Women taking out loans to cover maternity leave as furlough sets them back two years
It takes more than two years for women to recover financially after maternity leave and take out loans to make up for lost income during the period, according to a new report.
Around one in four women go into debt, taking out loans of £2,800 to cover maternity leave.
Meanwhile, 23% are convinced that they will never return to the financial situation they were in before giving birth.
Women are going into debt to cover their maternity leave as the cost of living crisis puts additional pressure on new parents.
The cost of living crisis is undoubtedly having an impact on borrowing levels for new parents.
The study, conducted by Credit Karma, found that loans are used to pay for essentials like groceries (42%), bills (32%), and baby clothes and supplies (26%).
On average, women are now carrying £560 more in debt than four years ago when a similar study was carried out.
Akansha Nath, Head of Partnerships at Credit Karma UK, said: “Women are often financially disadvantaged throughout their lives, and the responsibility of giving birth plays a huge part in this gender disparity.
“At a time when the cost of living affects most people and every penny counts, it’s more important than ever that women take advantage of any support available to them.”
Financial hardship resulting from maternity leave is also often compounded by interest accrued on student loans while they are unable to work.
A new mother racks up an average of £1,770 in interest on her loan in just six months off if she has a student loan.
Stuart Walton, financial planner at Charles Stanley, said: “I’m not surprised. [the rise in maternity debt]especially with the current cost of living.
“Essential living costs have increased over the last year or so.”
Expectant parents should start planning as early as possible to ensure they have financial security when starting or expanding their family.
Annabelle Williams, personal finance specialist at Nutmeg and author of Why Women Are Poorer Than Men And What We Can Do About It, agrees to point out that the two years of the pandemic have been worse financially for women than for men, the majority of those on leave being women.
In the UK, employees can legally take up to 52 weeks of maternity leave and can be paid for up to 39 weeks.
For the first 6 weeks, women on maternity leave can take home 90% of their Average Weekly Earnings (AWE) before tax and £156.66 or 90% of their AWE, whichever is lower, for 33 weeks left.
In addition, two-thirds of UK organizations offer enhanced maternity pay if employees have been with the company for a minimum of time, according to the charity Pregnant Then Screwed.
These policies offer more money than the statutory rates and are worth looking into.
The importance of planning
Walton says that ideally people should start financial planning for a baby “as early as possible”, but planning during pregnancy is “essential” if they haven’t had the chance before.
He suggests that expectant parents divide their expenses into basic expenses such as grocery bills, basic quality of life expenses including clothing and phone bills, and non-essential expenses such as vacations and entertainment.
Nath suggests a few tips for those looking to secure their finances before going on maternity leave, including moving your money around to ensure you’re making the most of available banking and savings offers, as well as: consolidating debts and checking your credit score if you think you need to borrow while on leave.
When planning ahead, Walton says it’s a good idea to talk to friends and family to find out how they handled their finances when they had a baby, and if there were any something they wish they had known before or done differently.
Additionally, he advises people to build an emergency cash fund for unexpected expenses with enough money to cover three to six months of expenses if possible.
They should also talk to their employers about the support and benefits available to new families, alongside government programs such as National Insurance Credits.
According to the Trades Union Congress, childcare costs have risen by £2,000 a year over the past decade.
Child care and return to work
Even after maternity leave, 44% of women report working fewer hours than they would like because it doesn’t make financial sense to work longer with childcare costs.
On Monday it was revealed childcare costs had risen by more than £2,000 in a decade, with Trades Union Congress figures showing childcare costs for children under two had risen by 185 £ per month since 2010.
According to the OECD, the UK has the second highest cost of childcare among developed countries.
Williams advises parents not to rule out childcare options until they have fully calculated the number of hours they need.
“In an ideal world, it would be which child care option is best for the child,” she says. “But really, it has to be a trade-off between what’s affordable and what’s best for the child.”
Help is available in the form of up to 30 hours of free childcare, but this usually only kicks in after the age of three.
There is also the zero-rated childcare option where an online account can be created in conjunction with the 30 hours above.
For every £8 paid into this account, the government will contribute £2 to be used to pay the childcare provider.
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