Young & Invested: Can millennials afford to have children?
The cost of living crisis raises an important question about the future of Australia.
I am 25 and currently at the beginning of what I hope to be a long and rewarding career.
The idea of financially preparing for children rarely crosses my mind, however many of my peers have now begun their path to parenthood. On the other hand, my weekly financial decisions typically comprise of whether to buy another concert ticket (perks of moving to Sydney) or simply pour more into my investment account. But what if I wanted to start planning for children? Would this be a financially viable goal for someone in my age bracket? That is exactly what I’ll be exploring today.
Fertility on the decline
In 2023, the total fertility rate for Australia was 1.50, the largest annual decline recorded since 1970 when the contraceptive pill was introduced.
It’s hard to attribute this entirely to cost of living pressures. Increased education and workforce participation among women as well as widespread contraceptive measures and a change in traditional gender roles have all had an effect. A study from University College London found that climate crisis related concerns also heavily affected reproductive decision making.
Steering course from holistic considerations, the data points above show a decline from 2020 onwards which roughly correlates with the same period where cost of living pressure noticeably began to arise in Australia.
No baby bonus in sight
Australia’s birth rates have been on the decline over the past few decades.
The demographic of the country is undoubtably changing. I addressed this in a previous article where I wrote about the aging population and how an investor can benefit from this megatrend.
Gone are the days of the early 2000’s ‘Baby Bonus’, popularised by then-treasurer Peter Costello, in an attempt to curb the dwindling number of young Aussies having children. It is now 2025 and we are well below the fertility rate the government was scratching their heads at 20 years ago.
The ‘Baby Bonus’ scheme was introduced to lighten the financial burden on new parents through a refundable tax offset. This scheme later morphed into the Newborn Upfront Payment and Newborn Supplement in 2014 (a considerably smaller amount subject to individual circumstances).
Since then, governments have done little to address the changing demographics despite warnings about the detrimental economic impacts of lower birth rates. Most recently, Treasurer Jim Chalmers, reinforced his opposition to provide direct financial stimulus in response to calls for a revived Baby Bonus-type incentive.
Having children is a major personal decision which can significantly affect the trajectory of wealth over your lifetime. We can’t all birth the next Bill Gates nor rely on children as a retirement plan as our predecessors did.
Was it easier for the older generation?
There seems to be a tension between the younger generation and their wealthier baby boomer counterparts. This stems from the perception that whilst there has been significant social progress, younger generations now have a harder time financially than the older generation did.
But is this true?
In most measures – yes.
Take property ownership as an example. The decline in home ownership rates surprisingly has little to do with your Sunday avo toast indulgence.
Let’s use average income as a comparative measure. When considering income, taking the median is generally a more accurate depiction of the wealth spread, however most historical income data is only available in average measures.
Income has naturally increased with time, as current Australian Bureau of Statistics data shows the average Aussie income to be around $98k annually. In comparison, the average income in 1984 was ~$19k. These numbers don’t mean much in isolation besides reflecting the impact of inflation over time. The wage growth looks less impressive if we compare the cost of property.
Young Australians entering the property market are now faced with an eyewatering $1 million price tag on the average home. A glance at historical house prices finds that the average property in 1984 was $64k. Despite interest rates being much higher in the 80s, the annual income to house price ratio of ~3.5x is modest compared to today’s figure of 10.2x.
This has implications for younger generations looking to purchase a home before having children. The higher home loan and deposit requirements mean that they are required to allocate more towards a home savings fund before considering the financial viability of having children.
Student debt levels were also considerably lower with the Whitlam Government abolishing university fees in 1974 which lasted till 1986. In contrast, the recent higher education fee hikes have resulted in young individuals forced to take on considerably more debt in a future job market where there is arguably no choice but to attain a degree.
While the above factors aren’t directly connected to the goal of parenthood, it does indicate the hardships facing young Australians wishing to start a family. It is now much more difficult to ‘have it all’ as the Australian dream falls into the abyss for many.
Disproportionate impacts
Parenthood undoubtedly has a financial effect on the family unit, but often this is more detrimental to mothers who spend less time in paid work across their lifetime than men and childless women. Childbirth has long-reaching consequences for income, career progression, overall lifetime earnings, and superannuation contributions for women. The Department of the Prime Minister and Cabinet found that the average 25-year old woman today who has a child can expect to make $2 million less in lifetime earnings compared to the average man of the same age who also becomes a parent.
