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Three in five families take on debt during maternity leave

With new rules around shared parental leave coming into effect on April 5th new research shows households take on debt to cope with the drop in income


New research from uSwitch has found that three in five families take on debt of £2,021 on average to cope with the drop in income as a result of taking maternity leave. The research found:

  • Household incomes drop 30% to £2,181 on average during maternity leave – £537 less than the recommended household minimum
  • Three in five (58%) families take on debt – an average of £2,012 – while on maternity leave to cope with the drop in income
  • One in two mothers (50%) go back to work as they can’t afford to stay at home, with 14% returning to pay their debts off
  • More than a quarter of families (28%) have children later than they planned. One in six (18%) say this was because they could not afford children sooner

Shared parental leave

The research comes just as the government’s Shared Parental Leave laws are due to come into effect on April 5th.

The new law means working parents with babies born on or after April 5th can apply to share up to 50 weeks of maternity leave.

But while the new legislation is aimed at offering parents more flexibility when it comes to raising children, the research shows that the changes will do little to help the many parents struggling to cope financially during maternity leave.

Commenting on the research Ann Robinson, Director of Consumer Policy at uSwitch, said: “The impact on household income will be a key consideration for parents thinking about applying for shared parental leave.

“Our research shows that the drop in income maternity leave can be crippling for families. The new legislation has the potential to alleviate some of the difficulties, but parents will need to carefully weigh up the financial implications.

What families can do

Besides cutting costs families have two main possibilities when preparing for a child: maximising their existing savings and making sure they have access to good-value short term debt if they need it.

Ann Robinson says: “Families can help themselves by taking a good look at their own household budget to see where it’s possible to cut costs, no matter how small.

“Starting to put money aside as soon as possible is the best course of action – whether this is cutting back on coffees or the cost of household bills. Turning to short-term debt solutions may seem an efficient way to fund spending, but they can also lead to long-term debt if not managed properly.

Maximise your savings

Making the most of your savings s is a natural starting point for most families, but finding a decent interest rate seems to be getting harder and harder.

In fact, recent research suggests that despite their tax-free status ISAs currently offer poor returns in comparison to some savings accounts. The following table shows interest earned on the full £15,000 ISA allowance, where you’re almost always better off with a current account:

Savings account AER Gross interest Interest earned (20p tax rate) Interest earned (40p tax rate) Interest earned (45p tax rate)
Post Office Easy Access ISA with 1.5% AER 1.5% £225 £225 £225 £225
Nationwide FlexDirect 5%* £125 £100 £75 £68.50
Santander 123 Account 3%** £450 £336 £246 £223.50
TSB Classic Plus 5%*** £100 £80 £60 £55

Want to look at all high interest savings accounts? Take a look at our high-interest accounts tables.

* up to £2,500, 0% on everything above £2,500 ** above £3,000, up to £20,000 ***up to £2,000, 0% on everything above £2,000

Short-term debt

There are three main forms of short-term debt depending on how often you need to borrow, and how much.

Overdraft – The most basic form is an overdraft – ideal for small amounts but they can get expensive if you exceed your limit. Some accounts like the Nationwide FlexDirect account offer a fee-free overdraft as standard.

Credit cards – For slightly higher amounts, typically up to a few thousand pounds, credit cards like 0% purchase cards offer you the ability to pay no interest for up to 23 months, like the Santander 123 Credit Card Mastercard.

Of course potential debtors should take care to meet all their minimum monthly repayments or they may be charged interest, they should also plan to clear the balance before the 0% period expires to avoid hefty interest charges.

Alternatively, for those who already have credit card debt, make sure you reduce your interest payments with a balance transfer card. The 36-month Barclaycard Platinum provides 3 years 0% interest on transfers.

Personal loans – For larger amounts over £2,000 a personal loan is often the cheapest option in the long term – but if you go down this route make sure to budget for the monthly repayments.

  • Pete

    Wind farm subsidies are not tax payer funded, which would be the fair way to do it, but are in fact consumer funded.

    Also there is no reason to believe fracking in the UK will lower Gas prices so long as we are connected to the world gas market. Which we are. And will be. Neither will Fracking be ready in time to have any great impact by 2015. So no.