Can You Afford a Baby? NZ's Brutal Truth

A bit of a personnel change

Daniel: Guys, welcome back to the Blueprint Finance Podcast — a place where everyday Kiwis come to learn about their finances. I'm absolutely fizzing about this episode, because we've got a bit of a personnel change. And I don't want Rory to hear this, but it's a bit of an upgrade — in terms of talent and looks. Nah, just joking. We're joined by a couple of important members of the team: our CEO and senior adviser, David, and our Operations Manager, Klara. And the reason for that is we're talking everything babies this episode — everything about your finances, how it changes, what you've got to think about.

Daniel: These two are the perfect people, because we've got one who's just had a baby — Benji's about 18 months old now, Klara?

Klara: That's right.

Daniel: And we've got somebody who doesn't have a baby… yet.

David: Yet. God willing, that'll happen.

Daniel: Exactly. So it's the perfect contrast — the people who are going to take us through all the questions our clients have. How much is it going to cost? Can I even afford to have a baby? Guys, welcome on the show.

David: Thanks for having me.

Klara: Thank you — glad to be here.

Daniel: I'm fizzed because the more I've talked to you two planning this, the more I've realised how much I don't know about the finances. From a mortgage adviser's perspective, all I see is what happens on the serviceability calculator — the childcare killing applications, the dependants, people not going back to work. But it's a lot more than that, and it's more complex. It's also not all doom and gloom, right? So I've got you here to educate me. Treat me like the viewer — and treat me like I'm a dumbass who knows nothing about what's coming.

What a baby actually costs

Daniel: A perfect place to start is where we think we're going to land with costs. From the very beginning — you're thinking about having a baby. The number one thing that changes, other than income, is your household expenses. We've got a list of them here, and I want to understand how it actually affects my bottom line. Say I'm about to have a kid — talk me through it. What are the big ones?

Klara: I kind of split them into your ongoing weekly costs and your one-off, big-ticket items.

David: And we thought we'd ask you how much you reckon each one costs, and see how you go.

Daniel: Mate, don't do that — you're going to make me look like an idiot. Okay, we can do that. Is this based on what you guys actually spent?

Klara: It can be — or a mid-range price range, because the range is huge.

Daniel: We're representing the middle class here. Mid-range. Perfect.

The weekly costs: nappies and formula

Klara: So, Dan — one of the main products you use is nappies. How much do you think one nappy costs?

Daniel: I heard a stat that it's something like 4,000 nappies for a kid.

David: We haven't got there yet — but you're tracking, aye? You've got the clicker going.

Daniel: I'm thinking in packs, because I'm comparing it to toilet paper. Can I do a pack? Say a pack of 30.

Klara: How long do you think that lasts?

Daniel: I want to say four or five days.

Klara: For a newborn, probably. As they get older they use fewer nappies — but they're more expensive per nappy, so the cost stays about the same throughout.

Daniel: So a pack of 30… $20, $25 on the high end?

Klara: It's about 30 cents a nappy. So about $9, $10.

Daniel: So I bought the luxury three-ply!

Klara: You can often find deals, though — your two-for-ones, your bulk supply. So you can get that price down.

Klara: Another one — not everyone needs it, but formula. How much do you think formula would be?

Daniel: I'm comparing it to protein powder — a standard kilo of protein is about 60 bucks. So that's probably the high end.

Klara: I actually didn't use formula, so I can't comment.

Daniel: You're lucky enough not to have used it.

David: We've done it slightly differently. How much do you think you'd use, dollar-wise, per day?

Daniel: Let's say $3 a day.

David: Close. You buy it by the tin.

The big-ticket items

Daniel: Let's go to some big-ticket items — your one-off costs. What's the first thing you think of when you're preparing for a baby?

Daniel: Probably the cot.

Klara: How much do you think a mid-range cot, including a breathable mattress, would cost?

Daniel: The mattress is where they get you, I reckon. I'm going to say $800 to $1,400 for the cot and mattress.

Klara: That would be quite a luxurious cot — but you gave a good range. I reckon a grand would get you both.

Daniel: What about the next item? The pram — and the car seat. We've got to get around.

