Financing your maternity leave

When the Galvins started planning for their first child, they also started saving. “We sat down and figured out our costs over the year, taking into account my loss of income, our regular expenses and additional baby costs. We both put money aside every month to save up to for the time I would be off,” Janet Galvin said. As a commercial banker, creating a thorough budget and sticking to it only made sense.

Janet is the higher-income earner in the family, but she didn’t want that to stop her from taking a full year of maternity leave. The Galvins began putting away about $200 a month when they made the decision to have a baby, then doubled it when they finally conceived. By the time the baby arrived, the couple had saved $8,500.

Now into her seventh month of mat leave, Janet says the finances are still on track but admits it’s more expensive than she expected. “I thought I was going to be able to breastfeed longer,” she said. “I didn’t factor in the cost of formula.”

Initially, the Galvins had budgeted $150 a month for baby-related expenses but quickly realized they were spending three times that on their bundle of joy. Here’s their average monthly cost breakdown:

Formula – $175
Diapers – $50
Wipes – $10
Clothing – $40
Activities – $100
Additional food costs – $30
Toys – $25
Misc. (medicine, toiletries, etc.) – $20
Total: $450 per month

To make up the shortfall, the Galvins reallocated money from other areas. They put less into their emergency saving fund and renegotiated their cable and phone packages. “We don’t go out anymore,” Janet said flippantly.

Other than fewer nights out on the town, the Galvins’ standard of living hasn’t changed dramatically. Most Canadians hope for a similar experience, according to a recent TD survey. The poll found 72% of respondents expect to use savings to start a family and plan for a year-long parental leave, compared to 28% who would have to rely solely on other sources like the generosity of family or friends, loans or credit cards. Forty-six per cent of those surveyed said they would be comfortable taking on debt to finance their new family.

Nurse and single-mother Maria Thompson intended to fund a full mat leave with savings but came up short.

Despite saving almost $5,000 during her pregnancy, Thompson reluctantly had to relocate 500 kilometres and move back in with her parents about seven months into her mat leave. She also returned to work four-and-a-half months earlier than planned.

“Really, it was okay until my top up ended. What I got from the government didn’t even pay my rent or bills,” she said.

Mothers can receive up to 50 weeks of government benefits if their income has been reduced by at least 40% after having a baby. Fifteen weeks of that is employment insurance (EI) maternity benefits and 35 weeks is EI parental benefits, which either parent is eligible for.

For 2012, the maximum weekly benefit is $485. Benefits are calculated based on income. The basic rate is 55% of weekly earnings, up to a maximum of $45,900. All benefits paid are taxable.

The Galvins and Thompson received the maximum benefits plus an additional top ups from their employers. Janet was topped up to 95% of her gross salary for six weeks and Thompson received the equivalent of 90% of her salary for six months. Employer top up programs are voluntary and those that do offer them can often offer much less.

Both mothers suggest expectant parents start saving early and plan for the unexpected. Janet said she and her husband are willing to take on debt “within reason” if means her not going back to work early. Thompson said she does have a line of credit she could have dipped into had she not been able to get family support, but she wasn’t willing to take on debt to stay off work longer.

“I think people are getting smarter about these things, said Lee Helkie, a certified financial planner, Advocis member and head of Helkie Financial and Insurances Services Inc. “Relying on EI is a big step down for most people.” Helkie says both families did the “absolute right thing” by saving early.

Online tools and calculators, like this one from babycenter.com, can help determine the upfront, monthly and long-term costs of a baby.

Helkie also suggests implementing your mat leave budget early by living off a reduced income even before the baby arrives.

Anyone who is planning a family should get serious about their finances, Helkie said. “I think people are getting better but they probably don’t plan as well as they should. It’s hard to explain what it’s going to be like before it happens to them.”—by April Scott-Clarke

April Scott-Clarke is the associate web editor at Benefits Canada.

TD Bank Group commissioned Environics Research Group to conduct an online omnibus survey of 1,022 Canadians 18 years of age or older.  Responses were collected between Jan. 23 and 27, 2012.

For more information on governmental parental benefits visit the Service Canada website.

*Some of the names of people profiled in this story have been changed to protect their privacy.