From Bump to Baby: Preparing Your Finances for Parenthood

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This podcast contains general information and is not personal financial advice. Tax rules and government benefits can change, and benefits depend on individual circumstances. Eligibility for childcare support, Child Benefit and other government schemes may vary depending on personal circumstances and income. Pension and tax planning considerations discussed may not be suitable for everyone. Pension money can't normally be accessed until 55. Rising to 57 in 2028. Investments can fall as well as rise in value, so you could get back less than you invest.

Full podcast episode transcript

Helen

Hello and welcome to the Switch Your Money on podcast from Hargreaves Lansdown. I’m Helen Morrissey Head of Retirement Analysis.

Clare

And I'm Clare Stinton Senior Personal Finance Analyst. Hello.

Helen

Hello. And we're going to be discussing a topic that is very close to home for you today, aren't we, Clare? One that you're very much living with right now.

Clare

We are. So, this episode will be my last for a little while, because I'll be going off on maternity leave very soon. So, today's episode is fittingly titled From Bump to Baby. People say babies change everything and they really aren't lying. So, they change your house, your routines, eating habits, the way you shop. I found myself venturing down new aisles at the supermarket and our spare room has disappeared under a pile of tiny clothes and baby gear. And this is all before they've arrived in the world. But one of the biggest changes, and one that I don't think we talk about enough, is how children change your finances. So that's what we're going to be talking about today.

Helen

Yes, we're going to spend the next 25 minutes or so looking at the financial side of becoming a parent, discussing how parents to be can build their financial resilience and the money moves to make. If you're planning, expecting or have a little one. The financial impact is far reaching from changes in income. Your budget needs to absorb new daily expenses, from nappies to nursery. Your financial security and insurance needs may also change. And today, Clare, you're not just speaking as a personal finance expert, but as someone who's navigating all of this yourself for the first time.

Clare

That's right. So, we've all heard that children are expensive, and it really dawns on you when you start looking into prams, car seats, not to mention the nursery costs. But there is a lot of support out there, particularly when it comes to childcare, so we're going to cover that as well. It has been an eye opening few months, and even for someone who's worked in finance for the last ten years or so, there's quite a bit for expectant parents to get their heads around. And at a time when it's all change. So, Helen, as with lots of things we discuss, there is so much power in planning ahead. So, my first tip is to understand your position early. Have the financial discussions with any partner early ahead of your baby's arrival. Everything is going to be so much easier to think through if you've had more than 3 or 4 hours sleep.

Helen

I can well imagine so let's start there. If someone is planning for a baby, what are the big financial conversations that they should be having?

Clare

I think that's a really good question. And it is the real common-sense stuff. So how will life work if you have a baby? So, for instance, if you have a partner, who will take time off and how long for? Is shared parental leave an option and one you'd want to take up? For many people, having a baby does mean a drop in income, and sometimes it can be a substantial drop in income and that could be the result of reduced pay. But it could also be the length of time that you want to take off work. So, for example, you might find that if you want to take a full year, you have paid benefits with your employer for, say, half of that time and then the other half might be unpaid. So, step one is really understanding what you're entitled to. If you're employed, what's your maternity leave policy? If you have a partner, what's their maternity or paternity leave? Is there an enhanced offering on top of statutory maternity pay? Every employer is different, so once you know, you can begin to understand the impact on your household finances.

Helen

So, it's really about understanding what your new financial picture could look like. What does statutory maternity pay provide?

Clare

Yeah. So statutory maternity pay is paid for up to 39 weeks. And it's at a rate of 90% of your average weekly earnings for the first six weeks. And then after that you receive the lower of £194.32 per week, or 90% of your weekly pay. So, at the moment, you and your partner might split bills down the middle, but it's a consideration whether that would still work if one of your incomes drops considerably. And actually, if it does, is that fair? It could mean that one person is having to drain their savings in order to meet their share of the bills when their income drops. When in reality, you know they're staying at home, they're just doing a different type of unpaid work.