Daniel: This one's a bit unfair, because I know we were talking about it during your and Ash's pregnancy, so I know how much you spent — and I know it was a higher-end one. I'll say a pram's probably between $600 and $800 for a solid one.

David: That's a solid pram. For us, Ash picked ours up when we'd just done our 12-week scan — very early on. She found an absolute steal on Facebook Marketplace. It retails for about $1,100. She got it for $150.

Daniel: I love this story.

David: And to get the right car seats that fit onto it — it's plug-and-play, in and out of the car, onto the pram — we needed some adapters. It's an Aussie brand, and we don't sell them in New Zealand. We couldn't get them delivered from the Aussie retailer. So she changed her location on Facebook to Sydney for a weekend, used Sydney Marketplace, bought them, and got them sent over.

Daniel: That is insane. And it aligns perfectly with our company values — thriftiness. I can't claim the glory, though. That's all Ash.

David: I'll give you one more. Clothes is a classic — I'll give you just one item: a sleep sack. It's like a big sleeping bag, ties their arms up, keeps them comfy. They're quite thick. How much do you think a standard one costs?

Daniel: Just the fabric — I'll compare it to a really thick, heavy tee. You might get one for 40, 50 bucks. If you're on Facebook Marketplace secondhand, you're robbing someone.

David: You're way under.

Daniel: What do you reckon, Klara?

Klara: At least double — and that's for a very mid-range one. If you think about the amount of fabric, and the safe-sleeping compliance they have to go through to make sure it's suitable for a baby to nod off in, that's why. And it's not just how many you need; they have different ratings. Some are warmer. You need a summer sleep sack and a winter one — different togs. Right now you need one for the day, because it's 20 degrees, but at night you need a very different tog. And you need at least two of each, because there are accidents.

Daniel: This is terrifying.

A bleak picture? Not quite

Daniel: We're painting a pretty bleak picture here. I came into this thinking it'd be a lovely, educational episode, but now it sounds like we're just putting roadblocks in front of future parents.

David: That's exactly what we talked about when we planned it — how overwhelming this stuff is. We've just named three to four grand of fixed costs, and then monthly costs of around 500 bucks easily. For the average household going down to one income, that's pretty scary.

Daniel: But the big thing about finance is that, with a bit of forward thinking, you can manoeuvre yourself. You say, "Yes, we're going to incur these costs — but we're going to make a plan, and we might end up in the same or a better financial position once Mum goes back to work, or just in the future."

David: The one positive thing about the situation is you have at least — I'll say eight months — to prepare. You get a good heads up.

Klara: Unless you discover it pretty late.

Daniel: Touch wood, you get some heads up.

Going down to one income

Daniel: The next thing to address is the change in income position — probably the hardest thing to navigate. Pretty much every household goes down to one income for at least six months. Some take the full year, some take a couple of years. So if you just do the numbers — say you've got a mortgage, maybe a small car payment — the math's not mathing, is it?

David: Often doesn't. Just on your ins and outs, it's not mathing.

Daniel: So talk to us about how you guys approached it. You had the runway, you knew the math wasn't going to math. How did you have that discussion with your partners? What was the plan?

David: It's an ongoing discussion, and for every couple it's completely different. Some have jobs with great maternity cover, some don't have any — so you rely on the government one. The government one's $788 a week for six months, and you only have to work about 10 hours a week for six months within the last year to get it. So a really great way to start is just checking your maternity cover. Ash had a pretty standard one — an 80% top-up — which is fabulous. Shout out to Air New Zealand.

Daniel: Name them. So that made it easier to plan — six months of that. And then the big question mark is what happens next.

David: We're trying to plan for ideally 12 months, and then Ash can make the call and go back to work. So the gap we're bridging — we talked, and worked on saving as much as we could, to afford the one-off costs and then bridge the gap between what we spend, the big mortgage we just took out, and what we're bringing home.

"Save the gap"

Daniel: So you two are a perfect example. New family home — didn't max out, but a good mortgage. And then you have to have that conversation: how are we going to tackle this? You decided to save the gap. That just takes the pressure off.

David: It all happened within a couple of months. We signed for our new house, and we found out we were pregnant. It was a lot of planning and a lot of stress — but save the gap is by far the best way to get started.

