The decision to have a baby is undoubtedly one of the biggest you’ll make in your lifetime. However, unlike other important decisions — such as your choice of career or where to live — this one is often based on emotion. For example, you may find yourself wondering, “Will I be a good parent?” more frequently than, “What will I do for childcare?”
Here’s one question you may not have spent too much time pondering: How will you afford this new baby?
Many of us make detailed plans for the important milestones in our lives. Whether it’s buying a house or reaching retirement, we typically sort through our finances well before we take a big leap. Similarly, when it comes to having a baby, considering some of the practical matters can be very useful — kind of like making sure you’ve checked the pantry for sugar before baking a cake.
According to a 2013 TD Economics study, the cost of raising a child can easily exceed $233,000, or about $13,000 every year. 1 If we factor in inflation, it’s now likely around $14,000–$15,000 a year. Understanding where those numbers come from and how they can affect your finances can be an important step as you prepare for this next stage of life.
We spoke to veteran parents about their own baby finances and how others might prepare for the arrival of their first child (or second). Here’s what they shared:
You may not need as much new stuff as you think
The internet is filled with parenting advice. From which travel stroller to buy to whether or not you should swaddle your newborn, it seems like everyone has an opinion. As you get ready for your bundle of joy, you may feel overwhelmed by the sheer number of products available. Do you really need it all?
According to the parents we spoke to, the answer is a definite no. “The social media mom is such a thing these days,” says Lindsay, a 33-year-old Toronto mother. “And a lot of the trendiest products are marketed as extra safe, so it can be really tempting.” Lindsay says that talking to mothers she knew personally helped a lot: “While I can’t say I beat the system for every single purchase, getting advice from parents who had actually been through it helped me avoid the worst of it.”
For the stuff you do need, our veteran parents agreed that buying second-hand is often a good option, particularly for big-ticket items like a stroller or rocking chair. Another option might be to borrow from friends or family.
Get ready for a financial squeeze
Most Canadians can expect some degree of financial support from the government during that first year of parenthood. The federal Employment Insurance (EI) program provides maternity and parental benefits of up to 55% of your current salary for 12 months (to a maximum of $650 weekly), or up to 33% if you choose to take 18 months ($390 weekly maximum). While this support is more generous than what is offered in many countries, parental leave may mean a substantial cut to your household income.
Here’s something else to consider: While big purchases are usually made prior to baby’s arrival, there are many smaller, regular expenses that occur after birth. And these expenses can add up quickly. David, whose son is now 12 years old, says: “Seeing the hit to our finances during mat leave was a big surprise. And the expenses we felt the most were the little reoccurring things. Like, diapers three times a week. Bottles. Formula.”
To minimize the shock, it can help to create a budget and practice living on a lower income in the months before your child is born. You may even find opportunities to cut back on discretionary spending along the way.
Keep saving, even when it’s tight
While it may feel challenging at times, saving money where possible can help keep your long-term goals on track and provide a cushion in tough times. After all, the financial responsibility tied to parenthood isn’t limited to just the first few years. According to one Ipsos survey, only 29% of Canadian parents consider their household to be in “excellent” or “good” financial standing. 2 In other words, you’ll likely feel “crunched” for years to come. If you stop saving now, who knows when you’ll start again?
Despite feeling squeezed in those early years, David says he’s happy he and his wife continued to save and invest: “We never stopped contributing to our RRSP [Registered Retirement Savings Plan] and we never stopped contributing to our TFSA [Tax-Free Savings Account].” David attributes this good habit to a “set it and forget it” method of saving — essentially, setting up automatic deductions and timing them to match your payday. Even if you’re only able to save or invest a little, your savings will grow over time with the help of compound interest.
The end result? David conducted a deep dive into his family’s finances several years later to find that he and his wife were much better off than they thought they were. “Even though we still felt broke, our TFSA was healthy and our RRSP was in good shape.”
Take advantage of government programs
In addition to parental leave benefits, the federal government also provides the Canada Child Benefit (CCB), a tax-free monthly payment to help with the cost of raising children. How much you receive will depend on your marital status, how many children you have, their ages and your income — but the benefit could be up to several hundred dollars a month. The CCB also includes the child disability benefit and related provincial and territorial programs. To learn more about the program and how to apply, visit the Canada Revenue Agency website.
Another program parents may want to consider is the Registered Education Savings Plan, or RESP, which encourages tax-free savings for post-secondary education. As part of the program, the Canada Education Savings Grant provides a matching contribution of 20% on the first $2,500 of annual deposits. More information can be found here.
Think about childcare early on
One of the biggest expenses you’ll face begins the day you return to work: daycare. And although the federal government’s recent commitment to $10-a-day childcare has reduced fees in many provinces considerably, the cost is still substantial. Prior to the program’s introduction, parents in major cities paid an average of $2,029 per month, per child. 3 That’s $24,348 a year, just for childcare! Now, it’s often closer to $1,200 monthly.
For Carly, a 32-year-old mother from Kamloops, British Columbia, going back to work just to keep up with the high cost of childcare didn’t make sense. “I thought if I go back to work, I’ll be sacrificing time with my family just to put my child in someone else’s care and pay them what essentially amounts to my whole pay cheque,” she says. Instead, after running the numbers, Carly and her husband decided it made sense for Carly to stay at home with their son.
Although the rise of hybrid work and the new childcare subsidy have allowed many more parents to re-enter the workforce, the availability of childcare remains a challenge. To help secure a spot, Lindsay suggests parents register early for multiple daycare waitlists. “We applied to about a dozen daycares soon after I found out I was pregnant,” she says. “Luckily a spot came up shortly before our daughter turned one.”
For those who can afford it, hiring a nanny is another option. While it may be more expensive, having a nanny could mean less of a commute each day (to-and-from daycare) and perhaps even extra help around the house.
Plan for the unexpected
Despite best efforts, unwelcome surprises can and do happen. Having an emergency fund available and an up-to-date Will is a good start. Parents who wish to have emergency funds easily accessible may opt for a TFSA or high-interest savings account.
Having a baby can be tough on your finances. But expanding your family is also immensely rewarding and something that many Canadians will choose to do despite the costs. As David says, “You do watch some things disappear from your budget. We didn’t really see a movie for the first few years, and we took bare-bones vacations. But kids are also really entertaining, so you spend a lot more weekends visiting family and just staring at your child, watching them grow.”
As far as the added expense, the key may be prioritizing what is necessary over what is not. “Ultimately, babies need very little at the beginning. They need somewhere to sleep, something to eat and parents who love them,” says Lindsay. “So, if you think about it that way, I think you can really pare down your expenses.”
- “Growing children may mean growing bills, but saving early on can keep them in check,” TD Economics, November 5, 2013, https://td.mediaroom.com/2013-11-05-Growing-children-may-mean-growing-bills-but-saving-early-can-keep-them-in-check. ↩
- “Worried you’re not setting a healthy financial example for your kids? You’re not alone,” TD Stories, October 29, 2021, https://stories.td.com/ca/en/article/worried-youre-not-setting-a-healthy-financial-example-for-your-kids. ↩
- “The space between us,” TD Economics, June 20, 2023, https://economics.td.com/ca-space-between-us. ↩