Helen

And while we're on the topic of employer maternity benefits, it is worth highlighting the rules around pensions. Women often think that they need to drop or pause contributions because money feels tighter, but this could prove costly in the long run. Actually, it can be one of the worst times to stop. During paid maternity leave employers are generally required to maintain pension contributions at pre maternity level. Your own contributions may drop based on your reduced pay, but your employer contributions should continue at the higher level. And if your employer uses salary sacrifice, there's even more incentive to keep up your contributions because your employer not only has to continue to pay their pre maternity contribution, but they must also make up yours, at the pre maternity level, if your income is to plunge.

Clare

Yeah, that's a really good point, Helen. And I think it's something that really flies under the radar. I've had so many conversations with women over the years who assume that they need to drop or stop contributions, and there's a big opportunity cost of stopping or dropping contributions. And that's because if you stop or drop, actually, it can mean your employer can follow suit and that means less money going into your pension. That, of course, has a knock-on impact for compounding, where you can earn returns on past returns over the years before your retirement. So, it is important to consider whether you can keep and maintain those contributions. It's likely to cost you a lot less than you think it will. It's also worth taking the time to check your payslips when you're on maternity leave, to ensure that your maternity benefits are being treated correctly. Payroll errors can happen, and the earlier that they are spotted, generally the easier they will be to resolve.

Helen

So, circling back to statutory maternity pay, that's something facilitated and paid for by employers, isn't it? So, what about if you’re self-employed?

Clare

Great question. So, if you're self-employed, you can apply for something called maternity allowance. If you're eligible, you can get somewhere between £27 to £194.32 a week for up to 39 weeks. How much you received will depend on your National Insurance record, and you can apply once you've passed your 26th week of pregnancy.

Helen

So even with maternity support, often it is a case that families experience a drop in income at the exact same time that their costs are rising. Is there anything people can do in advance to prepare?

Clare

Absolutely. So, I mean, a baby is going to impact your day-to-day costs and your long-term finances. Some costs are obvious - adding nappies and formula to your weekly shop. I mean, one NCT statistic that really blew my mind is that newborns get through around 2,000 nappies in the first year alone, so do run the maths. What do the additional costs mean for your budget, for your weekly shop? Do you have the headroom to absorb the costs? And if not, can you go back to your budget and identify areas where you could cut back to plug that gap?

Helen

That is truly an astounding stat, Clare. 2,000 nappies in the first year. That's amazing.

Clare

It sounds like a busy year.

Helen

It really does. So, reviewing your budget for flexibility is generally a good exercise, even if you're not adding to your family. It means that should you get an unexpected cost or bill rise; you can adapt quickly. We said that it is an expensive time, but research by the Child Poverty Action Group have tried to put a figure on it, putting the cost of raising a child to the age of 18. So basic needs at £250,000 for a couple. This rises to £290,000 for a single person.

Clare

I mean, those are pretty staggering figures, aren't they? We are talking mortgage sized sums of money, and it comes with the same long-term commitment too. Which is why if having children is on the cards for you, before they arrive, boosting your savings, so a baby buffer, in preparation is smart play. In the months leading up to maternity leave, some couples may choose to both contribute to a savings pot, and that is a dedicated pot for the parent who takes time off work. So, I like to think of it as a bit of a maternity fun fund. And I've had friends say that this has actually made a really big difference for them, particularly those used to earning and having their own money. It means that they don't have to ask their partner or explain a card transaction every time they want to buy something for themselves, and that's whether it's jeans, because, you know, their body shape has changed again. Or if it's about going for lunch with an NCT friend, it means they still have their own money. And this is really importantly allows the stay-at-home parent to maintain some independence.

Helen

I really like that idea, and I think it's really good to remember the emotional side of this huge period of change, as well as the financial realities. Changing expenses means that it's probably time to review your emergency fund, I would imagine as well.

Clare

Definitely. So, a change in your everyday costs should prompt you to review your emergency fund. Again, it's not an exercise isolated to when you're adding to your family. It's generally just good practice for any life event. The question you need to answer is will the money you have tucked away still cover 3 to 6 months of your essential spending? You might also find where you feel comfortable sitting on that 3 to 6 months spectrum may change when you have a tiny new member of the family depending on you, so previously you could have sat closer to three months of essential spending. But now, for peace of mind, you may want to move that saving style closer to six months to give you that bigger buffer.