Daniel: And, Klara — I have a lot of clients who try to bridge the gap with cashflow instead, which is the most depressing conversation. It's almost impossible when one of the two is off work and is a noticeable breadwinner. So how did you do it?

Klara: Exactly the same. We worked out how much we needed to get by, found out how big the gap was, and put money aside — thought of it as a cushion, so I could be off with the baby a bit longer than the six months. That's basically the key to surviving and not losing your sanity, because you don't want to incur more debt while you're on maternity leave. It's already stressful as it is. Having a baby is great, it's lovely — but it's not a walk in the park, and adding financial pressure can break families.

Klara: So I think saving in advance, putting money away, and not splurging — for at least a year before — because most people know they'll have a baby before they even fall pregnant. Maybe don't splurge on expensive holidays a couple of years out. Slightly change the lifestyle before it happens, so the shock isn't as big.

Daniel: The thing that makes it hardest is the question mark — how much do I actually need? Having that conversation beforehand makes it a lot easier. You can put numbers to it, and it becomes less daunting and more achievable. A lot of the anxiety comes from not knowing. And you don't have to be a financial adviser — I'm not one, and Klara crunched the numbers herself.

Klara: It's quite simple. And an important thing: it's not just the one year after the baby is born, because there are ongoing costs like daycare. You roughly need an extra $500 to $600 a week to sustain having a baby. So if you can't put aside $500 to $600 a week while you're both working, you'll have a really tough time.

Daniel: Something's got to change. That's when you look at the expenses.

Klara: There are a lot of factors — some people have family to help, so childcare won't be as high. Every family's different. But for us, that's about $5–600 a week extra that we need for the baby, even nowadays with childcare.

Daniel: And the great thing is you're back at work now, so that income covers it.

Why both parents working can still make sense

Daniel: Let's talk about childcare, because these bills… I don't want to be negative, but it's something to plan for. I've had customers where, based on their income levels, it makes more financial sense for Mum or Dad to stay home than to go to work, because childcare in certain areas is just outrageous. Especially for people with multiple kids.

Klara: When a family has two or three kids, the cost of childcare times three can easily be one full-time salary. So then it does make sense to stay home. But if you have one, and you're on a decent salary, it probably still makes more sense to go to work. It really depends on everybody's situation.

Daniel: And a lot of people want to keep their career going — it's fulfilling. Not saying being a parent isn't fulfilling — but you can have both.

Klara: Exactly my point. I was actually looking forward to going back to work. When I was interviewing you guys—

Daniel: Oh, you were interviewing us? I didn't know that.

Klara: —I was in the second half of my maternity leave, and I told you even back then that I was looking forward to going back to the workforce. That wasn't a lie just to get the job. I'm a full-time working mum with a child in daycare full-time, and I enjoy it — because let me tell you, it's not easy to care for a child at home. And from a financial perspective: if I worked three days a week and sent my child to daycare three days, yes, I'd save some money on daycare, but it's nowhere near how much I earn in those two days. Plus I like my job, so it's a no-brainer for me. But it's very different for others — some don't like their job, or earn minimum wage, and for them it doesn't make as much sense. Or they've got family around, so they don't have the childcare cost.

The childcare scramble

David: We're obviously not at the childcare stage — we're eight weeks in — but I had a hot tip from Ash, our remote correspondent. You need to be looking at childcare centres 12 months before you want to use them. As soon as they're born, basically — because they fill up.

Daniel: Wow.

David: There'd be a handful of centres around where we live. You vet them, only a few make the grade, and then you have to book in a good time ahead — they absolutely fill up.

Daniel: And I hear they're pretty ruthless — from your stories, Klara, and from other parents. If your kid has a temperature, they hit them with the temperature gun, and they're banned for a couple of days until it's back down. And you pay the whole time.

David: You didn't even know this.

Daniel: No! So what do you do? Someone's got to go home.

Klara: If you're lucky like I am and can work from home when my child is sick, it's kind of resolved. But if you've got two people in jobs where you can't work from home, one of them has to take a sick day, a day of leave, or unpaid leave. It depends on the sick-leave policy.

