moderation is expected to persist, although there remains a risk of resurgence in prices given continued strong population growth and resource constraints in the construction sector.

Annual CPI inflation eased in the June quarter, but remains within the target range.  Headline inflation is likely to decline in coming quarters as the effects of higher fuel and food prices dissipate.  The outlook for tradables inflation remains weak.  Non-tradables inflation remains moderate but is expected to increase gradually as capacity pressure increases, bringing headline inflation to the midpoint of the target range over the medium term.  Longer-term inflation expectations remain well anchored at around 2 percent.

Monetary policy will remain accommodative for a considerable period.  Numerous uncertainties remain and policy may need to adjust accordingly.

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Reserve Bank announces cash rate call

The Reserve Bank of New Zealand (RBNZ) has today held the Official Cash Rate at 1.75%.

In a statement by Reserve Bank Governor Graeme Wheeler:

Global economic growth has increased and become more broad-based.  However, major challenges remain with on-going surplus capacity and extensive political uncertainty.

Headline inflation has increased over the past year in several countries, but moderated recently with the fall in energy prices.  Core inflation and long-term bond yields remain low.  Monetary policy is expected to remain stimulatory in the advanced economies, but less so going forward.

The trade-weighted exchange rate has increased by around 3 percent since May, partly in response to higher export prices.  A lower New Zealand dollar would help rebalance the growth outlook towards the tradables sector.

GDP growth in the March quarter was lower than expected, with weaker export volumes and residential construction partially offset by stronger consumption. Nevertheless, the growth outlook remains positive, supported by accommodative monetary policy, strong population growth, and high terms of trade.  Recent changes announced in Budget 2017 should support the outlook for growth.

House price inflation has moderated further, especially in Auckland.  The slowdown in house price inflation partly reflects loan-to-value ratio restrictions, and tighter lending conditions.  This moderation is projected to continue, although there is a risk of resurgence given the on-going imbalance between supply and demand.

The increase in headline inflation in the March quarter was mainly due to higher tradables inflation, particularly petrol and food prices.  These effects are temporary and may lead to some variability in headline inflation.  Non-tradables and wage inflation remain moderate but are expected to increase gradually.

This will bring future headline inflation to the midpoint of the target band over the medium term. Longer-term inflation expectations remain well-anchored at around 2 percent.

Monetary policy will remain accommodative for a considerable period.  Numerous uncertainties remain and policy may need to adjust accordingly.

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