Have a guess…
How much does it cost to raise children in Australia?
According to the 33rd AMP NATSEM report released in 2013, it would cost $812,000 for a typical middle-income family to raise two children in 2012. That's incredible, but not unbelievable.
But what is even more shocking was that the cost had almost doubled to 10 years prior. In fact, it was up 50% since 2007! Education and child care were the fastest-growing costs, but food and transport also sent the cost of having children rocketing higher.
The weekly cost of raising children was highest in the 18-24 age bracket (no surprises there). For low-income families, costs reach as high as 40% of gross weekly income for 18-21-year-olds. As my parents would say, "littlie's have little costs but more of them; the older they get, the costlier they become." Think about all those expensive Barbie dolls, Mariah Carey CDs or Pokemon cards that vanished into toy boxes or garbage bags only to gather dust.
The fact is, it's not cheap to raise kids.
But there are a few tricks that can make life just that little bit easier in later years. One of my favourites involves taking an active approach to yours and your children's savings.
I've spoken to many parents who 'put money away' for their children – that's great.
However, that usually means parking cash in a savings account – which currently earn around 2% interest. After inflation, that money is barely breaking even, from a purchasing power perspective at least.
While it's admirable to put the money away in the first place, the money needs to be put to work. I mean really put to work. Invested in a place that will easily outperform cash accounts and term deposits.
As I wrote this morning, that needn't require you to pile bucket-loads of cash in an 'interest-buster-6000' savings account in 'ShonkyBank.com' — an Australian shares account can be funded with just a few hundred dollars. As an aside, the share market has historically returned more than any other asset class.
So instead of spending $100 on a made-in-China Frozen doll this Christmas, why not buy a $25 made-in-China un-frozen doll, then put the other $75 in a brokerage account which can fund those tiresome teenage years?
Compound magic
If you have a one-year-old and put $75 away each and every birthday and Christmas until they are 18 years of age, compound interest would take your $2,700 in regular deposits to over $7,250 — if you achieve a 10% per year return, which I'll admit isn't always easy.
5 CHEAP stocks I'd buy for my kids
I don't have kids, but when I do, these next five shares are the types of investments I'd like to make, using a simple savings and investment strategy like the one above.
- Retail Food Good Limited (ASX: RFG). The Donut King, Crust Pizza and Gloria Jean's franchise owner has an excellent track record, cheap valuation and dividend to boot.
- Flight Centre Travel Group Ltd (ASX: FLT). Despite a huge cash balance, a growing international franchise and savvy management, Flight Centre shares trade cheaply, in my opinion.
- ResMed Inc. (CHESS) (ASX: RMD). The sleep apnea and respiratory disorders device maker mightn't appear a standout bargain, but if it keeps growing strongly then now may prove to be a good time to fill the stockings with shares.
- Cochlear Ltd (ASX: COH). The world's leader in implantable hearing aid design and development trades on a high price-earnings multiple, but its absolute valuation makes it a buy in my book.
- Computershare Limited (ASX: CPU) is somewhat of a dark horse on this list because its valuation relies somewhat on a 'catalyst'. That catalyst is the USA's Federal Reserve interest rate decision tomorrow. In fact, if the USA and UK central banks start raising interest rates in the near future, Computershare shares could look cheap with retrospect.
Foolish takeaway
When I was younger my uncle told me: "It's not about how much you earn, it's how you spend it." Needless to say, he's now retired comfortably.
So often I see people earn more but spend more.
It's the people who respect their budgets, make plans to reach their goals and put in the work early, who so often go on to live comfortable lives.