Daniel: I haven't often looked at the sick-leave policy when reading a contract, but that makes a lot of sense — you can take sick leave to care for someone.

Mortgages and maternity leave: what's changed

Daniel: This is a great chance to tie it back to what we do, because there are some massive changes in mortgage applications around pregnancy and maternity leave. When we first started in the industry, if you were going on maternity leave, that was pretty much a deal killer. You'd have to wait until the kid was out and Mum was back at work.

David: Long time to wait.

Daniel: Very long time — and you're putting yourselves backwards, not getting settled into a house. But now, if you can prove you've got that baby buffer, and maybe an indicative return-to-work letter — even if it's 12 months in the future — and you can show, "Hey, we can actually manage financially to get to this point," the bank will approve your loan. A good mortgage broker can help you with that. They'll understand: okay, they've got 30, 40K in savings, Mum or Dad's going back to work in 12 months, these numbers work now. Whereas previously you had to wait until Mum was fully back at work — they wouldn't use the income until two or three months out.

David: They just looked at one income.

Daniel: So that's been a massive, positive change. It feels like the banks are treating things more like real life. People are going to make their mortgage — if you can see they've got good account conduct, they're going to make their mortgage.

Hot tips

Daniel: Any last hot tips for those in this stage — the ones who are expecting?

David: For me specifically — Ash knows a lot about this stuff. She's a nurse, so she has a bit more knowledge, and she does a lot of research. So for me it was a lot of listening, watching how things are done. The biggest part of having a kid is you as a couple and how you go through it. We've had our disagreements, our bouts, but it's about listening to each other and working through those points. There's a lot of the last eight weeks — and a few months to come — where I can't do much for her. So just watching what she's going through and supporting her in the areas I can — that's probably the big tip.

Daniel: That's incredibly wise. How about you, Klara?

Klara: I've got a very practical tip: never say no to any hand-me-downs. I've had people say, "Oh, no, I don't need them," but you end up saving thousands of dollars. Just getting a cot from a friend saved us a good $500. The amount of clothes you can get given — you think, that's $10 here, $10 there, but if you think about the cost of a whole box of clothes, it's so much money. So talk to people, talk to friends, show interest in their stuff.

Klara: And even with family — when they ask what you want for a birthday or Christmas, you're already expecting, so ask them to get you something for the baby. Say you like a carrier — get your family to buy it as a gift. It doesn't matter that it's six months before; surely you need the carrier more than another piece of jewellery. When you accumulate all these little ideas, you can save thousands.

Daniel: The way Klara said that made it sound like this could be a profitable thing!

Klara: It almost can be. Another tip is to buy stuff on sale if you can. We bought a co-sleeper — a type of cot you need at the first stage. The original price was $500. We bought it for $250 — and then I sold it on Marketplace for $250. So it ended up costing us nothing.

Daniel: Flipping! Like a property. Refer to our property-flipping episode.

Klara: So you can save a lot just by being a bit thrifty. And don't shove the stuff you don't need anymore in the garage thinking, "Maybe for the second child." Sell it straight away while it's fresh, and you recoup a lot of your money.

Daniel: You can also look out for the Farmers sales, and there's a baby show that happens all over the country.

Klara: And a lot of stores do deals after the baby show. So you can get a great deal if you go in — but you can also find great deals after.

Daniel: Geez, you're giving me all these good tips. I wish I was sitting with Brina right now — I'd be so ready.

A privilege, not an investment

Daniel: Hopefully this ends up being a positive thing, after a pretty doom-and-gloom start with all these bills. It's a good time to reflect — it's not a financial investment, so you can't really gauge it like one. You've just got to say, "This is part of what we do. This is the reason we're here — to carry on the next generation." And be happy about it. It's a privilege to buy the nappies.

David: Exactly. And one day you might get a return on your investment — if the kid's a sports athlete, or an entertainer…

Daniel: Or a future mortgage adviser. The next little Warren Buffett. No, that's awesome, guys. Thank you so much for coming on and sharing your learnings.

David: Thanks for having us.

Klara: Thank you very much.

Daniel: Cheers, guys. Enjoyed it.