Helen

And of course, while that money is sitting, waiting to be used, making sure that it's earning a decent interest rate is crucial. This usually means looking beyond your current account and shopping around. Inflation beating interest rates are available to make sure that your hard-earned cash retains its value until you're ready to spend it. We did the Saving Special where we covered this in a lot more detail, so do go back and check that out. One thing that savings may be useful when expecting is to buy all that baby gear. We've chatted in recent months about the shopping list that just keeps growing, haven't we? Do you have any tips for parents to be on how they can get everything they need without having to spend a fortune?

Clare

Yeah. So, for someone so tiny, they sure do need a lot. So, I've found friends and family who've already had children to be incredibly generous and keen to pass things on. I'd go as far as to say that some people were delighted to pass things on, and I think there's a bit of camaraderie around just how quickly the costs can add up for new parents. But I also suspect that 1 or 2 were also keen to move things on and declutter the house because, as we said, there is a lot of stuff. And because babies grow so quickly for lots of things, buying second hand makes good financial sense. The second-hand market is booming, meaning that you can save a significant amount of money by looking on second hand websites. So, prams, cots, changing tables, baby carriers, clothes, you can save hundreds if not thousands of pounds by being thrifty. I mean, we got a wooden changing table that looks nearly new from a lovely family for just £15. I think it retailed for something like £200 and our cot cost us £150, but retails for around £450, so there are big savings to be had. Vinted, Facebook Marketplace, local parents’ groups are all packed with bargains that have only been used for a matter of months before they're no longer needed, or they've been outgrown. And if you're lucky, you can even get your hands on some brand-new items, so that's often the result of duplicate baby shower gifts or spares that have been bought for grandparents that were never used.

Helen

Sounds like an absolute gold mine for beginners there, Clare. We’ve spent a lot of time talking about the expense, but there's also financial support out there for parents, isn't there? So, government initiatives like Child Benefit could put a bit of money back in parents’ pockets.

Clare

That's right. So, if eligible, child benefit is available from the day your child is born, right up until they turn 16, possibly later if your child stays in approved education. So, what does it offer? So, for this tax year 2026/27, parents can receive £27.05 a week for their first child and then £17.90 per week for any additional children after that. So, it's around 90% of eligible parents that claim child benefit. So pretty high take up rates, but still a few missing out. However, this does drop to just 70% of newborn parents claiming it within the first year. I imagine that's because life is incredibly busy and they have a lot going on, but it's really important as it could be worth as much as £1,400 a year if it's your first child. Now, child benefit isn't automatic. You do have to apply. And for families with more than one child, it's worth pointing out that you do need to complete an application for each child.

Helen

And there are high income limits though, so eligibility is lost if either parent has an adjusted net income of £60,000 per year. This means that part of the benefit will have to be paid back at a rate of 1% for every £200 earned over £60,000 per year. So, by the time you get to £80,000 per year, the benefit is fully lost.

Clare

That's right. But this is where your pension can save the day or save your child benefit.

Helen

That's right, your pension can help you claw back access to child benefit, because paying into your pension can reduce your adjusted net income. For example, if your income for the year was £70,000, paying £11,000 into your pension will bring your adjusted net income below the £60,000 threshold to £59,000. That would enable you to claw back the child benefit.

Clare

Pension planning in this way means that you're getting your pension to work double time for multiple benefits, so regaining access to your child benefit, as well as the tax efficiency of paying into your pension, whereby you’re effectively redirecting the tax and putting it into a pot for your future, boosting your retirement outlook.

Helen

Exactly. So, let's fast forward a year or so down the line. The baby is a little bit older. Parents are returning to work. What childcare help might be available?