A study was conducted about family dynamics in 1980s vs now by the Australian Institiue of Family Studies. This found that family employment patterns had shifted over recent decades, with labour force participation rates for women after birth having increased. The chart below compares labour force participation rates of women and men with each line representing a decade.
This chart illustrates the number of women dropping out of the labour force at the typical childbearing age (24-34 years) has decreased over time. Flexible working arrangements and increased availability of childcare have certainly contributed to these changes. However, it is important to note that financial context also has an impact. The number of dual income families in Australia has risen, with a notably steep increase for coupled families with children aged under 14, in the years following the covid pandemic. The choice to become a dual income household has undoubtably been influenced by the increased cost of living, which has been eroding the financial viability of staying a single-income household.
Like all financial decisions, it is important to plan and research beforehand. Shani Jayamanne recently wrote a great article on how to financially prepare for parenthood with professional money coach Betsy Westcott.
So, can you afford to have children?
To find the answer to this I decided to run through a simple model on what it would look like to have children for the average Aussie family in current conditions.
Here is what I found.
Family units have unique characteristics and demographic compositions. For this exercise, we are considering the most standard structure. Canstar broke down ABS data to show the median annual income by age category for fulltime workers.
The average age of women giving birth in Australia is approximately 31 years old. If we take the median combined income for a male and female between the ages of 25 – 34, that gives us a median household pretax income of $161k. Using the ATO’s simple tax calculator, this comes out to approximately $128k post tax.
Let us assume that this couple also has recently bought a live-in property in a capital city at the approximate median house price of $900,000 with a 20% deposit, 30-year loan term and interest rate of 6.44% (NAB base variable rate home loan).
This results in monthly repayments of $4.5k reflecting an annual ~$54k mortgage bill which is 34% of the couple’s pre-tax income (disregarding other property ownership related charges). This is broadly in line with most financial advice that suggests mortgage/rental payments should reflect 30% of pre-tax income.
Data from Numbeo, the world’s largest cost of living database, found that the median monthly living expenses (excluding rent or mortgage) were approximately $1.6k per person which we can calculate to $3.2k for a couple. This reflects an annual spend of ~$39k on expenses. Subtracting the annualised mortgage and expenses figure from the post tax-income of a dual-person household results in $36k left over for savings and investments. The standard rule of thumb among financial advisers is to save and/or invest 20% of post-tax income which works out to $25k leaving approximately $9k for discretionary spending.
The total cost of having children is difficult to estimate with figures ranging between $100k to $300k until the age of 18 depending on lifestyle factors. A survey by Canstar Blue found that the average annual cost of raising a child amounts to $12.9k a year, reflecting ~$218k till the age of 18. For simplicity this evaluation disregards any pre-birth costs. With an approximate $9k in residual funds subtracted by the estimated cost of a child, the median couple ends up net negative for the year.
What we can conclude from this is that it is not financially viable for the median millennial couple to have a child without giving something up. To have the 2.2 children that represents the population replacement rate requires significant sacrifices.
Looking at this model you could argue that the level of savings and investments could be adjusted to help fund the cost of a child. In an attempt to quantify what this could forgo; I took $3600 from the savings/investment allocation to put towards the yearly cost of a child (which currently leaves the couple in net negative) and projected out the financial opportunity cost of this.
At an inflation rate of 2.5% and return of 8%, the couple is forgoing approximately $14.3k, or 14% of their future portfolio ($102k) assuming income (therefore savings/investment contributions) remain the same for 18 years.
Of course, this is a simplistic take on several assumptions that may change over time. The aim of this exercise was to simply illustrates the feasibility of having children at a set point in time.
At the median level of income, it is achievable to afford a child if you dip below the recommended savings/investing allocation, however that ultimately comes at the cost of your future wealth. However, it would be narrow-minded to have this conversation based purely on the financial aspects of having a child. Whilst such a decision is closely tied to your finances over a lifetime, there is also an unquantifiable benefit to having children that may negate the financial opportunity cost I have presented above – but that is largely a personal decision.
Ultimately, it is important to have a conversation about the financial impacts of having children on future cash flows as well as how your goals influence this decision.
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Previous Young & Invested columns:
- Young & Invested: Is University still worth it?
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