Prior to the arrival of my daughter, I frequently pondered the question of how much it truly costs to raise a child in Canada, often discussing this with friends. Most estimates suggest that the annual expense for raising a child in Canada hovers between $10,000 and $15,000 until they reach the age of 18. While this figure seemed somewhat exaggerated at the time, I used it as a ballpark during my reflections.
The truth is that many middle-income families are finding it increasingly challenging to raise children in Canada due to skyrocketing living expenses in several urban areas. Typically, rent or mortgage payments represent the largest portion of household expenses for families.
The purpose of this article is to outline average expenditures that new parents in Canada can anticipate. While these estimates largely pertain to Canadian families, some may resonate with American parents as well. Whether you are already a parent or contemplating starting a family, here are several key expenses to take into account when raising a child.
Housing costs
A crucial expense many overlook when budgeting for a baby is housing. Whether you rent or pay a mortgage, the associated costs can vary greatly depending on location. In large cities like Toronto and Vancouver, housing costs can be particularly high. If you choose to reside in rural or smaller urban areas, you may find lower housing expenses but could face increased costs in other areas.
Housing is a constant concern. As families expand, they often require more space, which generally leads to higher housing costs. Additionally, relocating comes with its own set of expenses, as well as potential increases in utility bills.
Maternity employment insurance
Maternity leave in Canada allows for up to 15 weeks of paid leave, which can be taken during pregnancy or after childbirth. Following maternity leave, parents can access standard parental leave for an additional 40 weeks or extend it to 69 weeks. During this period, your job is protected, and some employers may offer a top-up, although this isn’t always guaranteed. Employment Insurance provides 55% of your weekly earnings, capped at a maximum of $650 per week.
For those opting for extended leave, the income replacement drops to 33%, with a maximum payout of $390 per week, applicable if your salary meets or exceeds $61,500. Additionally, the income received is taxable.
Couples often stagger their leaves, but simultaneous leave is an option. The parent with better benefits may take longer time off, though it can be challenging to communicate that to the mother who just gave birth.
Start-up costs
New parents tend to experience significant expenses upon the arrival of their first child. While costs can differ from family to family, essential items typically include:
- Car seat
- Crib
- Formula
- Stroller
- High chair
- Childcare costs
- Diapers
Even after children graduate from daycare and outgrow diapers, new expenses will continue to emerge, such as school supplies, extracurricular activities, summer camps, braces, personal care items, and uncovered health expenses.
Raising children can be costly, but it’s worth noting that not everything needs to be purchased new. Many items can be found second-hand, which can significantly reduce overall costs. Keep in mind that infants won’t mind wearing gently used clothing.
Additionally, if you maintain your children’s belongings in good condition, you can sell them later and further lower your total expenses.
Child care costs
Childcare expenses vary significantly based on location. In major cities, licensed daycare could reach up to $2,000 per month. Alternatively, unlicensed home care may offer a more affordable option. Be aware that costs can increase depending on your child’s age, and daycare spots are limited, so consider registering your child for a waiting list as early as possible.
Given the high price of childcare, it may be worthwhile for one parent to remain at home for an extended period. A helpful article by MoneySense discusses how to locate and finance childcare. My wife and I visited nearly a dozen daycare facilities before finding one that suited our needs, and we were fortunate that our first choice had openings when necessary.
In Canada, some facilities offer $10-a-day daycare, though availability is limited, and they often come with extensive waiting lists.
Other childcare options such as nannies and private schools are also worth contemplating. Nanny services can be pricier, especially if you choose a live-in arrangement, while private schools can include before-and-after school care in their tuition fees. Regardless of your choice, childcare costs can accumulate quickly.
Life insurance
Once you have dependents, obtaining life insurance becomes essential for Canadians. Our children rely on our financial support, so securing a policy ensures they have sufficient funds until they can sustain themselves as adults.
For younger and healthier individuals, term life insurance is quite affordable, typically around $25-40 monthly. It’s advisable to select a coverage amount sufficient to cover funeral expenses, remaining mortgage balances, and education costs. Life insurance can easily be set up online through services like PolicyMe, which also provides access to licensed advisors without the necessity of face-to-face meetings.
While discussing end-of-life matters may be uncomfortable, don’t forget to establish a will. Many individuals still opt for legal services to draft their wills, though these can be costly. DIY will kits are available, but a cost-effective alternative is Willful. With Willful, you can create a legally binding will online for a one-time fee, which includes unlimited free updates. This platform makes will creation straightforward and budget-friendly. You can use my Willful affiliate link and apply the promo code MONEYWEHAVE15 for a $15 discount on your will.
Registered Education Savings Plan
While establishing an RESP is not compulsory, I view it as a vital expense when raising a child in Canada. Each year, you can receive a free $500 through the Canadian Education Savings Grant, which matches 20% of the first $2,500 saved annually until your child turns 17, with a lifetime cap of $7,200 per child. While contributions aren’t tax-deductible, any growth in the account is taxed in the child’s name when withdrawn, which typically means a lower tax burden.
Families with lower incomes may qualify for a higher grant match and can access $2,000 to initiate their child’s RESP via the Canada Learning Bond—all of which is free, with no fees or required contributions.
Given the rising costs of college and university, saving is critical. While students can apply for loans, eligibility often depends on household income, meaning a higher family income without prior savings doesn’t guarantee loan approval.
If you’re anxious about initiating an RESP and making investments, consider using a robo-advisor like Justwealth. Robo-advisors typically have low fees and automate investment strategies. You merely need to set up an account and select your child’s high school graduation year. The robo-advisor will handle investment and balancing accordingly. Signing up for Justwealth through my referral link grants you a $50 bonus.
Canadian Child Benefit
The Canadian Child Benefit helps alleviate the financial burden of raising children in Canada, offering up to $6,997 annually ($583.08 per month) for eligible children under six and up to $5,903 annually ($491.91 per month) for eligible children aged six to 17. This benefit primarily aims to assist lower-income families, and higher-income households might not qualify. While some consider this system inequitable, especially when faced with childcare and other costs, I personally support the existing structure. You can assess your eligibility using the child and family benefits calculator.
Food costs
Food costs for infants are relatively low, especially if breastfeeding; however, for those who need formula, a budget is necessary. As children mature into preschoolers, the monthly food budget might increase, though it typically won’t exceed $100. However, individual appetites vary. While my daughter is now six, I’m spending about $100 a month solely for her groceries. I have friends whose children consume twice that amount. Just imagine the grocery bills when they hit their teenage years!
Miscellaneous expenses
The previously mentioned costs provide a good overview of main expenses, but parents often forget about additional miscellaneous items that can accumulate. While you may not need to factor in all of these immediately, they are worth considering:
- Haircuts
- Clothing
- Sports gear
- Activity classes
- School-related fees (field trips, pizza lunches, etc.)
- Activity books
- Subscription services and apps
- Car seat
Final thoughts
Deciding to have a child is significant and should involve careful financial consideration. While many parents will funnel their savings into their kids, it’s crucial not to neglect personal retirement contributions. Although estimating the average yearly child-rearing cost can be helpful, the actual expenses may always remain unpredictable. Dual-income families often navigate these costs more effectively than single-parent households, but being a married couple doesn’t necessarily simplify child-rearing.