Clare

So, there's two key schemes I'd like to highlight. So up first is the 30 hours of free childcare per week during term time. So, this actually works out to be around 22 hours per week because most nurseries are open all year round. So, the hours are actually spread across 52 weeks a year rather than the 38 like schools. Eligible parents can access up to 30 hours of free childcare for a child aged nine months, up to four years, so this can be a real game changer for parents that are looking to return to work. Now, it might sound a little strange that you need to go and view nurseries when your baby is still in the womb, but it turns out its actually very standard practice. The scheme means that the demand for nursery places are very high. There's often a wait list. I mean, some city nurseries are actually taking deposits and paperwork off parents who are yet to conceive. So really, do go and view those nurseries as soon as possible. Plus, it will be really valuable in understanding actually what you can afford and how many days you're likely to put your child in nursery, before any discussions that you have with your employer, who will want to understand what your return to work might look like, and therefore, knowing about those costs can really aid those discussions.

Helen

So that is really, really important for parents, as you say, looking to return to work. And next I think you're going to discuss tax free childcare, which I believe can be used alongside the 30 free hours to plug any additional childcare needs. Is that right?

Clare

That's right. So, this is called tax free childcare. It's not the most self-explanatory named initiative. So, the way to think of it really is a savings account that both you and the government pay into. So once set up for every £8 you pay in, you get a £2 top up from the government. And that's money that you're putting aside to use for any extra childcare costs. So, as you said, Helen, that can be used in addition and alongside the 30 free hours. So, the maximum available top up is £500 per child every three months, meaning there's £2,000 a year from the government up for grabs. That does rise to £1,000 every three months if your child is disabled. So, meaning there's up to £4,000 a year from the government up for grabs. Now your childcare provider must be signed up to the tax-free childcare scheme. So, before you apply, do check with your provider that they're already signed up, and they would accept that form of payment. Again, there are income limits restricting eligibility for both of these initiatives. So, if either partner earns over £100,000 you lose eligibility. And again, this is where your pension can come to the rescue. Contributing to your pension can reduce your adjusted net income below that £100,000 threshold and restore your eligibility. And by doing that, in the case of the 30 free hours of childcare, it is quite literally worth thousands of pounds a year.

Helen

It's another reason why pension planning shouldn't be viewed in isolation, but as part of wider long term financial planning discussions, as they do unlock those other benefits too. More information on how to apply for both the 30 free hours and tax-free childcare can be found on the Money Helper website. So, any final thoughts from you, Clare, before we wrap up?

Clare

So, something that often gets overlooked is updating your plan B, so planning for the worst-case scenario. And I know it's something that a lot of us don't want to think about, but your plan B does need to grow with you as your family does. So, someone will be depending on you, and having a financial dependent is a key trigger to check your financial security net. So alongside thinking about who perhaps would be your child's legal guardian should the worst happen, you should also review your existing insurance policies. Make sure that you have got insurance in place so that any family members would be financially secure. Life insurance is usually the big one that people think about and look to put in place, if they don't already have it.

Helen

A good starting place can be to review what workplace benefits you and your partner have. For instance, if your employer offers life insurance, do you need any additional cover or private medical insurance? You might be able to add your baby to the policy from day one. Some changes may simply be admin like adding your new child to your beneficiaries list. That's all for this week. But before we go, we should remind you that this was recorded on the 30th of June 2026 and all information was correct at the time of recording.

Clare

Yes. So, this is my last episode for a little while, but you'll be in fabulous hands with Helen and her new co-host. I will see you all in 2027. Next week Anna Macdonald and Matt Britzman will be back with an investment episode. Pension money can't normally be accessed until 55. Rising to 57 in 2028.

Helen

Nothing in this podcast is personal advice. If you're unsure about what's right for you and your circumstances, you should seek advice. Tax rules can change and benefits will depend on individual circumstances.

Clare

Over five years or more investing typically offers better return than cash savings, but investments go up and down in value so you could get back less than you put in. So, all that's left is for us to thank our producer, Elizabeth Hotson.

Helen

And also, for me to wish you the very, very best of luck with the new baby, Clare. And I'd like to thank you all very much for tuning in today, and we will be back again soon. Goodbye.

Clare

Thanks, Helen. I think I'll need it. Goodbye.